Chapter 4: Measuring Corporate Performance Flashcards
market capitalization
total market value of equity, equal to share price times number of shares outstanding
market value added
market capitalization minus book value of equity
market-to-book ratio
ratio of market value to book value of equity
economic value added (EVA)
operating profit minus charges for the cost of capital employed; also called residual income
net operating profit after tax (NOPAT)
the after-tax profits from operations, as if the firm had no debt; equals net income plus after-tax net finance (or interest) expense
return on capital (ROC)
net operating profit after taxes (NOPAT) as a percentage of invested capital (debt plus equity)
return on assets (ROA)
net operating profit after taxes (NOPAT) as a percentage of total assets
return on equity (ROE)
net income as a percentage of shareholders equity
operating profit margin
net operating profit after taxes (NOPAT) as a percentage of sales
du pont formula
ROA equals the product of the asset turnover and operating profit margin
liquidity
access to cash or assets that can be turned into cash on short notice
sustainable rate of growth
the firm’s growth rate if it plows back a constant fraction of earnings, maintains constant return on equity, and keeps its debt ratio constant
