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Financial Ratio Analysis EMBA 2017

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Mohamed Routan
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25 views5 pages

Financial Ratio Analysis EMBA 2017

Uploaded by

Mohamed Routan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Liquidity ratios

Current Ratio = measures the ability to satisfy current liabilities in the short
run
Current assets
Current ratio=
Current liabilities

Quick Ratio (Acid test ratio): measure the ability to satisfy current
liabilities using the most of liquid current assets
Cash+ Marketable securities+ Recaivables
Quick ratio=
Current liabilities

Cash Ratio= Ability to satisfy current liabilities using only cash and cash equivalents

Short−term
Cash+
investments
Cash ratio=
Current liabilities

Working capital = Current Assets - Current liabilities

Inventory Turnover: How many times inventory is created and sold during
the period
Cost of goods sold
Inventory turnover = Average inventory

Cost of goods Sold


Average Days in Cost of Goods sold = 365

Number of days in inventory: (inventory turnover in days): Average time it takes


to create and sell cost of Goods Sold

Ending Inventory
Number of days in inventory = Average Days∈inventory

1
Receivables turnover: How many times receivables are created and
collected during the period

Net Sales
Receivables Turnover = Average Trade Gross Receivables

Net Sales
Average days sales = 365

Days Sales in receivables: Measures the average time taken by the firm to
Collect accounts receivable (Efficiency of the collection department)

Gross Receivables
Days Sales in receivables = Average days sales

Operating cycle time: Time from investments in inventory to collection of


accounts receivable=
Number of Days in inventory + Days sales in receivables

Long Term Debt Paying Ability

Debt to asset ratio: Proportion of assets financed with debts

Total debts(total liabilities)


=
Total assets

Long term debts to assets ratio=

Proportion of assets financed with long term debts

Longterm liabilities
= Total assets

Debt to equity ratio: Shows the degree of debt financing to equity financing
(indicates the degree of financial leverage)

2
Total liabilities
= total stock holder s ' equity ¿
¿

Interest Coverage Ratios = Measures the ability of earnings before


Earningsbefore interest ∧taxes
interest and taxes to cover interest expenses = interest expenses

Profitability Analysis

Each margin ratio compares a measure of income with total revenues:


Gross profit
Gross profit margin=
Total revenue

Operating profit
Operating profit margin=
Total revenue

Net profit
Net profit margin=
Total revenue

(A measure of each net income dollars generated by each dollars of sales)


Earningsbefore taxes
Pretax profit margin=
Total revenue

Total Assets Turnover: Measures the firm’s efficiency for using its assets in
generating sales
Net Sales
= Average total assets

Operating income
Operating return on assets=
Average total assets

Net income (before di s continued operations)


Returnon assets(ROA )=
Average total assets

Operating income
Operating return on assets=
Average total assets

3
Operating Incomes Sales
Du Pont /return on Operating Assets = Sales
X Total Assets

Operating income margin X operating assets turnover


Net income before discontinued operations
Returnon equity (ROE)= '
Average shareholders equity ( common equity )

Investor Analysis

Basic Earnings Per Share (EPS): Amount of Income Earned on a share of


common stock during an accounting period:

Net income−Preferred Dividends


¿
Weighted average number of common shares outstanding

Diluted Earnings Per Share (EPS)

Net income−Preferred Dividends


¿
Diluted Weighted average of common shares outstanding

Operating Cash flow Per Share=¿

O perating cash flow−Preferred dividends


Weighted Average number of common shares outstanding

Book Value Per Share: Amount of stockholders’ that relates to each share of
outstanding stocks
'
Total shareholder s Equity−Preferred Stock equity
¿
N umber of common shares outstanding

Price/ Earnings Ratio (EPS): Measures how many times the stock has
been selling in relation to its earnings (It is an indicator of the future
earnings power of the stocks)

Market Price Per Share


¿
Diluted Earnings Per Sha ℜ

4
Dividend Payout Ratio:

Dividends per common share


¿
Diluted Earnings Per Share Before Discontinued Items

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