Appendix - of the firm. Profit Margin = Net Income Sales...

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More on Ratios Appendix 1
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Liquidity Ratios Measures the firm’s ability to pay bills in the short-term. Important to short-term creditors (e.g. banks, suppliers). Current Ratio = Current Assets ÷ Current Liabilities Quick Ratio = Current Assets - Inventory ÷ Current Liabilities 2
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Leverage Ratios Measures the firm’s ability to pay long-term obligations. Important to long-term creditors (e.g. banks, bondholders). Total Debt Ratio = Total Liabilities ÷ Total Assets Debt-Equity Ratio = Total Liabilities ÷ Total Equity 3
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Turnover Ratios Measures how efficiently the firm is using assets to generate revenues. Inventory Turnover = Cost of Goods Sold ÷ Inventory Days Inventory = 365 Days ÷ Inventory Turnover 4
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Profitability Ratios Measures how profitable are the activities
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Unformatted text preview: of the firm. Profit Margin = Net Income Sales Return on Assets (ROA) = Net Income Total Assets 5 Market Value Ratios Measures market value indices for publicly traded companies. Important to the investment community and credit markets Earnings Per Share (EPS) = Net Income Shares Outstanding 6 ROE and Du Pont Analysis The difference between ROA and ROE is the use of financial leverage. ROE can be decomposed into its component parts to identify sources of strengths and weaknesses, as follows: 7 Tax Burden Interest Burden Profit Margin Asset Turnover Leverage...
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Appendix - of the firm. Profit Margin = Net Income Sales...

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