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ch14 - Investment Analysis Chapter 14 Financial Statement...

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Investment Analysis Chapter 14 Financial Statement Analysis I. The major financial statements a. Income statement b. Balance sheet c. Statement of cash flows II. Accounting vs. economic earnings a. Affected by inventory methods, depreciation, etc. III. Profitability measures a. ROE= NI/average equity b. ROA = EBIT/ average assets c. Decomposition of ROE i. DuPont analysis = Net profit/pretax profit x pretax profit/EBIT x EBIT/sales x sales/assets x assets/equity ii. Profit margin = EBIT/sales iii. Total asset turnover = sales/assets iv. Average interest rate = EBIT – interest expense/EBIT v. Interest coverage ratio = EBIT/interest expense d. Turnover and other asset utilization ratios i. Fixed asset turnover = sales/fixed assets ii. Inventory turnover = COGS/average inventory iii. Days receivables = average receivables/sales x 365 e. Liquidity ratios i. Current: current assets/current liabilities ii. Quick: current assets – inventory/current liabilities iii. Cash: cash + marketable securities/current liabilities f. Market price ratios i.
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