$ Change/Change in Dollar Current Year Figure - Base Year Figure

% Change $ Change /Base Year Figure X 100%

Trend % Current Yr amt /Base Yr amt

X 100

VERTICAL, PROFITABILITY

Gross Margin % Gross Margin /Sales

Return on Sales % Income after Tax /Net Sales

Determines the amount of income earned on each peso sales.

Gross Margin % / GPR Sales -COGS (GP) /SALES

X100
Is – sales bs- total assets This measure indicates how much of each sales dollar is left after deducting the cost of goods
sold to cover expenses and provide a profit.

Operating Profit Margin % Operating Profit /SALES

X100
Operating profit margin measures the percentage of each sales dollar remaining after all costs and expenses other than
interest, taxes, and preferred stock dividends are deducted.

Net Profit Margin % Earning avail. For Common stockholders /SALES

X100
Net profit margin measures the percentage of each sales dollar remaining after all costs and expenses, including
interest, taxes, and preferred stock dividends, have been deducted.

Return on Equity % Earning avail. For Common stockholders /Common Stock Equity
X100
The return on equity measures the return earned on common stockholders’ investment in the firm.

Common Size % Year Amt /Sales of that yr

X 100

Earnings per share (EPS) Net Income – Preferred Dividends /Ave. No. of CShares Outstanding
($) ((Beg+End)/2)
This measure indicates how much income was earned for each share of common stock outstanding.

Return on Total Assets Net Income +(Interest Exp x (1-Tax /Ave Total Assets
(%) rate)) (beg+end)/2
x100

Return on Total Assets (%) Earning avail. For Common stockholders /Total Assets
X100
Adding interest expense back to net income enables the return on assets to be compared for companies with
different amounts of debt or over time for a single company that has changed its mix of debt and equity.

Rate of Return on Net Income / Average Current Assets

Current Assets (%)
x100
Measures the profitability of current assets invested

Rate of Return Per Rate of Return / Current Assets Turnover

turnover of current on Ave.
Assets (%) Current Assets

x100
Shows profitability of each turnover of current assets.

Return on CS’ Net Income -Preferred Dividends /Ave Stockholder’s

Equity (%) Equity (b+e/2)
x100
This measure indicates how well the company used the owners’ investments to earn income.

Return on Owner’s Equity % Income after tax /Ave. Owner’s Equity

X100
Measures the amount earned on the owners' or stockholders' investment.

MARKET

Price-Earnings Ratio (times) Market Price per share /EPS

A higher price-earnings ratio means that investors are willing to pay a premium for a company’s stock because of
optimistic future growth prospects.

Market/book Ratio MPS of Common stock /BV per share of common stock

The market/book (M/B) ratio provides an assessment of how investors view the firm’s performance.

Dividends Payout Ratio (%) Dividends per share /EPS

 x100
This ratio gauges the portion of current earnings being paid out in dividends. Investors seeking dividends (market
price growth) would like this ratio to be large (small).

Dividends Yield Ratio (%) Dividends per share /MPS

x100
This ratio identifies the return, in terms of cash dividends, on the current market price of the stock.

Book Value Per Share ($) CS’ Equity (end) / No. of CShares Outstanding (end)
(end)

This ratio measures the amount that would be distributed to holders of each share of common stock if all assets were
sold at their balance sheet carrying amounts and if all creditors were paid off.

WORKING CAPITAL ($) CURRENT ASSETS -CURRENT LIABILITIES

LIQUIDITY

CURRENT RATIO CURRENT ASSETS /CURRENT LIABILITIES

The current ratio measures a company’s short-term debt paying ability. A declining ratio may be a sign of
deteriorating financial condition, or it might result from eliminating obsolete inventories.

A-T/QUICK RATIO QUICK ASSETS (C+ MS + A/R+ CN/R) /CURRENT LIABILITIES

A-T/QUICK RATIO CURRENT ASSETS - INVENTORY /CURRENT LIABILITIES

This ratio measures a company’s ability to meet obligations without having to liquidate inventory.

