【正文】 current ratio = D Legal Services ? High percentage of cash ? Almost zero inventory ? High asset turnover ? High profitability ? Long collection period ? Cash = 31% ? Inventory = 1% ? Assets turns = ? Gross margin = 57%。s position within the industry – boundaries are set by the operating characteristics of the industry –within these boundaries profitability ratios are determined by a player’s relative position ?Bain typically uses gross profit and operating profit to measure profitability – ROS can be altered by nonoperating activities, such as sources of financing or tax rate manipulations ?Extraordinary items, because they are for unusual events, such as discontinued items or asset sales, are excluded when we analyze the performance of the base business Profitability ratios measure a firm’s ability to manage costs relative to revenues. 9 Profitability Ratios Over Time ?Gross profit margin should stay constant or increase because cost of goods sold should be a constant percent of sales or should decrease as pany gets price increases and/or volume discounts ?Operating margin should increase as fixed administrative and sales costs are spread over a greater number of units ?Effective tax rate should stay constant or decrease since a larger firm is able to take advantage of more tax shelters As a pany grows, its return on sales should increase. Higher return on sales 10 Profitability Ratios Market Leader ?Gross profit margin should be higher since a market leader can typically charge more for its goods and/or receive the greatest volume discounts from suppliers ?Operating profit margin should be significantly higher, because higher volume means fixed costs are spread over more units and because the gross profit margin is higher ?There should be no significant difference in the effective tax rate ?Return on sales should be significantly higher because the operating margin should be significantly higher The market leader in an industry should have the best profitability ratios. This is consistent with the ROS/RMS concept which says that panies with high relative market share have high returns on sales 11 Turnover Ratios Definitions Note: Average=(Year Beginning+Year End)/2 * Sales is often a good proxy ** Cost of goods sold is often a good proxy *** Typically we use 365 days (., 1 year) for the period Turnover ratios use a bination of ine statement and balance sheet items. Ratios Definitions Receivables turnover Credit sales in period* Accounts receivable average balance Inventory turnover Cost of goods sold in period Average inventory in period Payables turnover Purchases on account** Accounts payable average balance Asset turnover Sales in period Average assets Any turnover ratio can be expressed as a period ratio which measures the number of days in the cycle Days in period*** Turnover ratio Period ratio = 12 Turnover Ratios Transaction Cycle * Accounts payable, inventory, and accounts receivable are the major ponents of working capital It is critical for a firm to manage its payables, inventory, and receivables.* Cash inflow Cash collected for sales made Cash outflow Raw materials purchased Cash disbursed for raw materials purchased Finished goods inventory Sales made Accounts receivable period Accounts payable period X X X 13 Turnover Ratios Description ?Turnover ratios measures how many times per year a given resource is consumed ?Period ratios measure the number of days that is takes for a given resource to “turn over” ?Management’s objective is to stretch out the accounts payable period (., have low accounts payable turnover) and shorten the periods for accounts receivable and inventory (., have high accounts receivable and inventory turnover) Turnover ratios measure how well a firm is managing its resources. 14 Turnover Ratios Tradeoffs Ratio Improvements ?Decrease the receivables collection period – ., collect the accounts receivable faster ?Decrease the inventory holding period – ., sell pleted products faster ?Increase the account payable period – ., take longer to pay suppliers Strategic Tradeoff ?If the receivables collection period is too short, customers may buy at a petitor that has more generous credit terms. (Often this period is dictated by industry norms) ?If the inventory holding period is too short the pany may not have enough inventory to fill a big order. Also, the pany may not be able to outlast a strike, either at its own facility or at one of its primary suppliers’ facilities ?If the accounts payable period is too long, suppliers could raise their prices, charge interest (often at very high rates), or even refuse to supply the firm on credit. Also, workers may get restless if they have to wait longer to receive their paychecks. Managing turnover ratios means managing strategic tradeoffs. 15 Leverage Ratios Definitions * All three ratios here are called “l(fā)everage” ratios by different people, so be sure to understand which ratio is being used when someone is talking about leverage Leverage ratios use line items from the balance sheet. Ratios* Definitions DuPont leverage ratio Assets Equity Debt to equity ratio Longterm debt Equity Debt to total capital or debt to total assets ratio Total liabilities Debt + equity Total liabilities Assets = 16 Leverage Ratios Description ?Money can be raised from debt sources (banks, bond markets) or equity sources (stockholders) ?Leverage ratios reflect both the financing policies of the firm and the riskiness of the business ?In order to analyze a firm’s leverage ratios, one needs to understand the d