MGMT310_lecture4

MGMT310_lecture4 - Lecture Lecture4 Lasttimewediscussed.

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cture 4 Last time we discussed…. Lecture 4 How can we make informative comparisons? Common financial ratios (table 3.8, page 65) I. Short term solvency / liquidity ratios II. Long term solvency / financial leverage ratios III. Asset management / turnover ratios IV. Profitability ratios V. Market value ratios Du Pont Identity: ROE = NI/Sales × Sales / Assets × Assets / TotalEquity (Profit Margin) (Asset Turnover) (Equity Multiplier)
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Google snapshot on 1/22/2010 08/19/2004: Google stock opened at $100.00 2/31/2004 Gl tk ld t $192 79 ith P/E ti 93 135 12/31/2004: Google stock closed at $192.79, with P/E ratio 93.135
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Sample financial statements Publicly traded firms must file with the SEC and make their financial statements publicly available http://www.sec.gov/edgar/searchedgar/companysearch.html 10 K –prov ides annual snapshots E.g., Starbucks’ Form 10 K: http://www.sec.gov/Archives/edgar/data/829224/000095012309064772/v53316e10vk. htm 10 Q – provides quarterly snapshots E.g., Starbucks’ Form 10 Q: http://www.sec.gov/Archives/edgar/data/829224/000095012309029843/v52638e10vq. htm
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Financial planning Firm A is a restaurant chain in Indiana. It would like to expand to Illinois within the next five years. Some things Firm A needs to consider: 1. How much capital is needed for investment in new assets? 2. How should this expansion be financed (i.e., cash/debt/equity)? 3. How will this expansion affect net working capital needs? 4. What kind of sales/profit growth is expected? 5. How much is Firm A currently paying out in dividends, and how ould this change in accordance with Firm A’s growth? should this change in accordance with FirmAs growth? 6. Is this expansion feasible, taking into account Firm A’s other goals/constraints? (e.g., debt capacity, dividend policy, etc.)
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Let’s do a simple example together Recent (Actual) Financial Statements: come statement alance sheet Income statement Balance sheet Sales $1,000 Assets $500 Debt $200 Costs 900 Equity 300 EBIT 100 Total $500 $500 Interest 0 Taxable Income 100 Taxes (35%) 35 et Income 65 Note: For simplicity, let’s assume interest free debt Net Income $ 65 Sales are projected to rise by 20%. Let’s assume costs and assets grow at the same rate as sales, and that 50% of net income must always be paid out in dividends.
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This note was uploaded on 02/04/2011 for the course MGMT 310 taught by Professor Matthewjamesbarcaskey during the Spring '08 term at Purdue University.

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MGMT310_lecture4 - Lecture Lecture4 Lasttimewediscussed.

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