BFIN620_PPT_CH17_sp09-3

BFIN620_PPT_CH17_sp09-3 - 17- 1Financial Statement...

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Unformatted text preview: 17- 1Financial Statement AnalysisFinancial Statement AnalysisChapter 17Brealey-Myers-Marcus5thEditionBusiness Finance 62017- 2Topics CoveredCalculating and interpreting financial ratiosInterpreting ratios across firms in an industryInterpreting ratios for a firm over timeUsing the Du Pont System to investigate the forces shaping a firm’s return on assets (ROA) and return on equity (ROE).Appreciating the problems often faced by financial analysts and other users of financial ratio analysis17- 3Long-Term Leverage (Debt) Ratios➨To what extent does the firm use debt to finance its assets?➨How able is the firm to service its debt?Short-Term Liquidity Ratios➨How effectively can the firm meet its cash obligations as they come due?Asset Efficiency RatiosHow efficiently does the firm manage its operating assets?Profitability RatiosHow effectively does the firm manage expenses, returns to investors and distributions from earnings?Groups of Financial Ratios17- 4Leverage Ratios(related to the amount of debt outstanding)assetsTotalsliabilitieTotal=ratiodebtTotalEquity+debtterm-Longdebtterm-Long=ratiodebtterm-LongEquitydebtterm-Long=ratioequitytodebtterm-LongTo what extent does a firm use debt to finance assets?17- 5Leverage Ratios(related to cash flows associated with debt)paymentsInterestEBIT=earnedinterestTimespaymentsInterestonDepreciati+EBIT=ratiocoverageCashHow able is the firm to service its debt?Netinterest payments may be used in the times interest earned (TIE) ratio.17- 6Leverage RatiosPepsiCo 2004RatioPepsiCoTotal debt ratio0.52 = 14,415 / 27,987Long-term debt-equity ratio0.18 = 2,397 / 13,572Long-term debt ratio0.15= 2,397/ (2,397+13,572)Times interest earned34.2 = 5,713 / 167Cash coverage ratio41.8 = (5,713+1264) / 167See text table 17-3 for balance sheet statement numbers.See text table 17-1 for income statement numbers.17- 7Interpreting Leverage RatiosCan the firm meet its long-term obligations?...
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This note was uploaded on 10/10/2011 for the course BUSINESS 620 taught by Professor Paul during the Spring '11 term at Ohio State.

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BFIN620_PPT_CH17_sp09-3 - 17- 1Financial Statement...

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