Context feasibility phases context project concept

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Unformatted text preview: h Flow To corporate treasurer: subject to corporate policy on dividend Directly to the investor Cost of Project Financing None High due to setting up cost Capital Cost Company’s track record High Due to no history Oversight by the Sponsors None Very Demanding Analysis of Financial Performance Performance Strategic Objectives (Long Run) Financial Objectives (Short Run) •Market Share •Growth Rate •Market Leadership •Technology Leadership •Return on Investment (ROI) •Return on Equity (ROE) •Return on Asset (ROA) Project Decision •Does the project make financial sense? •Is the project within the overall strategic framework of the company? •If there is a clash between the objectives, has financial evaluation correctly taken all the costs and benefits into account? Financial Ratios Financial Profitability Ratios Profitability Liquidity Ratios Liquidity Debt Ratios Debt Activity Ratios Activity Leverage Ratios Leverage Summary of Financial Ratios Summary Profitability Ratios Liquidity Ratio Activity Ratios Gross Point Margin An indication of margin available to cover operating expenses and yield profit (Sales – Cost of Goods Sold) /Sales Current Ratio Indicates the extent to which the claims of short term creditors are covered by assets that are expected to be converted to cash in a period roughly corresponding to the maturity of liabilities Current Assets/Current Liabilities Inventory Turnover When compared to industry averages, it provides an indication of whether a company has excessive/inadequate finished good invent. Sales/Inventory of finished goods Operating Profit Margin An indication of firms profitability from current operations without regard to interest changes accounting from capital structure Profit Before Tax and Interest/Sales Quick Ratio (Acid Ratio) A Measure of firms ability to pay off short term obligations without relying on the sale of its inventory (Current Asset-Inventory/Current Liability) Fixed Asset Turnover A Measure of sales productivity and utilization of plant and equipment Sales/Fix Assets Net Profit Margin Shows after tax profit per dollar of sales. Subpart profit margin indicates that the firm sales prices are relatively low or that costs are relatively high or both Profit After Tax/Sales Inventory to Newt Working Capital A measure of the extend to which the firm’s working capital ties up in inventory Inventory/(Current Assets- Current liabilities) Total Assets Turnover A measure of utilization of all firm’s assets ratio below the industry average indicates the company is not generating a sufficient volume of business, given its asset size Sales/Total Asset Return to Total Asset A Measure of total investment in the enterprise. It is sometimes desirable to add interest to alter tax profits to add form the numerator of the ratio since the total assets are financed by creditors as well as by stockholders; hence it is accurate to measure the productivity of assets by the returns provided to both classes of investors Profit After Tax/Total Assets LEVERAGE RATIOS Debt to Asset Ratio Measures the extend to which borrowed funds have been used to finance the firm’s operation Total Debt/Total Equity Account Receivable Turnover A Measure of the average length of time it takes the firm to collect the sale it made on credit Annual Credit Sale/Account Receivable OTHER RATIOS Summary of Financial Ratios Profitability Ratios Liquidity Ratios Activity Ratios Return on Stockholders Equity A measure of the rate of return on stockholders investment in the enterprises Profit After Tax Total Stockholders Equity – Par Value Pref. Stock) Debt Equity Ratio Provides measure of the funds provided by creditors and equity in the firm’s long term capital structure Long Term Debt/Total Shareholders Dividend Yield on Common Stock Measure of returns to owners received in dividends Annual Dividend per share/Current Market Price Return on Common Equity A measure of the rate of return on investment which the owners of the common stock have made in the enterprise (Profit After tax-Preferred Stock dividends) [Tot. Stockholders Equity-par value Pref. Stock] Long Term Debt to Equity Ratio A widely used measure of balance between debt and equity in the firm’s long term capital structure Long Term Debt/Total Shareholders Price Earnings Ratio Faster growing or less-risky firms tend to have higher P/E than slower growing or risky firms Current Market Price/After tax Earning per share Earning Per Share Shows the earnings available to the owners of each share of common stock (Profit After tax-Preferred Stock dividends) Number of Common Stocks Outstanding Time Interest-Earned Ratio Measured the extent to which earnings can decline without the firm becoming unable to meet its annual costs . Profit Before Interest and Taxes/ Total Interest Dividend Payout Ratio Percentage of profits as dividends Annual Dividends share/After tax Earning share Fixed Cost Coverage A more inclusive indication of the firm...
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This note was uploaded on 07/25/2012 for the course ECON 111 taught by Professor King during the Spring '12 term at CSU Bakersfield.

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