Chapter 3
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Author:
atcannon
ID:
300433
Filename:
Chapter 3
Updated:
2015-04-10 21:16:46
Tags:
Finance 315
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Description:
Financial Analysis
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financial ratio
used to weigh and evaluate the operating performance of the firm and judge comparative performance
profitability ratio 3
profit margin
return on assets (investment)
Return on equity
Asset utilization ratios 5
receivable turnover
average collection period
inventory turnover
fixed asset turnover
total asset turnover
liquidity ratio 2
current ratio
quick ratio
debt utilization ratios 3
debt to total assets
times interest earned
fixed charge coverage
profitability ratio
purpose
measure the ability of a firm to earn an adequate return on sales, total assets, and invested capital
ability to effectively employ its resources
asset utilization ratios
measure the speed at which a firm is turning overÂ receivables, inventory, and longer-term assets.
how fast collecting, selling, generating sales
liquidity ratios
measures the firm's ability to pay off short-term debt as they come due
debt utilization ratios
measures the overall debt position of the firm in light of its asset base and earning power
profit margin
equation
net income / sales
return on assets (investment)
equation
net income / total assets
return on equity
equation
net income / stockholder's equity
Du Pont system of analysis
return on assets (investment) =
profit margin * asset turnover
profit margin = net income / sales
asset turnover = sales / total assets
Du Pont formula
modified
return on equity =
return on assets (invest) * (1- debtÂ / assets)