Notes 17

Notes 17 - If we can’t increase asset turns maybe we...

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Financial Statement Analysis Groups of ratios: o Liquidity o Efficiency o Profitability, etc. Common-size example: Xerox o Good that their inventory is shrinking o Why is A/R increasing? o Their debt is much higher than their equity Profitability ratios: o Most important to use are: Gross margin Operating margin Net profit margin ROE ROA o ROA: Net Margin x asset turnover Which is reason for decrease in ROA? o ROE: ROA x financial leverage Efficiency ratios: o Most important are: Asset turnovers (receivables, inventory, fixed assets, total assets) Payable turnover
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Cash operating cycle o Ex. question: Why did asset turns do better in 2007? B/c of improvement in inventory and fixed asset turns o If ROA is so crucial shouldn’t co. plan strategy around that?
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Unformatted text preview: If we can’t increase asset turns, maybe we should focus on increasing profit margin • Financial leverage ratios: o Liquidity: Current ratio Quick ratio Net trade cycle o Debt financing and coverage: Want at least 1 of first 3 on PP (debt vs. equity) Times interest earned • If debt is troubling, and this is small, co. could be close to bankruptcy Fixed charge coverage • Do fixed assets eat up profit? • Operating leases a concern • Market measures: o Need to know first 3 (P/E ratio is first divided by second) o Last 2 only important if co. pays dividends o How has CAGR of stock returns for co. compared to rest of market (i.e. S&P 500)?...
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This note was uploaded on 06/10/2011 for the course BUSI 407 taught by Professor Bowen during the Spring '11 term at UNC.

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Notes 17 - If we can’t increase asset turns maybe we...

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