Chapter 4: financial statement analysis and forecasting 2 Flashcards
what are the productivity ratios
- receivable turnover ratio
- average collection period (ACP)
- inventory turnover ratio
- Average days sales in inventory (ADSi)
- Fixed asset turnover
How do you calculate receivable turnover ratio
revenue / ar
how do you calculate average collection period (ACP)
AR/ Avg. daily credit sales
= 365/ receivable turnover
how do you calculate inventory turnover ratio
COGS / Inventory
how do you calculate average days sales in inventory (ADSI)
inventory / avg daily sales -
365/ inventory turnover
how do you calculate fixed asset turnover
sales / net fixed assets
what does ACP show
estimates the number of days it takes for a company to collect on its A/R
what does receivable turnover show
measure the sales generated by every dollar of receivable
what does inventory turnover ratio show
measures the number of times ending inventory was turnover (or sold during the year)
what is a danger about inventory turnover ratio
managers often try to improve this ratio when they are close to year end (through inventory reduction strategies )
- ie. cash and carry sales, clearance)
what does average days sales in inventory show
estimates the number of days sales tied up in inventory, based on ending inventory values
what does fixed asset turnover show
estimates the number of sales produced by each dollar of net fixed assets
What do productivity ratios show
measure the company’s ability to generate sale sform its assets
0 excessive investment in assets with little or no increase in sales reduces the rate of return on both assets (roa) and (ROE)
What are the liquidity ratios
- working capital
- current ratio
- quick (Acid test)
what do liquidity ratios measures
the ability of the company to meet its financial obligations as they mature using liquid (cash or near cash) resources
what is the formula for working capital
current assets / total assets
what is the formula for current ratio
current assets / current liabilities
what is the formula for quick acid test
cash + marketable securities + AR / current liabilities
what does working capital show
measures the proportion of total assets invested in current assets
- demonstrates the company’s capital intensity and corporate liquidity
what does the current ratio measure
measures the number of dollars of current assets for each dollar of current liabilities
- estimates the capacity of the company to meet its financial obligations as they mature
what does the quick acid test show
recognizes that inventories and other current assets may be less liquid and in some cases when they have to be liquidated quickly, can result in cash flows that are less than book value
What are the valuation ratios
- equity book value per share (BVPS)
- dividend yield
- trailing price-earnings (p/e)
- Forward P/E
- Market-to-book
- earnings before interest, taxes, depreciation and amortization (EBITDA) multiple
how do you calculate equity book value per share (BVPS)
SE / Number of shares
how do you calculate dividend yield
dividend per share / price per share
DPS / P
How do you calculate the trailing price-earnings (or P/E)
share price / earnings per share
P / EPS
how do you calculate forward P/E
share price / estimated earnings per share
P / EEPS
how do you calculate market-to-book
share price / book value per share
p / BVPS
how do you calculate Earnings before interest, taxes, depreciation and amortization
TEV (total enterprise value) / EBITDA
what does equity book value per share show
expresses shareholder’s equity on a per share basis
what does the dividend yield show
expresses the dividend payout as a proportion of the current share price
- can be compared to the yield on other investment instruments, such as bonds or the stock of other dividend-paying companies
what does trailing price-earnings (p/E) show
an earnings multiple based on the most recent earnings
- often used to estimate the value of a stock
what does forward P/E show
an earnings multiple based on forecast earnings per share
- often used to estimate the value of a stock for companies with rapid growth in EPS
low P/E - regarded as value stocks
high p/e - regarded as growth stocks
what does the market-to-book show
estimates the dollars of share price per dollar of book value per share
- the degree to which market value per share exceeds BVPS indicates the value that has been added to the co. by management
what is the basis for market-to-book
historical cost accounting is the basis for BVPS
what does earnings before interest, taxes, depreciation and amortization (EBITDA multiple show
expresses total enterprise value (TEV) for each dollar of operating income or EBITDA
What does total enterprise value mean
is an estimate of the market value of the firm
