Ratios - Common-Size Statements What is it? A statement...

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Common-Size Statements What is it? A statement that presents all items in percentage terms. Balance sheet uses total assets as denominator, income statement uses total sales. Why is it useful? Internal use: performance measure, business planning External use: comparison to peers, credit decisions, investment decisions Sunday, January 17, 2010
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Ratios Liquidity measures (enough cash for the next year?) Long-term solvency measures (what is the leverage?) Asset management, turnover measures (how efFciently are resources used?) ProFtability measures (how good of an investment is it?) Market value measures (how does the company compare to peers?) Sunday, January 17, 2010
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3 3- Table 3.5 Price-sales ratio = Price per share / Sales per share Sunday, January 17, 2010
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4 3- Using the Du Pont Identity • ROE = PM * TAT * EM –Profit margin is a measure of the firm’s operating efficiency – how well does it control costs –Total asset turnover is a measure of the firm’s asset use efficiency – how well does it manage its assets –Equity multiplier is a measure of the firm’s
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This note was uploaded on 04/05/2011 for the course FIN 350 taught by Professor Debruinne during the Winter '11 term at Grand Valley State University.

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Ratios - Common-Size Statements What is it? A statement...

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