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Unformatted text preview: Ratio Analysis Lecture 3 Myung Joo Song ECON 393 Fall 2011 Myung Joo Song (ECON 393) Ratio Analysis Fall 2011 1 / 22 Ratio Analysis Ratios allow for better comparison through time or between companies. For each ratio: What does the ratio measure? Why is the ratio important? Ratios are used both internally and externally Myung Joo Song (ECON 393) Ratio Analysis Fall 2011 2 / 22 Categories of Financial Ratios Shortterm solvency or liquidity ratios Longterm solvency or financial leverage ratios Asset management or turnover ratios Profitability ratios Market value ratios Myung Joo Song (ECON 393) Ratio Analysis Fall 2011 3 / 22 A Sample Balance Sheet Figure: in $ Millions Myung Joo Song (ECON 393) Ratio Analysis Fall 2011 4 / 22 A Sample Income Statement Figure: in $ Millions except EPS, DPS Myung Joo Song (ECON 393) Ratio Analysis Fall 2011 5 / 22 A Sample Statement of Cash Flows Figure: in $ Millions Myung Joo Song (ECON 393) Ratio Analysis Fall 2011 6 / 22 Computing Liquidity Ratios Current Ratio = CA / CL 2,256 / 1,995 = 1.13 times Quick Ratio = (CA  Inventory) / CL (2,256  301) / 1,995 = .98 times Cash Ratio = Cash / CL 696 / 1,995 = .35 times NWC to Total Assets = NWC / TA (2,256  1,995) / 5,394 = .05 Interval Measure = CA / average daily operating costs 2,256 / ((2,006 + 1,740)/365) = 219.8 days Myung Joo Song (ECON 393) Ratio Analysis Fall 2011 7 / 22 Computing Longterm Solvency Ratios Total Debt =(TATE) Total Debt Ratio = TD / TA (5,394  2,556) / 5,394 = 52.61%(5,394  2,556) / 5,394 = 52....
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 Spring '10
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