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Профессиональный Документы
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Assets
Liabilities
Equity
Liabilities and equity represent sources of funds. Assets represent uses of funds.
Balance Sheet
Assets Liabilities Equity
Liabilities and equity represent sources of funds. Assets represent uses of funds. Liabilities represent a debt claim. Equity represents an ownership claim.
Investments
Looks at financial analysis from perspective of investor Stockholders are owners of the firm
Investments
Looks at financial analysis from perspective of investor Stockholders are owners of the firm Bondholders are creditors of the firm
From an investors perspective, what matters is the rate of return on a security Risk-return tradeoff: Investors prefer high expected returns and low risk.
Investments
Looks at financial analysis from perspective of investor Stockholders are owners of firm Bondholders are creditors of firm From investors perspective, what matters is the rate of return on a security Risk-return tradeoff: Investors prefer high expected returns and low risk. From the firms perspective this rate of return represents a cost of funds.
Ratio Analysis
Financial managers use ratios to interpret the raw numbers on financial statements. Relative measures allow comparison over time and to other firms. Ratios are used by financial managers, other business managers, creditors, and investors.
Ratio Analysis
Ratio Analysis
Profitability Ratios
Measure the overall effectiveness of the firms management.
Gross Margin Ratio - Gross Profit/Sales Operating Profit Margin - Operating Income/Sales
Ratio Analysis
Profitability Ratios: Example GPM
How effective is the firm at generating revenue in excess of its cost of goods sold?
Balance Sheet Excalibur Corporation Cash Accounts Receivable Inventories Plant & Equipment Less:Acc. Depr. Net Fixed Assets Income Statement Excalibur Corporation Sales $1,450 Cost of Goods Sold 875 Gross Profit $575 Operating Expenses 45 Depreciation 200 Net Operating Income $330 Interest Expense 60 Income Before Taxes $270 Taxes (40%) 108 Net Income $162 Dividends Paid 100 Addition to Retained Earnings $62 $175 430 625 $1,230 $2,500 (1,200) $1,300 $2,530 Accounts Payable S-T Notes Payable $115 115 $230 $600
Current Assets
Current Liabilities
Total Assets
Bonds Owners Equity Common Stock $300 Capital in Excess of Par 600 Retained Earnings 800 Total Owners Equity $1,700
$2,530
Ratio Analysis
Liquidity Ratios
Measure the ability of the firm to meet its short-term financial obligations.
Are there sufficient current assets to pay off current liabilities? What is the cushion of safety?
Ratio Analysis
Liquidity Ratios
Measure the ability of the firm to meet its short-term financial obligations.
Acid-Test Ratio =
What happens to the firms ability to repay current liabilities after what is usually the least liquid of the current assets is subtracted?
Balance Sheet Excalibur Corporation Cash Accounts Receivable Inventories Plant & Equipment Less:Acc. Depr. Net Fixed Assets $175 430 625 $1,230 $2,500 (1,200) $1,300 $2,530 Accounts Payable S-T Notes Payable $115 115 $230 $600
Current Assets
Current Liabilities
Total Assets
Long-term Debt Owners Equity Common Stock $300 Capital in Excess of Par 600 Retained Earnings 800 Total Owners Equity $1,700
$2,530
Ratio Analysis
Debt Ratios
Debt to Equity Ratio Total Debt Common Equity
What is the proportion of debt relative to equity financing for the firm?
Ratio Analysis
Debt Ratios
Operating Income Times Interest Earned Ratio = Interest Expense What is the firms ability to repay interest payments from their income?
Balance Sheet Excalibur Corporation Cash Accounts Receivable Inventories Plant & Equipment Less:Acc. Depr. Net Fixed Assets Income Statement Excalibur Corporation Sales $1,450 Cost of Goods Sold 875 Gross Profit $575 Operating Expenses 45 Depreciation 200 Operating Income $330 Interest Expense 60 Income Before Taxes $270 Taxes (40%) 108 Net Income $162 Dividends Paid 100 Addition to Retained Earnings $62 $175 430 625 $1,230 $2,500 (1,200) $1,300 $2,530 Accounts Payable S-T Notes Payable $115 115 $230 $600
Current Assets
Current Liabilities
Total Assets
Total Liabilities and Times Operating Owners Equity Income $2,530 Interest = Interest Expense Earned Ratio
Long-term Debt Owners Equity Common Stock $300 Capital in Excess of Par 600 Retained Earnings 800 Total Owners Equity $1,700
TIE Ratio =
Ratio Analysis
Asset Activity Ratios
Sales Inventory Turnover Ratio = Inventory Is inventory translating into sales for the firm?
