Business Finance - Chapter 3
cash coverage ratio
(EBIT + depreciation)/interest expense
internal growth rate
(ROA x b)/(1 - ROA x b)
sustainable growth rate
(ROE x b)/(1 - ROE x B)
quick ratio
(current assets - inventory)/current liabilities
total debt ratio
(total assets - total equity)/total assets
return on equity (ROE)
a measure of profitability
retention ratio
addition to retained earnings(net income-dividends)/net income
cash and accounts payable
are used to compute the current ratio
exception
financial statement analysis is primarily "management by ______"
profit margin
net income/sales
return on equity (ROE)
net income/total equity
return on assets (ROA)
net income/total equity (a measure of profitability)
price-earnings ratio
price per share/earnings per share
price-sales ratio
price per share/sales per share
receivables turnover
sales/accounts receivable
total asset turnover
sales/total assets
financial ratio categories
short term solvency, or liquidity ratios long term solvency, or financial leverage ratios asset management, or turnover ratios profitability ratios market value ratios
what does it mean when a firm's day sales in receivables are 45?
the firm collects its credit sales in 45 days on average
book values and historical values
the major downside to using financial statements for analysis is that data contained in them is based on ________ and __________
management by exception
time trend analysis is an example of
equity multiplier
total assets/total equity
debt to equity ratio
total debt/total equity
days sales
365/turnover
Financial Ratios
Are developed from a firm's financial information Are used for comparison purposes
times interest earned ratio
EBIT/interest
created value
a firm with a market to book value that is greater than one is known to have a _____ for shareholders
market value ratio
What kind of ratio is a PE ratio?
dupont identity
can help to explain why two firms with the same return on equity may not be operating the same way
dividend payout ratio
cash dividends/net income
cash ratio
cash/current liabilities
inventory turnover
cost of goods sold/inventory
price-sales ratio
if a company has had negative earnings for multiple pay periods they might choose to use a _______
market to book ratio
market value per share/book value per share