【正文】 parison ? Industries affect the firms within them differently, but the relationship is always significant ? The industry effect is strongest for industries with homogenous products ? Examine the industry’s performance relative to aggregate economic activity Comparing to A Firm’s Major Competitors ? Industry averages may not be representative ? Select a subset of petitors to pare to using crosssectional analysis, or ? Construct a posite industry average from industries the firm operates in Comparing to A Firm’s Historical Performance ? Determine whether it is progressing or declining ? Helpful for estimating future performance ? Consider trends as well as averages over time Five Categories of Financial Ratios 1. Internal liquidity (solvency) 2. Operating performance – a. Operating efficiency – b. Operating profitability 3. Risk analysis – a. Business risk – b. Financial risk Six Categories of Financial Ratios 4. Growth analysis Six Categories of Financial Ratios 5. External liquidity (marketability) Common Size Statements ? Normalize balance sheets and ine statement items to allow easier parison of different size firms ? A mon size balance sheet expresses accounts as a percentage of total assets ? A mon size ine statement expresses all items as a percentage of sales Evaluating Internal Liquidity ? Internal liquidity (solvency) ratios indicate the ability to meet future shortterm financial obligations ? Current Ratio examines current assets and current liabilities sLiabil iti eCurren t Asse tsCurren t RatioCurren t ? Evaluating Internal Liquidity ? Quick Ratio adjusts current assets by removing less liquid assets sLiabil itieCurren t sReceiv ableSecu ritie s Marketa bl eCashRatioQuic k ??? Evaluating Internal Liquidity ? Cash Ratio is the most conservative liquidity ratio sLiabil itieCurren t Secu ritie s Market ableCashRatioCash ?? Evaluating Internal Liquidity ? Receivables turnover examines the quality of accounts receivable sReceivab le AverageSales AnnualNet Turnover sReceivab le ?? Receivables turnover can be converted into an average collection period Turn over Annu al365Period Coll ecti on sReceiv able Average ? Evaluating Internal Liquidity ? Inventory turnover relates inventory to sales or cost of goods sold (CGS) Invento ry AverageSold Goods ofCost TurnoverInvento ry ?? Given the turnover values, you can pute the average inventory processing time Average Inventory Processing Period = 365/Annual Turnover Evaluating Internal Liquidity ? Cash conversion cycle bines information from the receivables turnover, inventory turnover, and accounts payable turnover Receivable Days +Inventory Processing Days Payables Payment Period Cash Conversion Cycle Evaluating Operating Performance ? Ratios that measure how well management is operating a business – (1) Operating efficiency ratios ? Examine how the management uses its assets and capital, measured in terms of sales dollars generated by asset or capital categories – (2) Operating profitability ratios ? Analyze profits as a percentage of sales and as a percentage of the assets and capital employed Operating Efficiency Ratios ? Total asset turnover ratio indicates the effectiveness of a firm’s use of its total asset base ( assets equals gross assets minus depreciation on fixed assets) AssetsNet Total AverageSalesNet TurnoverAsset Total ? Operating Efficiency Ratios ? Net fixed asset turnover reflects utilization of fixed assets Assets FixedNet AverageSalesNet TurnoverAsset Fixed ? Operating Profitability Ratios ? Operating profitability ratios measure – 1. The rate of profit on sales (profit margin) – 2. The percentage return on capital Operating Profitability Ratios ? Gross profit margin measures the rate of profit on sales (gross profit equals sales minus the cost of goods sold) SalesNet Profi t Gros sMargi nProfi t Gros s ? Operating Profitability Ratios ? Operating profit margin measures the rate of profit on sales after operating expenses (operating profit is gross profit minus sales, general and administrative (SG + A) expenses) SalesNet Profit Operat ingMarginProfit Operat ing ? Operating Profitability Ratios ? Net profit margin relates ine to sales SalesNet Inco meNet MarginProfit Net ? Operating Profitability Ratios ? Return on total capital relates the firm’s earnings to all capital in the enterprise Capital Total AverageExpenseInteres t IneNet Capital Totalon Return ?? Operating Profitability Ratios ? Return on owner’s equity (ROE) indicates the rate of return earned on the capital provided by the stockholders after paying for all other capital used Equity Total AverageIneNet Equity Totalon Return ? Operating Profitability Ratios ? Return on owner’s equity (ROE) can be puted for the mon shareholder’s equity EquityCommon AverageDividen d PreferredIneNet Equity sOwner39。on Return ? Operating Profitability Ratios ? The DuP