【正文】 ROS = 12%。 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 = 3 days ? Inventory = 33% ? Quick ratio = 。 investor demands lower return Higher risk to investor。s historical ratios ?In stable situations, historical ratios may be used to project future performance ?Compare a pany’s ratios with similar firms’ ratios or with industry averages at the same point in time Look for trends Look at relative performance 3 The Art of Ratio Analysis ?Which ratios are most important in a given situation? ?What items should be included/excluded in calculating the ratios? ?How much influence does management have over the ratios? ?What do the ratios say about the firm’s strategy? Ratio analysis is an art as well as a science. 4 The Need for Judgment Potential Problem ?Management can substantially influence financials in the short term Implications ?Need to use judgment to understand financials Ratio analysis requires keen judgment. ?Financial statement data is historical, not pro forma ?Crosspany parisons are meaningless if adjustments are not made for different accounting conventions ?The timing of the reporting period influences funds flows and requirements ?Need to understand that history does NOT necessarily predict future ?Need to be very sensitive about industryspecific seasonality and cyclicality ?Need to standardize across panies to adjust for different accounting methods 5 Agenda ?Using ratios ?Types of key ratios –profitability –turnover –leverage –liquidity –coverage ?Return on Equity ?Ratio exercises ?Forecasting exercise ?Abbreviations ?Key takeaways 6 Types of Ratios Ratios help us understand how well a pany is performing. Specifically, how much return is it generating with what level of risk? How well does the pany manage costs relative to revenues? Return Risk Coverage ? Interest charge ? Fixed charge coverage Liquidity ? Current ratio ? Quick ratio