financial analysis project with ratio analysis
uhuwg9l
RatioAnalysis.pptx
Ratio Analysis
1. Profitability ratios
GM ratio
ROA
ROE
EPS
PE ratio
2. Liquidity ratios
Current ratio
Quick ratio
A/R turnover
Inventory turnover
A/P turnover
3. Leverage ratios
Asset to equity
Debt to equity
Times interest earned
4. Dividend ratios
Yield ratio
Payout ratio
1. Profitability ratios
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Profitability ratios (continued)
GM – SG&A = Operating income (= EBIT)
a) NI = (Operating income – Interest) x (1-t%)
b) NOPAT = Operating income x (1-t%)
From a & b, if thee is no interest, then
NOPAT = NI, otherwise
NOPAT = NI + Interest (net of tax)
NI (=EBIT=Operating Income=Revenue-Operating Expense): Net income before extraordinary items, including interest and preferred stock dividend
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ROE = NI/Avg. SE
= Common Equity leverage (CEL) x ROA
x Capital Structure Leverage (CSL)
where:
CEL = NI/NOPAT
- measures % of NOPAT claimed by shareholders
- interest increases CEL drops
ROA = NOPAT/Avg. Assets = Profit margin x Asset turnover
CSL = Avg. Assets /Avg. SE
- measures extent of debt financing vs equity
If there is no interest (and preferred stock dividend) then ROE > ROA:
ROE = NI/Avg. SE
= Common Equity leverage (CEL) x ROA
x Capital Structure Leverage (CSL)
= 1 x ROA x Ave. Assets/Avg. SE > ROA
Because (1) NI=NOPAT and (2) CSL>1
If there is interest (and preferred stock dividend) then:
(a) ROE > or < ROA
(b) Increase in CSL increase in ROE
1. Profitability ratios (Contd.)
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Ratio Analysis
2. Liquidity
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Ratio Analysis
2. Liquidity (Contd.)
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Ratio Analysis
2. Liquidity (Contd.)
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Ratio Analysis
2. Liquidity (Contd.)
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Operating Cycle
1. Cash-to-Cash Cycle
Days Inventory Outstanding + Days A/R Outstanding
2. Net Cash-to-Cash Cycle
Days Inventory Outstanding + Days A/R Outstanding
- Days A/P Outstanding
3. Leverage
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4. Dividend ratios
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Sales
Margin
Gross
Sales
Sold
Goods
of
Cost
-
Sales
ratio
GM
=
=
Turnover
Asset
rgin
Profit Ma
Assets
Total
Avg.
Sales
Net
Sales
Net
NOPAT
Assets
Total
Avg.
NOPAT
ROA
*
=
=
=
x
Share
Per
Earnings
Share
Per
Price
Market
ratio
E
/
P
g
Outstandin
Shares
Common
of
Number
Avg.
Shares
Common
for
Available
Income
Net
EPS
=
=
s
Liabilitie
Current
Receivable
Accounts
and
Securities
Marketable
Cash,
ratio
Quick
s
Liabilitie
Current
Assets
Current
ratio
Current
=
=
CGS/365
Inventory
Average
tan
Turnover
Inventory
365
tan
nventoryO
Inventory
Sold
Goods
of
Cost
urnover
=
=
=
ding
oryOuts
DaysInvent
ding
uts
DaysI
Average
InventoryT
Sales/365
Credit
A/R
Avg.
tan
/
Turnover
A/R
365
tan
/
Receivable
Accounts
Sales
Credit
Net
Turnover
/
=
=
=
ding
ROuts
DaysA
ding
Outs
R
A
Days
Average
R
A
365
Purchases/
A/P
Average
g
Outstandin
A/P
r
A/PTurnove
365
tan
/
Purchases
/
=
=
=
Days
ding
POuts
DaysA
le
ountsPayab
AverageAcc
PTurnover
A
Interest
Taxes
and
Interest
Before
Profit
earned
interest
Times
Equity
s
Liabilitie
Total
equity
to
Equity
Assets
Total
equity
to
=
=
=
Total
Debt
Total
Asset
Income
Net
Dividends
ratio
Share
Per
Price
Market
Share
Per
Dividend
ratio
Y
=
=
Payout
ield
