【正文】 current ratio = DLegal 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%。 ROE = 29%? Collection period = 52 daysEPrepackaged Software? High percentage of cash? High accounts receivable? Low inventory? High gross margin? Low fixed assets? Significant intangible assets (patents)? Cash = 22%? Accounts receivable = 32%? Inventory = 5%? Gross margin = 59% ? Fixed assets = 19%? Other noncurrent assets = %F30Ratio AnalysisBOS Gillette Exercise Exercise: Please calculate Gillette Company’s key financial ratios based on its 1996 annual report ?Profitability?Turnover?Leverage?Liquidity and coverageThe objective of this exercise is to test your ability to calculate key financial ratios.Note: For this exercise, do not include mergerrelated costs in the calculations.31Ratio AnalysisBOS Gillette Exercise Profitability Ratios* This is not a profitability ratio, but it does impact ROS**Excluding mergerrelated costs. Nonoperating charges should not be included in the operating profit margin.Ratios Gillette Ratio CalculationsGross profit margin(or gross margin)Sales cost of goods soldSalesOperating profit margin(or operating margin)Earnings before interest and taxes**SalesReturn on sales(ROS)Profit after tax**SalesEffective tax rate* TaxesProfit before tax6,9,= = 62%2,9,= = %1,9,== %1,= = %()()(, )()Page Number in 1996 Annual Report1, + 9, = + 9, =32Ratio AnalysisBOS Gillette Exercise Turnover RatiosNote: Average=(Year Beginning+Year End)/2* Sales is often a good proxy** Cost of goods sold is often a good proxyRatios Gillette Ratio CalculationsReceivables turnover Credit sales in period*Accounts receivable average balance 9,(2, + 2,)/2= = (, )or = 94 daysInventory turnover Cost of goods sold in periodAverage inventory in period 3,(1, + 1,)/2 = (, )or = 130 days=Payables turnover Purchases on account**Accounts payable average balance 3,( + )/2 = (, )or = 52 days=365Asset turnover Sales in periodAverage assets 9,(10, + 8,)/2 = (, )or = 365 days=Page Number in 1996 Annual Report33Ratio AnalysisBOS Gillette Exercise Leverage Ratios* 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.**The inclusion of deferred ine taxes in longterm debt is debatable.Ratios* Gillette Ratio CalculationsDuPont leverage ratio AssetsEquityDebt to equity ratio Longterm debt**EquityDebt to total capitalor debt to total assets ratio10,4,= = () + 1, + 4,== ()5,10,= = ()Page Number in 1996 Annual Report1,4,=Total liabilitiesDebt + equityTotal liabilitiesAssets=34Ratio AnalysisBOS Gillette Exercise Liquidity and Coverage RatiosRatios Gillette Ratio CalculationsCurrent ratio Current assetsCurrent liabilitiesQuick ratio(acid test)Cash + marketable securities + receivablesCurrent liabilitiesInterest coverage ratioEarnings before interest and taxes*Interest expenseFixed charge coverageEarnings before interest and taxes*All essential payments (including lease payments)Liquidity:Coverage:4,2,== () + + 2,2,== ()2, == ()2, ( ) + == (, )Page Number in 1996 Annual Report*”O(jiān)ther charges ” under nonoperating charges have been included here because they appear to be recurring and thus will impact the pany’s ability to make its interest payments.35Ratio AnalysisBOS Agenda ?Using ratios?Types of key ratios–profitability–turnover–leverage–liquidity–coverage?Return on Equity?Ratio exercises?Forecasting exercise?Abbreviations?Key takeaways36Ratio AnalysisBOS Forecasting Exercise Data* Financial statements have been constructed for this exercise based in part on The Gillette Company’s 1996 Annual Report. Since the data have been changed significantly, you should not use them to analyze Gillette’s financial performance. For this exercise, assume that historical data is a good indicator of 1997 financials.** Net working capital in year 1994 is $854 million*** Cumulative CAPEX at the end of 1994 is $3,139 millionThe New England Razor CompanyStatement of Operations ($ Millions)Revenues COGS= Gross profit SGA= EBIT Taxes= Net ineWorking Capital Balance Sheet (year end)($ Millions)Accounts receivable+ Inventory Accounts payable= Net working capital**Cash Flow Statement ($ Millions)EBIT+ Depreciation Increase in working capital Taxes paid Capital expenditure***= Cash flow1995$8,834(6,769)2,065(266)1,799667$1,132$2,291269(1,610)$950$1,799266(96)(667)(593)$7091996$9,698(7,356)2,342(293)2,049(760)$1,289$2,725309(1,965)$1,069$2,049293(119)(760)(729)$7341997 AssumptionsUsing abbreviated financial statements for The New England Razor Company in 1995 and 1996, forecast the statements for 1997.*37Ratio AnalysisBOS Forecasting Exercise Answer The New England Razor CompanyStatement of Operations ($ Millions)Revenues COGS= Gross profit SGA= EBIT Taxes= Net ineWorking Capital Balance Sheet (year end)($ Millions)Accounts receivable+ Inventory Accounts payable= Net working capitalCash Flow Statement ($ millions)EBIT+ Depreciation Increase in working capital Taxes paid Capital expenditure= Cash flow1995$8,834(6,769)2,065(266)1,799(667)$1,132$2,291269(1,610)$950$1,799