【正文】 sset turnover This is known as the DuPont formula ROE = Profitability X Turnover X Leverage Ratio Analysis BOS 27 Agenda ?Using ratios ?Types of key ratios –profitability –turnover –leverage –liquidity –coverage ?Return on Equity ?Ratio exercises ?Forecasting exercise ?Abbreviations ?Key takeaways Ratio Analysis BOS 28 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 Ratio Analysis BOS 29 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 amp。 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 Ratio Analysis BOS 4 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. Ratio Analysis BOS 5 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 Ratio Analysis BOS 6 Agenda ?Using ratios ?Types of key ratios –profitability –turnover –leverage –liquidity –coverage ?Return on Equity ?Ratio exercises ?Forecasting exercise ?Abbreviations ?Key takeaways Ratio Analysis BOS 7 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 Leverage ?Asset to equity ?Debt to equity ?Debt to total capital Turnover ?Receivables ?Inventory ?Payables ?Asset Profitability ?Operating margin ?ROS ?Gross margin How effective is the pany in managing its resources? What are the respective claims of debt and equity owners? How risky is the business? Is the pany able to meet its shortterm obligations? Is the pany able to meet its longterm obligations? Ratio Analysis BOS 8 Profitability Ratios Definitions * This is not a profitability ratio, but it does impact ROS Profitability ratios use line items from the ine statement. Ratios Definitions Gross profit margin (or gross margin) Sales cost of goods sold Sales Operating profit margin (or operating margin) Earnings before interest and taxes Sales Return on sales (ROS) Profit after tax Sales Effective tax rate* Taxes Profit before tax Ratio Analysis BOS 9 Profitability Ratios Description ?Profitability (or margin) ratios are a function of both the industry and a pany39。 Author: Collins Qian Ratio Analysis March 1998 Ratio Analysis BOS 2 Agenda ?Using ratios ?Types of key ratios –profitability –turnover –leverage –liquidity –coverage ?Return on Equity ?Ratio exercises ?Forecasting exercise ?Abbreviations ?Key takeaways Ratio Analysis BOS 3 Analyzing Ratios Ratios in isolation are meaningless. A pany39。s ratios must be examined over time and/or against its petitors’ ratios. Historical parison Competitive parison ?Compare present ratios with same pany39。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. Ratio Analysis BOS 10 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 ra