(R24) Financial Analysis Techniques Flashcards
Activity Ratios
Ratios that measure how efficiently a company performs day-to-day tasks, such as the collection of receivables and management of inventory
Liquidity Ratios
Financial ratios measuring the company’s ability to meet its short term obligations
Profitability ratio
Ratios that measure a companies ability to generate profitable sales from its resources (these ratios involve net income and revenue)
Solvency ratios
Ratios that measure a companies ability to meet its long term obligations (ratios involve debt)
Valuation ratios
Ratios that measure the quantity of an asset or flow (earnings) in relation to the price associated with a specific claim
Inventory turnover ratio and days of inventory on hand ratio
Inventory turnover: COGS/Average inventory Days of inventory on hand: 365/inventory turnover
Receivables turnover ratio and days sales outstanding
Receivables turnover: Revenue/Average AR Days sales outstanding: 365/receivables turnover
Payables turnover and days of payables
Payables turnover: Purchases/Average payables DAys of payables: 365/payables turnover
Cash conversion cycle
Days inventory on hand + days sales outstanding - Days of payables
Operating vs. financial leverage
Operating leverage: the use of fixed assets in the business Financial leverage: the use of debt in the capital structure
Return on equity
Net income / Average total equity
Return on assets
Net income / average total assets
Dupont Analysis: Decomposition of ROE
Interest coverage ratio
Solvency ratio; EBIT/ interest payments
Price to Book value
A valuation ratio calculated as price per share divided by book value per share
Price to cash flow
Valuation ratio; Price per share / cash flow per share
Price to earnings ratio
Valuation ratio: price per share / earnings per share
Sustainable growth rate
The rate of dividend (and earnings) growth that can be sustained over time for a given level of ROE, keeping the capital structure constant without issuing common stock
