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50 Cards in this Set
- Front
- Back
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Current liabilities to equity
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- Leverage ratio
- Percentage - Measure of how much debt incurred vs. equity financing |
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Net working capital turnover
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- Activity ratio
- Decimal - Measure of how efficient a firm has used it's working capital to generate sales |
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Leverage ratios
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- Debt to assets
- Debt to equity - Times interest earned - Long-term debt to capital structure - Current liabilities to equity - Coverage of fixed charges |
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Altmann Z-value formula
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- Measure of how likely a firm is at risk of bankruptcy
- 1.81 or less = sig. credit problems - 3.00 or above = healthy firm - In between is a question mark - 94% accurate |
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Net profit margin
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- Profitability ratio
- Percentage - Measure of how much after-tax profit is generated for each dollar of sales |
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Coverage of fixed charges
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- Leverage ratio
- Decimal - Measure of how likely a firm can cover its fixed charge obligations |
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Times interest earned
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- Leverage ratio
- Decimal - Measure of a firm's ability to meet its annual interest obligations |
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Long-term debt to capital structure
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- Leverage ratio
- Percentage - Measure of how much of the capital structure is financed via long-term debt |
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Liquidity ratios
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- Current ratio
- Quick/Acid test ratio - Inventory to working capital ratio - Cash ratio |
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Current ratio
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- Liquidity ratio
- Decimal - Measure of a firm's ability to meet its short-term obligations with current assets |
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Quick ratio
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- Liquidity
- Decimal - Measure of a firm's ability to meet its short-term obligations with current assets, less inventory |
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Inventory to net working capital ratio
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- Liquidity
- Decimal - Measure of the impact inventory fluctuations would have on the cushion between current assets and current liabilities |
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Working capital
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Current assets - current liabilities
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Cash ratio
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- Liquidity
- Decimal - Measure of how effective cash (and equivalents) are at satisfying current liabilities - Higher = better |
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Profitability ratios
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- Return on assets
- Return on equity - Net profit margin - Gross profit margin - Earnings per share |
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Gross profit margin
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- Profitability
- Percentage - The margin available after COGS is settled, and is available to pay operating expenses and still net a profit - Higher = Better |
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Return on equity
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- Profitability
- Percentage - Measure of how much return a firm receives from its internal investing (stockholders) - Higher = Better |
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Earnings per share
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- Profitability
- Percentage - The total earnings received per share of common stock - Higher - Better |
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Activity ratios
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- Inventory turnover
- Days of inventory - Net working capital turnover - Average collection period - Accounts receivable turnover - Asset turnover - Fixed asset turnover - Days of cash - Accounts payable period |
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Inventory turnover
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- Activity
- Decimal - How many times inventory is turned over in the period - Higher = better |
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Days of inventory
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- Activity
- Days - Number of days of inventory on-hand |
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Asset turnover
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- Activity
- Decimal - Number of sales dollars generated for each dollar of assets - Higher = better |
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Fixed asset turnover
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- Activity
- Decimal - Number of sales dollars generated for each dollar of fixed assets - Higher = better |
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Average collection period
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- Activity
- Days - A measure of how long it takes a firm to collect payment - Lower = better |
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Accounts receivable turnover ratio
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- Activity
- Decimal - How many times the accounts receivable cycle occurred; how efficient a firm is using its assets - Higher = better |
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Accounts payable period
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- Activity
- Days - How long it takes a firm to pay its creditors |
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Days of cash
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- Activity
- Days - How many days of cash a firm has on hand - Higher = better |
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Debt to assets
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- Leverage
- Percentage - How much of a firm's assets are financed via debt - Lower = better |
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Debt to equity
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- Leverage
- Percentage - Measures how much of debt a firm has compared to investments by stockholders |
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Return on investment
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- Profitability
- Percentage - Measures how effectively assets were utilized; measure of management efficiency; regardless of where funds came from - higher = better |
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Price to earnings ratio
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- Other ratios
- Decimal - A measure of how much investors are willing to pay for each dollar if a firm's earnings - higher = better |
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Dividend payout ratio
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- Other ratios
- Percentage - How much of a firms earnings are paid out as a dividend |
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Dividend yield on common stock ratio
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- Other ratios
- Percentage - The rate of dividends paid to shareholders |
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Index of sustainable growth
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- A measure of the ability of a firm to fund its own growth
- The g* is calculated and this is the growth rate a firm can self-sustain - If a growth rate above this value is needed, a firm will have to find external funding |
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SEC 10-K
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- Annual reports
- Including cash flow statement - Including notes to the financial statements |
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SEC 10-Q
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- Quarterly financial statements
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SEC 14-A
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- Detailed information on the board of directors
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Sales and A/R
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- Sales should grow faster than accounts receivable
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Cash flow from operations and net income
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- Operating profit should be larger than net income
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Gross margin fluctuations
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- Gross margin should not fluctuate more than 2% in any direction
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Case method
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- Opportunity to move from narrow, specialized view to a broader less precise view of the corporation
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10K Reports vs. Annual Reports
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- 10Ks have more detailed information than annual reports
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Why use ratios?
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- To identify a firm's SWOT
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Which ratios?
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- Only those that have an impact on the company's problems
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Five steps in financial analysis
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1. Look at financial statements
2. Compare historical statments over time 3. Calculate changes in single categories from year to year 4. Determine change as a percentage 5. Adjust for inflation |
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Common size income statements
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- Use % to compare line items
- Balance sheet => total assets are 100% - Income statement => net sales are 100% - They also provide a series of historical relationships |
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Constant dollars
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- Dollars adjusted for inflation
- Using the CPI from 82-84 |
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Prime interest rate
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- The rate banks charge on their lowest interest/risk loans
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Gross domestic product
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- Used worldwide
- Measure of a country's total output of goods and services within a country's borders |
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Case discussion
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- Focuses on critical analysis and logical development of thought
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