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22 Cards in this Set
- Front
- Back
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Profit Margin |
- Ratio measure that measures the ability of a company to make a profit relative to the revenue generated during the period - Calc. by Net income/Sales |
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Return on Equity (ROE) |
- Shows the return on that a business generated during a period on the equity invested in the business by the business owners - Net income/Owner's Equity |
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Dupont Framework |
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Gross Profit Margin |
- Gross profit(revenue - cost of sales)/sales - Tells us what % of revenue is left to cover other expenses after subtracting COGS |
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EBIAT |
- Earnings Before Interest After Taxes - Measure of how much income the business has generated while ignoring the effect of financing and capital structure, or the portion of debt that the business has. - Interest expense is added back - Income tax is calc and subtracted based on earnings before interest. |
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Profit Margin |
Profit Margin = Net Income/Total Sales
- How much a company keeps in earnings for every $ of sales after all the expenses have been subtracted - E.g. If Macy's PM was 5.32% then it means that Macy's earned $5.32 dollars for every $100 in sales |
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EBIAT Calculation |
EBIT(Income before taxes + interest) × (1 - (tax expense/Income b4 taxes)) |
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Asset Turnover |
Revenues/Avg Total Sales - Measures efficiency w/ which a company uses assets to generate revenue - Company with more assets does not mean it is efficient |
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Inventory Turnover |
COGS/Avg Inventory - Shows how fast a company is selling its inventory - # of times a company sells through and replaces its inventory during a year. E.g. A ratio of 2 means the company sells through its inventory every 6 months - Excess inventory decreases efficiency |
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Days Inventory |
Avg Inventory/(COGS/365) Or 365/Inventory Turnover |
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AR Turnover |
Net Credit Sales/Avg AR Balance - Shows how quickly a company collects payment from customers - High turnover means a company is efficient at collecting Receivables |
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Avg Collection Period |
365/AR Turnover |
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AP Turnover |
Calc by Credit Purchases(or COGS if there is no credit data)/Avg AP - # of times a year that the average balance is paid off. |
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Days Purchases Outstanding |
Calc by 365/AP Turnover - Shows w/in how many days a company pays back the supplier |
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Cash Conversion Cycle |
Calc by: Days Inventory + Avg Collection Period - Days Purchase Outstanding - Shows time it takes a company to pay its vendor from the time it receives cash from customers. - E.g. it takes Macy's about 73 days to pay back vendors from the time Macy's receives cash from its customers |
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Negative Cash Conversion Cycle |
When a company buys goods on credits from a supplier and can sell its inventory and collect cash very quickly b4 payment is required by supplier. - Can be useful b/c a company can rely on credit from its suppliers to provide cash to purchase new inventory. |
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Low Cash Conversion Cycle |
Implies company is very efficient and needs less financing. |
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Financial Leverage |
Leverage = Avg total assets/Avg total equity - How a company uses debt to finance assets - Too much leverage can be good/bad. It can magnify gains and losses. - Greater than 1 means it is heavily financed by debt |
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Debt to Equity |
Debt to Equity = Avg total liabilities/Avg total equities - Debt to equity ratio of 1 implies that half the company's assets are financed by equity and half are financed by debt - > 1 means more of company's assets are financed by debt than equity |
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Current Ratio |
Current Ratio = Current Assets/Current Liabilities - liquidity ratio - Using current assets to pay current liabilities - <1 means business could face difficulties in paying short-term obligations - Extremely high current ratio means that business doesn't effectively manage its working capital
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Quick Ratio |
Calc by Highly Liquid Current Assets/Current Liabilites - inventory is excluded b/c it doesn't always easily convert to cash - AR, Cash, and short-term investments - Also known as acid test ratio |
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Interest Coverage Ratio |
Interest Coverage = EBIT/Interest Expense - EBIT = net income + interest expense + tax expense - Determines a company's ability to make interest payments on its debt. - Ratio <1 means company is unable to make its interest payments - E.g. if Macy's has an interest Coverage of 7 then it means Macy's would be able to cover its interest payments nearly 7 times over |