ACTIVITY

A/R TURNOVER (times) SALES ON ACCOUNT /AVE. A/R (beg+end/2)

This ratio measures how many times a company converts its receivables into cash each year.

AVE. COLLECTION PERIOD (days) / A/R TURNOVER

365 DAYS
This ratio measures, on average, how many days it takes to collect an account receivable.

OPERATING CYCLE (days) AVE. AGE OF RECEIVABLES AVE. AGE OF INVENTORY

 INV TURNOVER (times) COST OF GOODS SOLD /AVE. INVENTORY (beg+end/2)

This ratio measures how many times a company’s inventory has been sold and replaced during the year.

AVE. SALE/AGE PERIOD (days) / INV TURNOVER

365 DAYS
This ratio measures how many days, on average, it takes to sell the inventory.

TOTAL ASSETS TURNOVER SALES ON ACCOUNT /TOTAL ASSETS

Total asset turnover indicates the efficiency with which the firm uses its assets to generate sales.

TRADE/P TURNOVER (times) NET CREDIT PURCHASES /AVE. TRADE PAYABLES

AVE. TRADE PERIOD (days) No. of working days / Payables T/O

CASH FLOW CYCLE (days) OPERATING CYCLE - AVE. TRADE PERIOD

CA TURNOVER COST OF SALES + OPEX (-AMMO + DEP) /AVE. CURRENT ASSETS

WC-TA WORKING CAPITAL /TOTAL ASSETS

WC TURNOVER (times) NET SALES /AVE. WC

SOLVENCY

DEBT RATIO (%) TOTAL LIABILITIES TOTAL ASSETS

X100
Debt ratio measures the proportion of total assets financed by the firm’s creditors

EQUITY RATIO (%) TOTAL OWNER’S EQUITY TOTAL ASSETS

X100
 TIMES INTEREST EARNED (times) NET OPERATING /INT EXPENSE
INCOME/EBIT(Income before tax +
Interest expense)

This is the most common measure of a company’s ability to provide protection for its long-term creditors. A ratio of
less than 1.0 is inadequate.

DEBT-EQUITY RATIO TOTAL LIABILITIES /STOCKHOLDER’S EQUITY

This ratio indicates the relative proportions of debt to equity on a company’s balance sheet.

FIXED-PAYMENT COVERAGE RATIO (EBIT + LEASE PAYMENTS) /INT + LEASE PAYMENTS X (PRI
Pments+Pref stock dividends) x (1/(1-T))

. Fixed Assets to Long- Fixed Assets / Long-term liabilities

term Liabilities

. Fixed assets to Total Fixed Assets / Total Equity

Equity

Sales to fixed assets Net Sales / Fixed Assets (Net)

(plant turnover)

Book value per share Common stock equity / # of outstanding common

on common stock

Times Preferred Dividend requirements Net income After Taxes / Preferred Dividend Requirements

Times Fixed Charges Net income before taxes and fixed /Fixed charges (rent + interest + Sinking
Earned charges fund payment before taxes)

Sinking fund payments bef. Tax Sinking fund payment after taxes / 1 - Tax Rate
 FV PV x (1+r)^n

PV FV / (1+r)^n

OA- end

FV CF X (((1+r)^n-1) /r)

PV (CF/r) X (1-(1/(1+r)^n))

AD- Beg

FV CF X (((1+r)^n-1) /r) X (1+r)

PV (CF/r) X (1-(1/(1+r)^n)) X (1+r)

Perpetuity
 PV CF /r

Mixed Stream

Year Cash Flow

NPV

FV NPV x (1+r)^n

Table 5.3 Future Value from Investing $100 at 8% Interest Compounded Semiannually over 24 Months (2 Years)

compounding more frequently than annually

FV PV X (1+(r/m)^mxn

Continuous compounding

FV PV X e^rxn

EAR (1+r/m)^m -1

Deposits Needed to Accumulate a Future Sum / Loan Amortization (cont.)

CF FV / (((1+r)^n-1) /r)
Finding Interest or Growth Rates

FVIF= (1+r)^n

PVIF= 1/(1+r)^n