Professional Documents
Culture Documents
Corporate Performance
Corporate Performance
Calculations:
Financial Ratios
Underlying Data:
Corporate Financials & Market Values
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Corporate Performance
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MVA: Discussion
Market Value Added [Share Price Shares Outstanding] - EquityBook Value
TABLE 4.3
Consider AT&T and Home Depot Similar MVA, Different Market-to-Book Ratio Why?
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Defined:
Economic Value Added Operating Income* - [Cost of Capital Total Capitalization]
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EVA: Discussion
Economic Value Added Operating Income - [Cost of Capital Total Capitalization]
TABLE 4.4
Consider Coca-Cola and Google Similar EVA, Different Return on Capital Why?
* Operating Income = Net Income + After-tax Interest; ROC = Return on Capital
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Current assets: Cash and cash equivalents Short-term investments Merchandise inventory - net Deferred income taxes - net Other current assets Total current assets Property less acc. depreciation Long-term investments Other assets Total assets Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings Current maturities of long-term debt Accounts payable Accrued comp./employee benefits Deferred revenue Other current liabilities Total current liabilities Long-term debt, excl. current maturities Deferred income taxes - net Other liabilities Total liabilities
ROC
Lowe's Income Statement Net sales Cost of sales Gross margin Expenses: Selling, general and administrative Store opening costs Depreciation Interest - net Total expenses Pre-tax earnings Income tax provision Net earnings
Shareholders' equity: Common stock - $.50 par value Capital in excess of par value Retained earnings Acc. other comprehensive income Total shareholders' equity
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ROA
After-Tax Operating Income 1, 964 6.0% Average Total Assets 32,815 After-Tax Operating Income 1, 964 6.0% Total AssetsYear Beginning 32, 625
2009 47,220 30,757 16,463 11,688 49 1,614 287 13,638 2,825 1,042 1,783
or ROA =
Lowe's Income Statement Net sales Cost of sales Gross margin Expenses: Selling, general and administrative Store opening costs Depreciation Interest - net Total expenses Pre-tax earnings Income tax provision Net earnings
Long-term debt, excl. current maturities Deferred income taxes - net Other liabilities Total liabilities Shareholders' equity: Common stock - $.50 par value Capital in excess of par value Retained earnings Acc. other comprehensive income Total shareholders' equity Total liabilities and shareholders' equity
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ROE
Net Income 1, 783 9.6% Average Total Equity 18,562 Net Income 1, 783 9.9% EquityYear Beginning 18, 055
2009 47,220 30,757 16,463 11,688 49 1,614 287 13,638 2,825 1,042 1,783
or ROE =
Current liabilities: Short-term borrowings Current maturities of long-term debt Accounts payable Accrued comp./employee benefits Deferred revenue Other current liabilities Total current liabilities Long-term debt, excl. current maturities Deferred income taxes - net Other liabilities Total liabilities Shareholders' equity: Common stock - $.50 par value Capital in excess of par value Retained earnings Acc. other comprehensive income Total shareholders' equity Total liabilities and shareholders' equity
Lowe's Income Statement Net sales Cost of sales Gross margin Expenses: Selling, general and administrative Store opening costs Depreciation Interest - net Total expenses Pre-tax earnings Income tax provision Net earnings
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Efficiency Ratios
Asset turnover ratio = Sales Total AssetsYear Beginning
OR*
Receivables Turnover=
Efficiency Ratios
Cost of Goods Sold Inventory Turnover Ratio= InventoryYear Beginning
How does this ratio measure efficiency?
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Sales 44, 270 Asset Turnover Ratio 1.4 Average Total Assets 32,815
Lowe's Income Statement Net sales Cost of sales Gross margin Expenses: Selling, general and administrative Store opening costs Depreciation Interest - net Total expenses Pre-tax earnings Income tax provision Net earnings 2009 47,220 30,757 16,463 11,688 49 1,614 287 13,638 2,825 1,042 1,783
Shareholders' equity: Common stock - $.50 par value Capital in excess of par value Retained earnings Acc. other comprehensive income Total shareholders' equity Total liabilities and shareholders' equity
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Profitability Ratios
Net Income Profit Margin= Sales
How does this ratio measure the firms profitability?
When is this ratio potentially more useful than just profit margin?
Note: ROC, ROA, ROE and EVA are also typically considered profitability ratios.
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OPM
Current liabilities: Short-term borrowings Current maturities of long-term debt Accounts payable Accrued comp./employee benefits Deferred revenue Other current liabilities Total current liabilities Long-term debt, excl. current maturities Deferred income taxes - net Other liabilities Total liabilities
Lowe's Income Statement Net sales Cost of sales Gross margin Expenses: Selling, general and administrative Store opening costs Depreciation Interest - net Total expenses Pre-tax earnings Income tax provision Net earnings
2009 47,220 30,757 16,463 11,688 49 1,614 287 13,638 2,825 1,042 1,783
Shareholders' equity: Common stock - $.50 par value Capital in excess of par value Retained earnings Acc. other comprehensive income Total shareholders' equity Total liabilities and shareholders' equity
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Leverage Ratios
Long Term Debt Long term debt ratio= Long Term Debt+Equity
How does this ratio measure leverage?
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Measuring Leverage
Total Liabilities Total Assets How does this ratio measure leverage? Total Debt Ratio=
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Assets Current assets: Cash and cash equivalents Short-term investments Merchandise inventory - net Deferred income taxes - net Other current assets Total current assets Property less acc. depreciation Long-term investments Other assets Total assets Liabilities and Shareholders' Equity $
2009 632 425 8,249 208 218 9,732 22,499 277 497 33,005 2009 $ 552 4,287 577 683 1,256 7,355 4,528 598 1,455 13,936 729 6 18,307 27 19,069 $ 33,005
2008 245 416 8,209 105 215 9,190 22,722 253 460 32,625 2008 987 34 4,109 434 674 1,322 7,560 5,039 599 1,372 14,570 735 277 17,049 (6) 18,055 32,625
2009 47,220 30,757 16,463 11,688 49 1,614 287 13,638 2,825 1,042 1,783
Current liabilities: Short-term borrowings Current maturities of long-term debt Accounts payable Accrued comp./employee benefits Deferred revenue Other current liabilities Total current liabilities Long-term debt, excl. current maturities Deferred income taxes - net Other liabilities Total liabilities Shareholders' equity: Common stock - $.50 par value Capital in excess of par value Retained earnings Acc. other comprehensive income Total shareholders' equity Total liabilities and shareholders' equity
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Measuring Liquidity
NWC to Total Assets Ratio = Net Working Capital Total Assets
How does this ratio measure liquidity?
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Liquidity Ratios
Quick ratio= Cash + Marketable Securities + Receivables Current Liabilities
How does this ratio differ form the current ratio? Why might a financial manager prefer it?
Cash Ratio=
How does this ratio differ from the current ratio? Why might a financial manager prefer it?
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Long-term debt, excl. current maturities Deferred income taxes - net Other liabilities Total liabilities Shareholders' equity: Common stock - $.50 par value Capital in excess of par value Retained earnings Acc. other comprehensive income Total shareholders' equity Total liabilities and shareholders' equity
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Asset Turnover
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Debt Burden
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Sustainable Growth
Payout Ratio= Dividends Earnings
Plowback Ratio= Earnings-Dividends Earnings
Growth in equity from plowback = Plowback Ratio ROE Earnings - Dividends Earnings Earnings Equity Earnings-Dividends = Equity
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