393_lecture3

393_lecture3 - Ratio Analysis Lecture 3 Myung Joo Song ECON...

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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 Short-term solvency or liquidity ratios Long-term 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 Long-term Solvency Ratios Total Debt =(TA-TE) Total Debt Ratio = TD / TA (5,394 - 2,556) / 5,394 = 52.61%(5,394 - 2,556) / 5,394 = 52....
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393_lecture3 - Ratio Analysis Lecture 3 Myung Joo Song ECON...

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