Analysis & Interpretation Flashcards
What is EVA?
A measure of a company’s financial performance based on residual wealth, calculated by deducing its cost from its operating profit
What is the formula of EVA?
Net Operating Profit after Tax - Investment Capital * WACC
What are the limitations of relationship analysis?
Various entities
Different financial periods
Inflation
Manipulation of financial data
Liquidity ratios
Analyse the company’s ability to pay its current liabilities as they become due & payable
Current ratio
Current assets : Current liabiities
quick ratio
(Current assets - Inventory) : Current Liabilities = x times
Creditors payment period
Accounts payable / Credit purchases x 365 = days
Debt management ratios
Measure a company’s ability to sustain operations indefinitely by comparing debt levels with equity, assets & earnings.
Debt/Asset Ratio
Total debt / Total assets x 100 = %
Debt-Equity Ratio
Total debt / Total equity x 100 = %
Interest coverage
EBIT / Interest = x times
Asset management
Measure how well companies use their assets to generate revenue
Inventory turnover
Cost of Sales / Inventory = x times
Average collection period
Accounts receivable / Total credit sales x 365 = days
Fixed asset turnover
Sales / Fixed Assets x 100 = %
Total asset turnover
EBIT / Sales x 100 = %
Profitability ratios
Show a company’s ability to generate profits from its operations. They focus on a company’s return on investment in inventory & other assets
Gross Profit margin
Gross Profit / Sales x 100 = %
Net Profit margin
Net Profit / Sales x 100 = %
Return on total assets
EBIT / Total assets x 100 = %
Return on equity
Net Profit / Total equity x 100 = %
Market value
Measure the company’s actual performance in relation to its market value
Dividend yield
Dividend per share / Market price per share x 100 = %
Earnings return
Earnings per share / Market price per share x 100 = %
Price earnings ratio
Price per share / Earnings per share = x times
Dividend coverage
Earnings per share / Dividend per share = x times
Cash flow
Core of the business & its best measure of financial distress
