lecture 09 - Business Finance Lecture 9 Review of the...

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47 Business Finance Lecture 9 Review of the Previous Lecture ± Financial Statements Analysis ± Common Size Analysis ± Ratio Analysis ± Short-term solvency, or liquidity, ratios ² Current ratio ² Acid Test (Quick) ratio ² Cash ratio Topics Under Discussion ± Ratio Analysis (cont.) ± Long-term solvency, or financial leverage, ratios ± Total Debt ratio ± Interest Coverage ratio ± Cash Coverage Ratio ± Asset management, or turnover, ratios ± Inventory Turnover & Days’ Sale in Inventory ± Receivables Turnover & Average Collection Period ± Payables Turnover ± Total Assets Turnover & Capital Intensity Ratio ± Profitability ratios ± Profit Margin ± Return on Assets ± Return on Equity A2Z Inc., Balance Sheet A2Z Inc. Balance Sheet as of December 31 ($ in millions) Assets 20X1 20X2 Current Assets Cash $ 84 $ 98 Accounts receivable 165 188 Inventory 393 422 Total $ 642 $708 Fixed assets Net plant and equipment 2,731 2,880 Total assets $3,373 $3,588 A2Z Inc., Balance Sheet Liabilities and equity 20X1 20X2 Current liabilities Accounts payable $ 312 $ 344 Notes payable 231 196 Total $ 543 $ 540 Long-term debt 531 457
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48 Stockholders’ equity Common stock and paid-in surplus 500 550 Retained earnings 1,799 2,041 Total $2,299 $2,591 Total liabilities and equity $3,373 $3,588 A2Z Inc., Income Statement For the Year 20X2 ($ in millions) Net sales $2,311 Cost of goods sold 1,344 Depreciation 276 Earnings before interest and taxes $ 691 Interest 141 Taxable income 550 T a x e s 1 8 7 Net income $ 363 Dividends $121 Retained earnings 242 Current Ratio Current Events ± Suppose a firm buys some inventory. What would happen in this case? ± Nothing happens to current ratio. Because in this scenario, one current asset (cash) goes down while another current asset (inventory) goes up. Total current assets are unaffected. Current Ratio
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lecture 09 - Business Finance Lecture 9 Review of the...

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