Bus class 3 5 ratios
- 1. Ratio Analysis Financial ratios are relationships determined from a firms financial information. Used to compare and investigate relationships between different pieces of financial information, either over time or between companies. Ratios eliminate the size problem.
- 2. Categories of Financial Ratios Liquiditymeasures the firms short-term solvency. Capital structuremeasures the firms ability to meet long-run obligations (financial leverage). Asset management (turnover)measures the efficiency of asset usage to generate sales. Profitabilitymeasures the firms ability to control expenses. Market valueper-share ratios.
- 4. Capital Structure Ratios onamortisationdepreciatiafter taxprofitNet debtbearing-Interest flowcashgrossDebt to chargesfinanceInterest EBIT coverinterestNet equityTotal assetsTotal multiplierEquity equityTotal debtTotal ratioyDebt/equit sIntangibleequityTotal CashdebtfinancialTotal ratioydebt/equitNet
- 6. Turnover Ratios (continued) assetsTotal Sales overasset turnTotal assetscurrent-Non Sales overasset turnFixed turnoversReceivable days365 sreceivableinsalesDays'
- 8. Market Value Ratios shareperBook value shareperueMarket val ratiobook-to-Market shareperEarnings shareperPrice ratioingPrice/earn
- 9. The Du Pont Identity Breaks ROE into three parts: operating efficiency asset use efficiency financial leverage multiplierEquityROA multiplierEquityoverasset turnTotalmarginProfit Equity Assets Assets Sales Sales profitNet ROE 器 器器 器器
- 10. Uses for Financial Statement Information Internal uses: performance evaluation planning for the future External uses: evaluation by outside parties evaluation of main competitors identifying potential takeover targets
- 11. Benchmarks for Comparison Ratios are most useful when compared to a benchmark. Time-trend analysisexamine how a particular ratio(s) has performed historically. Peer group analysisusing similar firms (competitors) for comparison of results. Global Industry Classification Standard (GICS) used by ASX is a useful way to find a peer company.
- 12. Problems with Ratio Analysis No underlying theory to identify correct ratios to use or appropriate benchmarks. Benchmarking is difficult for diversified firms. Firms may use different accounting procedures. Firms may have different recording periods. One-off events can severely affect financial performance.