Professional Documents
Culture Documents
Financial Analysis
• Financial Ratios:
– Liquidity Ratios
• Assess ability to cover current obligations
– Leverage Ratios
• Assess ability to cover long term debt obligations
• Operational Ratios:
– Activity (Turnover) Ratios
• Assess amount of activity relative to amount of
resources used
– Profitability Ratios
• Assess profits relative to amount of resources
used
• Valuation Ratios:
• Assess market price relative to assets or earnings
Liquidity Ratios
• Current Ratio
– Current Assets / Current Liabilities
• Current Assets include Cash, Marketable Securities, Accounts
Receivable and Inventory
• Current Liabilities include Accounts Payable, Debt Due within one
year, and Other Current Liabilities
• Cash Ratio
Cash + Marketable Securities 26.08
Cash Ratio = = = 0.17
Current Liabilities 1555.75
Interval Measure
EBIT 342.61
Interest Coverage Ratio = = = 2.4
Interest 143.46
Interest Coverage Ratio
• EBITDA
Fixed Coverage Ratio =
Interest + Loan repayment
1-Tax Rate
360
Days of Inventory Holding = = 42 days
Inventory Turnover
Inventory Turnover Ratio Cont.
– In the absence of information. Instead of CGS
we can use Sales
– In the case of CGS and Inventory both are
valued at cost. While the sales are valued at
market prices
– Therefore better to use CGS
Accounts Receivable Turnover
– The accounts receivable turnover ratio, indicates the
average length of time it takes a firm to collect credit sales
(in percentage terms), i.e., how well accounts receivable
are being collected.
– If receivables are excessively slow in being converted to
cash, liquidity could be severely impaired.
Credit Sales
A R Turnover =
Avg AR
Sales 3,717.23
= = = 7.7
Avg AR 483.18
Average Collection Period
– The average collection period is the average length of
time (in days) it takes a firm to collect on credit sales.
360
ACP = = 47 days
AR Turnover
Net Assets Turnover
– The total assets turnover ratio, indicates how efficiently
a firm is using all its assets to generate revenues.
– This ratio helps to signal whether a firm is generating a
sufficient volume of business for the size of its asset
investment
Sales 3,717.23
Net Assets Turnover = = = 1.95 times
Net Assets 1901.87
Profitability Ratios
– Profitability ratios measure management’s overall
effectiveness as shown by returns generated on sales
and investment.
ROE
P ro fit M a rg in T o ta l A s s e t T u rn o v e r
The DuPont System
ROE
P ro fit M a rg in T o ta l A s s e t T u rn o v e r
ROE
P ro fit M a rg in T o ta l A s s e t T u rn o v e r
ROE
P ro fit M a rg in T o ta l A s s e t T u rn o v e r