7. Times Interest- Earned Ratio or Interest Coverage Ratio
EBIT Interest Expense
9. Fixed charge coverage ratio or EARNINGS TO FIXED CHANGES RATIO
Total Liabilities Equity EBIT + Interest portion of operating leases Interest + Interest portion of operating leases
10. Operating cash flow to total debt ratio
Operating cash flow Total debt
8.Debt-Equity Ratio
extent to which the assets having explicit cost(total capital) are financed by interest-bearing debt more conservative measure of long-term debt payment ability than the debt ratio or debt-equity ratio margin of safety for payment of fixed interest charges - extent to which operations cover interest expense - the higher the TIE is = solvent ; company can afford to pay all of its expenses and still has a large income compare resources provided by creditors with resources provided by shareholders Margin of safety of payment of all fixed charges portion of total liabilities that can be paid out of the cash flows from operations
ASSET MANAGEMENT RATIOS- how the firm uses its assets to generate revenue and income indicates if a firm holds excessive stock of inventories that are unproductive and that lessen the company’s 1. Finished Goods or COGS profitability Merchandise Inventory Turnover Average Inventory AVERAGE INVENTORY= (Beg. + End) / 2 Number of Days in a Yr (360) Inventory Turnover Average # of days that inventory is held before sale 2. Average Age Of Inventories or - higher turnover and short average age of inventories Number of days of inventory Average Inventory is desirable Average daily COGS Cost of Raw Materials Used Ave. RM Inventory COGM Goods in Process Turnover Ave. Goods in Process Inventory Raw Materials Turnover
3. Receivables Turnover ratio
4. Average Age of AR or average collection period
5. Operating Cycle or Conversion Period 6. Average Age of Accounts Payable Payables Turnover Average Age of TP 7. Fixed Assets Turnover Ratio 8. Total Assets Turnover Ratio
Net Credit Sales Average Account Receivables Number of Days in a Yr (360) Receivables Turnover Average AR Average daily Sales Average Age of Inventories + Average Age of Receivables Average Accounts Payable Average Daily Purchases Net Credit Purchases Average Trade Payables Number of Days in a Yr (360) Payables Turnover Net Sales Average Net Fixed Assets Net Sales Average Total Assers
average # of days to collect a receivable
average # of days to collect a receivable
average # of days to convert inventories to cash Determine whether the firm is paying its invoices on a timely basis length of time which trade payables remain unpaid
level of use of PPE level of investment relative to sales volume
Net sales Total Capital Total Capital Turnover Ratio
10. Investment Rate
level of total assets having explicit costs relative to Total Capital = total assets having sales volutme explicit costs (Equity + interestbearing debt) Total Capital, 200B - Total Capital, 200A % Change in total capital Total Capital, 200A
Amount of Available % of net income available for investment Reinvestment Net Income high rate = less external financing COST MANAGEMENT RATIO- how well a firm controls its cost 11. Plowback Ratio
1. GP Rate 2. Labor Cost Ratio
Net sales - cost Net Sales Labor Cost Net Sales
how much can be spent for marketing, R&D, … % of Labor cost to sales
measure of operation growth - compare with investment rate to determine whether capital is being substituted for labor PROFITABILITY RATIO- measure earnings in relation to some base, such as Assets, sales or capital 3. Employment Growth Rate
# of workers, 200B- 200A Number of workers 200A
1. Profit Margin on Sales or Return on Sales
Net Income Net Sales EBIT Net Sales
2. Net Operating Income to Sales 3. Return on Investment or Return on Total Assets or Return on Invested Capital 4. Net Operating income to total capital
5. Marginal Profitability Rate 6. Return on Common Equity 7. Marginal Return on Common Equity 8. Return on Total Equity
9. Economic Value Added
Net Income Average total assets EBIT Average total assets EBIT Equity + Interest bearing debt Change in EBIT Change in Capital
% of Net Income to Sales % of operating income to Sales
measure of operating efficiency, management is using funds wisely variation of ROA that excludes non-interest bearing debt from total assets
variation of net operating income to total capital ratio
Net Income - Preferred Dividends return on the carrying amount of equity Average Common Equity Change in Net Income Change in common Equity Net Income- dividends on redeemable preferred stock Ave. Total Equity Net Operating Profit After TAXES Less Capital Charge or Total cost of capital
variation of return on common equity
Net Income/ Average Equity
measure of shareholder value creation
Capital Charge = Total Capital employed x WACC GROWTH RATIOS- changes in economic status of a firm over a period of time 1. BEPS 2. earnings yield
Cash flow per Share 4. Dividends Payout ratio 5. Dividend Yield 6. Ratio of Operating cash flows to cash dividends 7. Internal Growth Rate 8. Sustainable Equity Growth Rate
Income Available to Common Company’s earning power ; ability to generate income Stockholders Ave. Common Shares Outstandng from normal operations Earnings per share Market price per share
Cash Provided by operations preferred dividends Common shares outstanding Cash dividends per common shar EPS Cash dividends per common shar Market price per common shar
relationship of earnings per share to market price per share
indicator of short-term capacity to make capital outlays and dividend payments whether a firm pays out more of its earnings in dividends or reinvest the earnings internally relationship of common dividends per share to the market pricer per share
Net Cash Provided by operations ability to pay dividends from current operating sources Cash Dividends Amount Retained % increase in assets kept in the business Asset Base Return on Common Equity x (1- Dividend payout ratio) relationship of the earnings retained and the return thereon
VALUATION RATIOS- measure of shareholder value as reflected in the price of the firm’s stock Equity amount of net assets available to shareholders of a 1. Book Value per share Shares Outstanding given type of stock 2. Market to Book Ratio 3. Price- Earnings Ratio 4. Return on Shareholders
Market Price per share Book value per Share Market Price EPS Dividend Yield + Capital Gains Measurement Period
5. Q - Ratio
Market Value of all securities Replacement Cost of assets
6. Return on Shareholder’s Investment
Dividends per share + MV of Reinvested earnings Price per share
how high the shares’ market price in relation to book value high PE ratio is preferrable what shareholders actually earn over a specified period of years market’s valuation of new investment. - when q-ratio is > 1= the firm is earning returns greater than the amount invested return on the price of a common share
