Chapter 2 Flashcards
Financial statements
i) balance sheet
ii) income statement
iii) statement of cash flows
iv) statement of changes in shareholders’ equity
Asset book value
value after accumulated depriciation
Shareholder equity
Assets - Liabilities (worth of the firm)
Assets = ?
Liabilities + Shareholders Equity
Firm’s market value
market price per share * shares
Liquidation value
what would be left if the firm sold all its assets and paid its liabilities
Market - Book ratio
market value of equity / book value of equity
What does a >1 Market Book ratio mean?
That the value of the firm’s assets as used currently exceeds their liquidation value
Debt- equity ratio (Leverage)
Total debt / Total equity
Value stocks
low market to book ratio
Growth stock
high market to book ratio
Enterprise value
Market capitalization + debt - cash
EPS (earnings per share)
Net Income / Shares outstanding
Gross margin
Gross profit / sales
Operating margin
Operating income / sales
Net profit margin
Net Profit / Sales
Asset turnover
Sales / Total assets
Fixed asset turnover
Sales / Fixed assets
Accounts receivable days (average collection period or days sales outstanding)
Accounts receivable / Average daily sales
Inventory turnover
Cost of goods sold / inventory
Interest coverage ratio
Interest / Earnings
Return on equity
Net income / Book value of equity
Return on assets
Net income / Total assets
DuPont identity
(Net income/sales) * (Sales/ Total assets) * (Total assets/ total equity) {profit margin x asset turnover x equity multiplier} these are the key drivers of net income.