1- Finance Lesson 3 - Chapter 4

Front 1

ROE

Back 1

(Return On Equity) =


(Profit margin on sales) X (Total equity turnover)

Front 2

Current Ratio

Back 2

**Primary Liquidity ratio



Current Assets
---------------------------------
Current Liabilities

Front 3

Quick Ratio

Back 3

Current assets - Inventories
-----------------------------------------
Current Liabilities


-Also called Acid Test

Front 4

is an analysis of a firm’s financial ratios over time; used to estimate the likelihood of improvement or deterioration in its financial condition

Back 4

Trend analysis...

Front 5

is the process of comparing a particular company with a group of “---” companies

Back 5

Benchmarking...

Front 6

is employed by firms to make their financial statements look better than they really are

Back 6

"Window dressing" techniques...

Front 7

Inventory turnover ratio

Back 7

sales
---------
Inventory

Front 8

days sales outstanding

Back 8

Receivables
------------------------------
(Annual sales ÷ 365)

Front 9

Fixed asset turnover

Back 9

Sales
-------------
Net fixed assets

Front 10

Total Asset Turnover

Back 10

sales
-----------
total assets

Front 11

Debt to total assets

Back 11

total debt
----------------
total assets

Front 12

EBITDA coverage ratio

Back 12

EBITDA + Lease payments
--------------------------------------------------------------
Interest + Principle payment + Lease payments

Front 13

Profit margin of sales

Back 13

Net income
------------------
sales

Front 14

Return on total assets

Back 14

Net income
-------------------
total assets

Front 15

Return of common equity

Back 15

Net income
-------------------
common equity

Front 16

Basic earning power

Back 16

EBIT
---------------
Total assets

Front 17

Price to earnings ratio

Back 17

Price per share
----------------------
earnings per share

Front 18

price to cash flow

Back 18

price per share
-----------------------
cash flow per share

Front 19

market to book

Back 19

Market price per share
------------------------------------
Book value per share

Front 20

List Liquidity ratios

Back 20

1) Current Ratio

2) Quick Ratio

Front 21

List Asset Management Ratios

Back 21

1) Fixed- Asset turnover

2) Days Sales Outstanding

3) Inventory turnover ratio

4)Total Asset Turnover

Front 22

List Debt Management Ratios

Back 22

1) Debt to total assets

2) Times interest earned

3) EBITDA Coverage Ratio

Front 23

List Profitability Ratios

Back 23

1) Profit margin of sales

2) Return on total assets

3) Return on common equity

4) Basic earning power

Front 24

List Stock Market Ratios

Back 24

1) Price to earnings

2) Price to cash flow

3) Market to book

Front 25

ROE

(Dupont format)

Back 25

(profit after tax ÷ sales) X (sales ÷ total Equity)

Front 26

ROA

(Dupont format)

Back 26

(profit after tax ÷ sales) X (sales ÷ total assets)

Front 27

ROA

Back 27

Return on Assets =

(Profit margin on sales) X (Total asset turnover)

Front 28

Two types of forecasting methods

Back 28

1) the percent of sales forecasting method

2) ratio forecasting method

Front 29

Measures the length of time it takes a firm to start with cash, do something with cash in order to make a sale, and get the cash back after the sale

Back 29

Cash Flow Cycle

Front 30

Steps for Percent-of-sales forecasting method

(step 1)

Back 30

1) take the last balence sheet and divde each balance sheet item that will change proportionately with sales by the sales figure for the last period

Front 31

Steps for Percent-of-sales forecasting method

(step 2)

Back 31

Multiply these percentages by the forecasted sales figure.this will yield the forecasted balance sheet amounts

Front 32

Steps for Percent-of-sales forecasting method

(step 3)

Back 32

For the remaining balance sheet items, use common sense and estimate what each item will be

Front 33

Equity multiplier

Back 33

total assets
----------------------
common equity