Exercise 1 Flashcards
financial ratios are used to….
compare risk and return of different firms
financial ratios provide…
a
profile of a firm, its
economic characteristics and competetive strategy and its unique
operating,
Financial and
investment characteristics
Activity Analysis evaluates…
revenue/output generated by the firms assets (describes relationship: operations <-> assets)
Inventory turnover
COGS / avg. inventory
Receivables turnover
Sales / avg. acc. receivables
Payables turnover
Purchases / average acc. payable
purchases = COGS + delta inventory
fixed asset turnover
Sales / avg. fixed inventory
total asset turnover
sales / avg. total assets
implication of inventory turnover
efficiency of the firms inventory management
implication of receivable turnover ratio
efficiency of the firms credit policy
implication of payables turnover
important source of financing
implication of fixed assets turnover
level of sales generated by the investment in prod. capacity
implication of total assets turnover
measure of overall investment efficiency
short term ratios are…
inventory turnover
receivables turnover
payables turnover
long term ratios are…
fixed asset turnover ratio
total asset turnover ratio
problems of long term activity analysis
- sales growth is continuous, investment in capacity is discrete
management has discretionary power over:
- timing
- form
- financial reporting
… of the acquisition
accumulation of depreciation expenses improves turnover ratio without improvement in efficiency
Operating Cycle consists of…
- aquisition of inventory
- payment for inventory
- sale of product
- cash collection
