Financial standardized statements statements common

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Unformatted text preview: tatements make it easier to compare Standardized financial information, particularly as the company grows financial They are also useful for comparing companies of different They sizes, particularly within the same industry sizes, 9 Ratio Analysis Ratios also allow for better comparison through Ratios time or between companies time As we look at each ratio, ask yourself what the As ratio is trying to measure and why that information is important information Ratios are used both internally and externally 10 Categories of Financial Ratios Short-term solvency or liquidity ratios Long-term solvency or financial leverage Long-term ratios ratios Asset management or turnover ratios Profitability ratios Market value ratios 11 Computing Liquidity Ratios Current Ratio = CA / CL Quick Ratio = (CA – Inventory) / CL 696 / 1,995 = .35 times NWC to Total Assets = NWC / TA (2,256 – 301) / 1,995 = .98 times Cash Ratio = Cash / CL 2,256 / 1,995 = 1.13 times (2,256 – 1,995) / 5,394 = .05 Interval Measure = CA / average daily Interval operating costs operating 2,256 / ((2,006 + 1,740)/365) = 219.8 days 12 Computing Long-term Solvency Computing Ratios Ratios Total Debt Ratio = (TA – TE) / TA Debt/Equity = TD / TE (5,394 – 2,556) / 2,556 = 1.11 times Equity Multiplier = TA / TE = 1 + D/E (5,394 – 2,556) / 5,394 = 52.61% 1 + 1.11 = 2.11 Long-term debt ratio = LTD / (LTD + TE) 843 / (843 + 2,556) = 24.80% 13 Computing Coverage Ratios Times Interest Earned = EBIT / Interest 1,138 / 7 = 162.57 times Cash Coverage = (EBIT + Depreciation) / Cash Interest Interest (1,138 + 116) / 7 = 179.14 times 14 Computing Inventory Ratios Inventory Turnover = Cost of Goods Sold / Inventory Inventory Inventory 2,006 / 301 = 6.66 times Days’ Sales in Inventory = 365 / Inventory Days’ Turnover Turnover 365 / 6.66 = 55 days 15 Computing Receivables Ratios Receivables Turnover = Sales / Accounts Receivables Receivable Receivable 5,000 / 956 = 5.23 times Days’ Sales in Receivables = 365 / Days’ Receivables Turnover Receivables 365 / 5.23 = 70 days 16 Computing Total Asset Turnover Total Asset Turnover = Sales / Total Assets NWC Turnover = Sales / NWC 5,000 / 5,394 = .93 It is not unusual for TAT < 1, especially if a firm has a It large amount of fixed assets large 5,000 / (2,256 – 1,995) = 19.16 times Fixed Asset Turnover = Sales / NFA 5,000 / 3,138 = 1.59 times 17 Computing Profitability Computing Measures Measures Profit Margin = Net Income / Sales 689 / 5,000 = 13.78% Return on Assets (ROA) = Net Income / Return Total Assets Total 689 / 5,394 = 12.77% Return on Equity (ROE) = Net Income / Return Total Equity Total 689 / 2,556 = 26.96% 18 Computing Market Value Computing Measures Measures Market Price = $87.65 per share Shares outstanding = 190.9 million PE Ratio = Price per share / Earnings per PE share share 87.65 / 3.61 = 24.28 times Market-to-book ratio = market value per Market-to-book share / book value per share share 87.65 / (2,556 / 190.9) = 6.55 times 19 Deriving...
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