Financial+Ratio+Analysis+with+New+Graphics+Powepoint+Template

# Financial+Ratio+Analysis+with+New+Graphics+Powepoint+Template

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Financial Analysis Professor Dixon From Lectures developed by Ted Chadwick and Peter Arnold

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Ratios and Financial Analysis Ratios are a tool for measuring business performance. Performance should be measured against the goals the firm is pursuing Ratios do not measure risk, shareholder value, or options very well…which are the MOST important attributes of any strategy, from a financial perspective
Ratios Ratios can be used to get a clear picture of : liquidity problems profitability problems financial leverage Typically, we compare a ratio to the recent past, and to an outside standard, such as an industry average, or the competitors’ performance on the same ratio.

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Ratios tell a story It is dangerous to draw conclusions from one ratio. It is the pattern of many ratios which tells the story….the most famous example of this is the DuPont Identity. ROE = ROS x ATO x equity multiplier = ROS x ATO x EM
The DuPont Formula Net income = net income x sales x assets equity sales assets equity ROE = ROS x ATO x EM ROE can be “decomposed” into three parts: – Return on Sales, the story of profit margins – Asset Turnover, the story of operating efficiency – Financial Leverage, the use of debt to finance activities Often, the DuPont Identity is described as ROE = ROA (net income/assets) x EM (assets/equity) The decomposition into three parts is generally more revealing.

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The ROA DuPont Model = ROS x ATO
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Financial+Ratio+Analysis+with+New+Graphics+Powepoint+Template

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