Session 7 Flashcards
Return on Equity equation
Net Income / Average Equity
ROE
Return on Equity
What is the ultimate measure of performance from the shareholders’ point of view?
Return on Equity
What “forces” create ROE?
Operations
Financing with debt (non-operating)
How can Return on Assets be disaggregated?
Into Return from Operating Activities
And Return from Nonoperating Activities
Return on Net Operating Assets
NOPAT / Average NOA
RNOA
Return on Net Operating Assets
Net Operating Assets
Current and long-term operating assets less current and long term operating liabilities.
The Effective Tax Rate
Tax Expense / Pretax Income
NOPAT equation
(Operating Income) x (1 - Effective Tax Rate)
NOPAT stands for
Net Operating Profit After Tax
What forces give rise to the Return from Nonoperating Activities?
Spread
Leverage
Net Operating Profit Margin Equation
NOPAT / Sales
NOPM
Net Operating Profit Margin
Net Operating Asset Turnover
Sales / Average NOA
NOAT
Net Operating Asset Turnover
Gross Profit Margin equals
Gross Profit / Sales
Liquidity
How much cash the company has
How much is expected
How much can be raised on short notice
Solvency
The ability to meet obligations, especially to creditors
Current Ratio
Current Assets / Current Liabilities
Liabilities-to-Equity Ratio
Total Liabilities / Stockholders’ Equity
Convertible securities
Debt and equity securities that provide the holder with an option to convert those securities into other securities
