Chapter 4: financial statement analysis and forecasting 2 Flashcards Preview

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Flashcards in Chapter 4: financial statement analysis and forecasting 2 Deck (36):
1

what are the productivity ratios

1. receivable turnover ratio
2. average collection period (ACP)
3. inventory turnover ratio
4. Average days sales in inventory (ADSi)
5. Fixed asset turnover

2

How do you calculate receivable turnover ratio

revenue / ar

3

how do you calculate average collection period (ACP)

AR/ Avg. daily credit sales
= 365/ receivable turnover

4

how do you calculate inventory turnover ratio

COGS / Inventory

5

how do you calculate average days sales in inventory (ADSI)

inventory / avg daily sales -
365/ inventory turnover

6

how do you calculate fixed asset turnover

sales / net fixed assets

7

what does ACP show

estimates the number of days it takes for a company to collect on its A/R

8

what does receivable turnover show

measure the sales generated by every dollar of receivable

9

what does inventory turnover ratio show

measures the number of times ending inventory was turnover (or sold during the year)

10

what is a danger about inventory turnover ratio

managers often try to improve this ratio when they are close to year end (through inventory reduction strategies )
- ie. cash and carry sales, clearance)

11

what does average days sales in inventory show

estimates the number of days sales tied up in inventory, based on ending inventory values

12

what does fixed asset turnover show

estimates the number of sales produced by each dollar of net fixed assets

13

What do productivity ratios show

measure the company's ability to generate sale sform its assets
0 excessive investment in assets with little or no increase in sales reduces the rate of return on both assets (roa) and (ROE)

14

What are the liquidity ratios

1. working capital
2. current ratio
3. quick (Acid test)

15

what do liquidity ratios measures

the ability of the company to meet its financial obligations as they mature using liquid (cash or near cash) resources

16

what is the formula for working capital

current assets / total assets

17

what is the formula for current ratio

current assets / current liabilities

18

what is the formula for quick acid test

cash + marketable securities + AR / current liabilities

19

what does working capital show

measures the proportion of total assets invested in current assets
- demonstrates the company's capital intensity and corporate liquidity

20

what does the current ratio measure

measures the number of dollars of current assets for each dollar of current liabilities

- estimates the capacity of the company to meet its financial obligations as they mature

21

what does the quick acid test show

recognizes that inventories and other current assets may be less liquid and in some cases when they have to be liquidated quickly, can result in cash flows that are less than book value

22

What are the valuation ratios

1. equity book value per share (BVPS)
2. dividend yield
3. trailing price-earnings (p/e)
4. Forward P/E
5. Market-to-book
6. earnings before interest, taxes, depreciation and amortization (EBITDA) multiple

23

how do you calculate equity book value per share (BVPS)

SE / Number of shares

24

how do you calculate dividend yield

dividend per share / price per share

DPS / P

25

How do you calculate the trailing price-earnings (or P/E)

share price / earnings per share


P / EPS

26

how do you calculate forward P/E

share price / estimated earnings per share

P / EEPS

27

how do you calculate market-to-book

share price / book value per share

p / BVPS

28

how do you calculate Earnings before interest, taxes, depreciation and amortization

TEV (total enterprise value) / EBITDA

29

what does equity book value per share show

expresses shareholder's equity on a per share basis

30

what does the dividend yield show

expresses the dividend payout as a proportion of the current share price

- can be compared to the yield on other investment instruments, such as bonds or the stock of other dividend-paying companies

31

what does trailing price-earnings (p/E) show

an earnings multiple based on the most recent earnings
- often used to estimate the value of a stock

32

what does forward P/E show

an earnings multiple based on forecast earnings per share

- often used to estimate the value of a stock for companies with rapid growth in EPS

low P/E - regarded as value stocks

high p/e - regarded as growth stocks

33

what does the market-to-book show

estimates the dollars of share price per dollar of book value per share

- the degree to which market value per share exceeds BVPS indicates the value that has been added to the co. by management

34

what is the basis for market-to-book

historical cost accounting is the basis for BVPS

35

what does earnings before interest, taxes, depreciation and amortization (EBITDA multiple show

expresses total enterprise value (TEV) for each dollar of operating income or EBITDA

36

What does total enterprise value mean

is an estimate of the market value of the firm