【文章內容簡介】 ften considered debt given longterm nature ? Deferred tax ? Preferred stock 21 Liquidity and Coverage Ratios Definitions Liquidity ratios use line items from the balance sheet. Coverage ratios use line items from the ine statement. Ratios Definitions Current ratio Current assets Current liabilities Quick ratio (acid test) Cash + marketable securities + receivables Current liabilities Interest coverage ratio Earnings before interest and taxes Interest expense Fixed charge coverage Earnings before interest and taxes All essential payments (including lease payments) Liquidity: Coverage: 22 Liquidity and Coverage Ratios Description ?Acceptable values for these ratios differ by industry. However, when the current ratio or coverage ratios fall below 1 that means the firm is unable to meet its obligations ?It is a useful exercise to calculate how much revenue could drop (or costs rise) before coverage would drop below 1 Liquidity ratios measure the firm’s ability to meet its shortterm obligations. Coverage ratios measure the firm’s ability to meet its longterm obligations. 23 Agenda ?Using ratios ?Types of key ratios –profitability –turnover –leverage –liquidity –coverage ?Return on Equity ?Ratio exercises ?Forecasting exercise ?Abbreviations ?Key takeaways 24 Return on Equity ?Return on equity is defined as profit after tax (earnings) divided by equity. It relates economic outputs (profit) to inputs (equity). ?It tells us the amount of profits the pany earned on each dollar the stockholders invested in the firm. –It is important to note that not all of the earnings are paid to the stockholders when they are earned. ? Only some portion of the earnings will be returned now in the form of dividends. The remainder (retained earnings) will be reinvested in the pany to finance growth ? The size of the divided is decided by the board of directors。 an individual stockholder has no influence over when he/she actually receives the return that he/she has earned ?It is a bination of profitability, turnover, and leverage ratios Return on equity, ROE, is the acid test of success for a business. 25 DuPont Formula By separating ROE into its ponents, one can gain insight into how to improve the performance of a business. ROE = Profit after tax Equity ROE = Profit after tax Sales Sales Assets Assets Equity X X Return on Assets Leverage ROS Asset turnover This is known as the DuPont formula ROE = Profitability X Turnover X Leverage 26 Agenda ?Using ratios ?Types of key ratios –profitability –turnover –leverage –liquidity –coverage ?Return on Equity ?Ratio exercises ?Forecasting exercise ?Abbreviations ?Key takeaways 27 Unidentified Industries Exercise The objective of this exercise is to test your understanding of financial ratios. Exercise: The balance sheets (in percentage form) and selected ratios for six industries are given on the following page. Please match each of the six industries to the financial information ?Coal mining ?Grocery stores ?Hotels and motels ?Legal services ?Packaged software ?Potato chips and snacks 28 Unidentified Industries Exercise Data Industry Balance Sheet (%) A B C D E F *Ratios do not tie to balance sheet items because they were calculated using a slightly different data set. **This is NOT inventory turns. Inventory turns would be COGS to inventory. ***Sales to assets Source: Industry Norms Key Business Ratios, Dun Bradstreet ? Cash ? Accounts receivable ? Notes receivable ? Inventory ? Other current ? Total current assets ? Fixed assets ? Other noncurrent assets ? Total assets ? Accounts payable ? Bank loans ? Notes payable ? Other current liabilities ? Total current liabilities ? Other longterm liabilities ? Deferred credits ? Net worth ? Total liabilities worth Ratios* ? Quick ratio (times) ? Current ratio (times) ? Total liabilities to worth (%) ? Collection period (days) ? Sales to inventory (times)** ? Assets turns*** (times) ? Gross margin (%) ? Return on sales (%) ? Return on assets (%) ? Return on equity (%) % % % 127% days 64% 7% 5% 14% % % % 87% days 38% 3% 7% 16% % % % 62% days 29% 2% 5% 7% % % % 93% days 22% 1% 6% 13% % % % 67% days 57% 12% 20% 29% % % % 74% days 59% 6% 10% 19% 29 Unidentified Industries Exercise Answer Characteristics: Financial ratios: Companies: Hotels and Motels ? Very high fixed assets ? Low inventory ? Short collection period ? Low asset turnover ? High gross margin ? High leverage ? Fixed assets = 65% ? Inventory = 1% ? Collection period = 9 days ? Asset turns = ? Gross margin = 64% ? Total liabilities to worth = 127% A Coal Mining ? Very high fixed assets ? Low inventory ? Long collection period ? Fixed assets = 52% ? Inventory = 2% ? Collection period = 52 days B Potato Chips Snacks ? Low percentage of cash ? Long collection cycle ? Cash = 5% ? Collection = 31 days C Grocery Stores ? High percentage of cash ? Low accounts receivable ? Short collection period ? High inventory ? Good liquidity ratios ? Cash = 14% ? Accounts receivable = 5% ? Collection period =