14 Flashcards
minimum desirable equity value per share (in each of last 5 years) in a preferred share issue
2x the dollar value of assets each pref share would receive in a liquidation
what ratio best determines the ability of a company to repay the funds it has borrowed?
cash flow/total debt outstanding
inventory turnover ratio
The number of times a company’s inventory is turned over in a year: “Cost of Sales/Average Inventory.” Can also be # of days to sell current inventory by dividing the ratio by 365. High turnover ratio is good. Company with high turnover requires a smaller investment in inventory than one producing the same revenue with low turnover
dividend payout ratio
dividend/earnings. As earnings fall, the dividend number in the payout ratio is divided by an ever smaller earnings number and the overall ratio becomes larger.
LIQUIDITY working capital (aka net current assets)
total current assets - total current liabilities
LIQUIDITY working capital ratio
current assets/current liabilities
LIQUIDITY current assets
cash and other company assets that can be turned into cash within one year. Quality of current assets - cash better than most forms of inventory
LIQUIDITY current liabilities
company liabilities that must be paid in one year
LIQUIDITY quick ratio (acid test)
(current assets - inventories)/(current liabilities)
RISK asset coverage ratio
(total assets - goodwill - [current liabilities - short term debt]) / (total debt outstanding/$1k). asset coverage ratio shows the net tangible assets per $1k total debt outstanding.
RISK debt/equity
total debt outstanding/equity
NB: does not include trade payables or taxes payable
RISK cash flow/debt
cash flow/total debt outstanding
Corporate debt often has sinking funds requiring annual cash outlays.
Debt does not include trade payables or taxes payable)
cash flow from operating activities
Profit
+ deductions with no cash outlay (eg. amortization)
- additions not received in cash (eg. profit share of associates)
+ change in net working capital
free cash flow
(cash flow from operating activities - capex)
Capex is found in ‘cash flow from investing activities’ in company’s cash flow statement
RISK interest coverage ratio
[(Profit before interest and taxes)-(Share of Profit of Associates)]/(Interest Charges)
Note: interest coverage is critical quantitative risk test for debt security