Balance Sheet Excalibur Corporation Cash Accounts Receivable Inventories Plant & Equipment Less:Acc. Depr. Net Fixed Assets Income Statement Excalibur Corporation Sales $1,450 Cost of Goods Sold 875 Gross Profit $575 Operating Expenses 45 Depreciation 200 Operating Income $330 Interest Expense 60 Income Before Taxes $270 Taxes (40%) 108 Net Income $162 Dividends Paid 100 Addition to Retained Earnings $62 $175 430 625 $1,230 $2,500 (1,200) $1,300 $2,530 Accounts Payable S-T Notes Payable $115 115 $230 $600
Current Assets
Current Liabilities
Total Assets
Long-term Debt Owners Equity Common Stock $300 Capital in Excess of Par 600 Retained Earnings 800 Total Owners Equity $1,700 $2,530
Ratio Analysis
Asset Activity Ratios
Sales Total Asset Turnover Ratio = Total Assets
How effective is the firm in using all assets to generate sales?
Ratio Analysis
Market Value Ratios
Market Price per Share Earnings per Share
How much are investors willing to pay per dollar of earnings of the firm?
Cash Accounts Receivable Inventories Plant & Equipment Less:Acc. Depr. Net Fixed Assets
Current Assets
Total Assets
Current Liabilities
Long-term Debt Owners Equity Common Stock $300 Capital in Excess of Par 600 Retained Earnings 800 Total Owners Equity $1,700
Sales $1,450 Cost of Goods Sold 875 Gross Profit $575 Operating Expenses 45 Depreciation 200 Operating Income $330 Interest Expense 60 Income Before Taxes $270 Taxes (40%) 108 Net Income $162 Dividends Paid 100 Addition to Retained Earnings $62
$2,530
P/E Ratio
P/E ratio =
Ratio Analysis
Market Value Ratios
Market Price per Share Book Value per Share
How much are investors willing to pay per dollar of book value?
Cash Accounts Receivable Inventories Plant & Equipment Less:Acc. Depr. Net Fixed Assets
Current Assets
Total Assets
Current Liabilities
Long-term Debt Owners Equity Common Stock $300 Capital in Excess of Par 600 Retained Earnings 800 Total Owners Equity $1,700
$2,530
M/B =
$20.00 $1,700/100
= 1.18x
EBITDA
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is often of great interest to financial analysts. It measures the amount of cash thrown off from the operations of the company.
Ratio
Industry
Excalibur
Profitability Gross Profit Margin 39.7% Operating Profit Margin Net Profit Margin Return on Assets Return on Equity
Excalibur is good at keeping operating costs down, but not as good at total costs. ROA and ROE are low mainly due to productivity problems.
Industry
Excalibur
5.00x 3.00x
5.35x 2.63x
Looking at the current ratio it appears that Excalibur is more liquid than the industry.... however when looking at Acid Test (a better measure) they are not as liquid indicating that inventory levels are probably too high.
Ratio
Industry
Excalibur
33% 5.50x
While the debt ratio is close to the industry average, Excalibur is not able to cover interest payments as easily as the industry. This indicates Excalibur may have too much debt relative to what they can realistically afford.
Ratio
Market Value Price Earnings Market to Book
Industry
18.0 2.5
Excalibur
12.35 1.18
Excaliburs Investors are not willing to pay as much per rupee of earnings or per rupee of book value as they are for shares in other firms in the industry. This signals that they consider the firms prospects to be worse than the average. However, the firm is still selling for more than its liquidation value.
ratios. Comparison of these relationships over time helps to identify the companys strengths and weaknesses.
Equity x Multiplier x
Assets Equity
P0
D1
D2
D3
P0 =
D1 (1+ ks )
D2 (1+ ks )2
D3 + (1+ ks )3
Not like Preferred Stock since D0 = D1 = D2 = D3 = DN , therefore the cash flows are no longer an annuity.
P0
D1
D2
D3
P0 =
D1 (1+ ks )
D2 (1+ ks )2
D3 + (1+ ks )3
Investors do not know the values of D1, D2, .... , DN. The future dividends must be estimated.
Stock price will most likely fall if a major government contract is discontinued unexpectedly.
Market related Risk - Risk due to overall market conditions
Diversification: If investors hold stock in many companies, the firm specific risk will tend to cancel out. Even if investors hold many stocks, cannot eliminate the market related risk
Variability of Returns
# of stocks in Portfolio
Variability of Returns
S&P Return
5% 10% 15%
-15% -10%
-5%
-5% -10% -15%
Portfolio construction
Initial Objectives Aggressive v/s conservative Concentrated v/s diversified % allocation and impact on overall return on portfolio How much cash? Trading costs and return erosion
Portfolio construction
More money can be made by optimal asset allocation than by stock picks
Portfolio Risk Measured by standard Deviation of the portfolio or Beta Usually compared to a visible and transparent benchmark Higher SD indicates higher risk Optimal event - Highest risk adjusted return
Equity Mutual Fund - An application of Portfolio Theory Diversified Professionally Managed Liquid Affordable