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Chapter 4.txt
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What are short term creditors, long term creditors and equity investors interested in?
Short term creditors
: liquidity
Long term creditors
: solvency
Equity investors
: profitability
Activity ratios:
Inventory Turnover
AR Turnover
Fixed Asset Turnover
Total Asset Turnover
COGS/Average Inventory
Sales/Avg AR
Sales/Avg Net Fixed Assets
Sales/Avg Total Assets
Liquidity Ratios:
Current Ratio
Quick Ratio
Defensive Interval
Days' Sales in Inventory
Days' Sales in AR
Days' Purchases in AP
Operating Cycle
Cash Cycle
Current Assets/Current Liabilities
(Cash + Marketable Securities + AR)/Current Liab.
365(Quick Assets)/Project Expenditures
Proj Expenditures=Pretax Exp-(dep'n+amort)
365/Inventory Turnover
365/AR Turnover
365/AP Turnover
AP Turnover=Purchases/Average AP
Purchases=COGS + Change in Inventory
Days' Sales in Inventory+Days' Sales in AR
Operating Cycle-Days' Purchases in AP
Solvency Ratios:
Debt to Equity
Debt to Assets
Times Interest Earned aka Interest Coverage Ratio
Capital Expenditure Ratio
Average Total Debt/Average Total Equity
Average Total Debt/Average Total Assets
D/E = (D/A)/(1-D/A)
EBIT/Interest Expense
CFO/Gross Capital Expenditures
Profitability Ratios
Gross Margin
Operating Income to Sales
Prefinancing Margin
Return on Sales
Return on Assets
Return on Equity
Gross Profit/Sales
EBIT/Sales
(NI + After tax Interest)/Sales
After Tax Interest=Interest expense(1-T)
NI/Sales
(NI+After Tax Interest)/Avg Total Assets
NI/Average Total Equity
ROA DECOMPOSITION
Prefinancing Margin(Efficiency)
x
Asset Turnover(Effectiveness)
NI + Interest(1-T)/Sales x Sales/Average Assets
Operating Cost Function Estimation
VC(v) = (Cost(t)-Cost(t-1))/(Sales(t)-Sales(t-1))
FC(F) = Cost(t) - v(Sales(t))
If F is less than or equal to 0, then...
use v' = Cost(t)/Sales(t)
What are the circumstances for a firm's stockholders to enjoy returns from favorable financial leverage?
The after-tax cost of interest must be less than the return on assets employed from debt.
After tax Cost of Interest:
i = Interest Expense(1-T)/(Average Total Debt)
ROE = ROA + (ROA - i)(D/E)
Author
cramphal
ID
68566
Card Set
Chapter 4.txt
Description
Financial Statement Analysis
Updated
2011-02-24T04:24:28Z
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