Du Pont Equation: One of the most Important equation.

ROE (Return on Equity) = Profit margin x Asset Turnover x Financial Leverage

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
ROE =𝑂𝑤𝑛𝑒𝑟’𝑠 𝑒𝑞𝑢𝑖𝑡𝑦 Commented [CT1]: Owner’s equity is how much the
owner invests in the business

WHAT DRIVES ROE?

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑆𝑎𝑙𝑒𝑠 𝐴𝑠𝑠𝑒𝑡𝑠

= 𝑋 𝑥
𝑂𝑤𝑛𝑒𝑟’𝑠 𝑒𝑞𝑢𝑖𝑡𝑦 𝑆𝑎𝑙𝑒𝑠 𝐴𝑠𝑠𝑒𝑡𝑠 𝑂𝑤𝑛𝑒𝑟’𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

Pourquoi apprendre finance?

Pourquoi le flow du monnaie est Important?
Control cash flow (by finance manager)
What Is financial management?
What Is the form of an organisation?
Long term Investment

Shareholder wont be affected by the company’s decision

AGENCY PROBLEM. What the fuck Is that?
Hybrid form –

Ratio analysis – better comparison through time and between companies.

Many ratios are needed to analyse the companies. What aspects of the performance do I
look for? Like profitability.

1. Net income; profitability. Very important

2. Who to compare with? Take them as a benchmark (trend analysis)
3. What is good or bad ratio?
4. Categories of Financial Ratios: 1. Short-term solvency or liquidity ratio (measures
company liquidity). 2. (Financial leverage is based on your capital structure) 3.
Turnover ratio (how well you manage your assets) 4. Profitability (how much profit
has your company) 5. What is the market value of your company
5. Market value ratio helps to see what is the real market value compared to book
values
6. Short term solvency (cannot settle your short term liabilities); Current ratio and
quick ratio, cash ratio.
7. High current ratio reduces earning power.
8. With current assets that you have, you can settle short term obligations 1.31 times
9. Cash ratio puts cash into consideration.
10. Long term solvency – focus on long term financing
11. More debt, greater financial leverage. It means higher risk of default. Not able to pay
back the debts after maturity.
12. Aspects of long term solvency – level of indebtedness (-) and ability to service debt
(+).
13. Total debt ratio measures how they use the debt to finance
14. Long-term debt investors will see the ratio
15. Cash coverage ratio is NOT cash ratio. CCR refers to EBIT + Depreciation (non-
cash item) to know how much cash you have to settle your interest.
16. Current assets: inventory and receivables. Asset utilization ratio. How many ratios
like inventory turnover, days’ sales in inventory, receivables turnover, days sales in
receivables and asset turnover ratios
17. Inventory is to generate sales. How fast can I sell? I need to measure inventory
turnover ratios. Higher the better
18. Lower the number is a generally positive number.
19. Industry average or peer average? Quoi?
20. Earnings per share = Net income/ shares outstanding
21. DuPont Identity: