Cash flow statement: key ratios Flashcards
Name key ratio: Profitability analysis (with the statement of cash flows)
Cash flow margin: Net cash from operating activities (=net cash flow) / revenues
Key profitability return ratios
Name key ratios: accounting-oriented profitability analysis (shareholder perspective)
Return of Equity (RoE): Net profit / equity
Return on assets (RoA): Net profit / total assets
Return of Equity
Return of Equity (RoE): net profit / equity
- How much income is earned for the shareholders on their invested capital
- Companys target: generating a return that corresponds to the interest rate on capital markets plus an industry-dependent risk premium (5-10%)
- Given constant profits -> RoE increases the lower level of equity employed (leverage effect)
Return on assets
Return on assets (RoA): net profit / total assets
- measures how profitabley a firm uses its assets
- alternative numbers: EBT, EBIT, EBITDA
Name key ratios: Accounting-oriented profitability analysis (investor perspective)
Return on Investment (RoI): EBIT / total capital
Return on Capital employed (RoCE): EBIT (or net profit) / Capital employed
Return on Investment
Return on Investment (RoI): EBIT / total capital
- interest on the total capital used
- Generally used as a starting point for all further analysis using profitability indicators
Return on Capital employed
Return on Capital employed (RoCE): EBIT (or net profit) / Capital employed
- Definition Capital employed: “Capital necessary to run business” - simplified: Total assets- current liabilities (alternative: Fixed assets, necessary for operations + working capital)
> > > Measures how much a firm earns on longterm external financing
Problem: indicator based on residual book values -> returns would always increase over time
Name key ratios: IFRS (diluted) earnings per share
(Basic) Earnings per share (EPS): net profit - preferred dividends / weighted average of total common shares outstanding
(Diluted) Earnings per Share (EPS): net profit - preferred dividends + interest expenses for convertible bonds (t-1) / weighted average of total common shares outstanding + converted shares
(Basic) Earnings per Share
(Basic) Earnings per Share (EPS): net profit - preferred dividends / weighted average of total common shares outstanding
- most often used to describe a companys performance over time
- basics of company evaluation
- Calculation depends on the regulation in the accounting standards
(Diluted) Earnings per Share
(Diluted) Earnings per Share (EPS): net profit - preferred dividends + interest expenses for convertible bonds (t-1) / weighted average of total common shares outstanding + converted shares
- takes into consideration the potential impact of corporate actions (e.g. capital increases) and/or stock option plans
Name key ratios: Market oriented profitability analysis (shareholders perspective)
Return to Shareholders (RtS): (year-end closing price - prior year-end closing price + dividend per share) x 100 / prior year-end closing price
Market to book ratio (= price to book ratio): Market capitalization (= Total common shares outstanding x price oer share) / equity
Price earnings ratio: Price per share / (Diluted) earnings per share
Return to Shareholders
Return to Shareholders (RtS): (year-end closing price - prior year-end closing price + dividend per share) x 100 / prior year-end closing price
- Shows the (theoretical) return a shareholder earned on the period by dividens + change of the share price
Market to book ratio
Market to book ratio (= price to book ratio): Market capitalization (= total common shares outstanding x price per share) / equity
- lower market to book value indicates a company is valued low (ratio > 1 -> shareholder pays a premium for the positive prospects)
- market capitalization also reflects expectations for the companys growth
Price earnings ratio
Price earnings ratio: Price per share / (Diluted) Earnings per share
Name key ratios: Market-oriented profitability analysis (investor perspective)
Market value multiples:
Net valuation: Market value of equity / EBT
Gross valuation:
Earnings-oriented: Market value of the entity / EBIT
Cash flow-oriented: Market value of the entity / EBITDA
Net valuation
Net valuation: Market value of equity / EBT
Market value of equity = price per share x number of common shares outstanding
Gross valuation (earnings-oriented)
Gross valuation - earnings-oriented: Market value of the entity / EBIT
Market value of the entity = Market value of equity + net financial debt
Gross valuation (cash-flow oriented)
Gross valuation - cash-flow-oriented: Market value of the entity / EBITDA
- e.g. used in startups
- Market value of the entity: Market value of equity + net financial debt
Key ratios: Turnover
Capital turnover: revenues / total capital
Equity turnover: revenues / equity
- Company with an equal return on revenues but a lower ratio of revenues to total capital -> would generate lower profits (due to higher fixed costs + capital lock-up costs)
> > > The higher the ratio, the lower the amount of capital required (due to shorter pre-financing period)
Name key market oriented share ratios
Dividend per share: Dividend paid / Common shares outstanding
Dividend yield: Dividend per share x 100 / price per share
Dividend per share
Dividend per share: Dividend paid / common shares outstanding
- comparing the dividend per share to its actual share price -> interest can be compared to other peer group companies -> evaluating a companys attractiveness
Dividend yield
Dividend yield: Dividend per share x 100 / price per share
- shows the effective interest rate for the capital invested in shares
- Important also for comparisons with other forms of investment, e.g. bonds
- ! dividend payments are much less certain than coupon payments for bonds
