Ratios - Instructions Ratio analysis Financial Data or...

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96794217017f2f87f84b9b6bc05cf0c6e6833011.xlsx Instructions Ratio analysis: Financial Data or Ratio Source of Data or Formula for Calculation Analysis Cash flows and liquidity: Cash from operating activities From statement of cash flows Should be + [- means problem(s) exist] Cash from investing activities From statement of cash flows Should be - Cash from financing activities From statement of cash flows Net change in Cash From statement of cash flows Should be + Current ratio Current assets / current liabilities Quick ratio Rule-of-thumb 1.00x Free cash flows Operating CF - capital expenditures Cash flow available Days to sell inventory 365 / inventory turnover The shorter the better Days to collect receivables 365 / AR turnover The shorter the better Days to pay payables 365 / AP turnover The longer the better Cash operating cycle Days to Sell + Collect - Pay Total asset turnover Net sales / total assets $ earned per $ committed Fixed asset turnover Net sales / fixed assets $ earned per $ of operating assets Earnings and profitability: Total revenue From income statement Higher, better Gross profit margin Gross profit / net sales Higher, better Operating profit margin Operating income / net sales Higher, better Net profit margin Net income / net sales Higher, better Return on assets Net income / total assets Higher, better Return on equity Net income / stockholders' equity Higher, better Cash flow per share Higher, better Cash flow per share Operating CF / average shares outstanding Higher, better DuPont Analysis: Net profit margin Net income / net sales Higher, better Total asset turnover Net sales / total assets Higher, better Return on assets Net profit margin X total asset turnover Higher, better Equity multiplier Total assets / total equity Higher, better If -, paying dividends, repaying debt, and/or repurchasing stock; If + borrowing funds and/or issuing shares [growing company]. Rule-of-thumb 2.00x, multinationals 0.90x; if > 4.00x probably not wise cash management. Cash + short-term investments + AR / current liabilities Shorter better, - says $ received before payment is due (Net income + depreciation) / average shares outstanding
96794217017f2f87f84b9b6bc05cf0c6e6833011.xlsx Instructions Return on equity Return on assets X equity multiplier Higher, better Break-even analysis: Break-even sales Fixed costs / CM% Lower, better Current sales From income statement Higher, better Margin of safety (Net sales - breakeven sales) / net sales Higher, better Leverage analysis: Degree of operating leverage Higher, better Degree of financial leverage Higher, better Degree of total leverage DOL X DFL Higher, better Capital structure and solvency: Debt ratio Total liabilities / total assets Lower, better Debt / equity Total liabilities / stockholders' equity Times interest earned Operating income / interest expense Higher, better Altman Z-score: A - working capital A = Working capital/total assets B - equity B = Retained earnings/total assets C - earnings C = Earnings before interest & tax/total assets D - market value D = Market value of equity/total liabilities E - revenue E = Sales/total assets Z score Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E Probability of default

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