Credit Analysis And Interpretation Flashcards
Return on equity
R.O.E.
profitability equation
Profit margin asset turnoverfinancial leverage
Return on equity
Def.
The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.
Profit Margin
profitability equation
net income / net sales(revenue)
Net Income
Def
An individual’s income after deductions, credits and taxes are factored into gross income. Deductions and credits are subtracted from gross income to arrive at taxable income, which is used to calculate income tax. Net income is income tax subtracted from taxable income.
Asset Turnover
Def
The asset turnover ratio is a measure of a company’s ability to use its assets to generate sales or revenue, and is a calculation of the amount of sales or revenue generated per dollar of assets.
Asset Turnover
profitability equation
sales / average tot. assets
Financial leverage
Def
Financial leverage refers to the use of debt to acquire additional assets. Financial leverage is also known as trading on equity
Financial leverage
profitability equation
avg. tot. assets / avg. stockholder’s equity
N.O.P.A.T.
net operating profit after tax
Operating revenues less operating expenses such as cost of sales, S.G.A. expense, and taxes.
Excludes: nonoperating revenues & exp. such as interest rev. dividiend rev.
N.O.A.
net operating assets
Operating assets less operating liabilities; it exlcudes nonoperating items such as investments in marketable securities and interest-bearing debt
R.N.O.A.
return on net operating assets
NOPAT / Average NOA
we take avg. of 2 yrs and divide by 2
N.N.E.
net nonoperating expense
NOPAT - consolidated net income; NNE consists of nonoperating expenses and revenues net of tax
