Please enable JavaScript.

Coggle requires JavaScript to display documents.

Chapter 3 TCDN (Ratio analysis (SHORT-TERM SOLVENCY (Current ratio…

- - - - their book values and market values are likely to be similar.
    - - Current ratio = Current Assets / Current liabilities
      - a company's ability to pay back its liabilities with its assets (cash, marketable securities, inventory, accounts receivable).
      - Ex: Current ratio = 1.31 times => Prufrock has its current liabilities is covered 1.31 times by current assets
    - - relatively large inventories => a sign of short-term trouble.
      - Quick ratio = (current assets - inventory) / Current liabilities
      - measures a company's ability, using its quick assets, to pay off its current debt
    - - Total debt ratio = (Total assets - total equity) / total assets
      - calculates a company's ability to pay current liabilities
  - - - = (total assets - total equity)/ total assets
      - the more leveraged a company is, implying greater financial risk.
      - Debt-equity ratio = 0.28 times => Prufrock has $0.28 in debt for every $1 in assets.
    - - = EBIT/ interest
      - measures how well a company has its interest obligations covered
    - - = (EBIT + (Depreciation + amortization)) / interest
      - a measure of cash flow available to meet financial obligations.
      - The higher the coverage ratio, the easier it should be to make interest payments on its debt or pay dividends.
  - - - Inventory turnover
        
        = COGS / inventory
        
        the higher this ratio is, the more efficiently we are managing inventory.
        
        showing how many times a company has sold and replaced inventory during a period.
        
        measures how fast a company sells inventory and analysts compare it to industry averages
      - Days' sales in inventory
        
        = 365/ inventory turnover
        
        represents the process of turning raw materials into cash
    - - Receivables turnover
        
        = sales / accounts receivable
        
        indicates the efficiency with which a firm collects on the credit it issues to customers
      - Days’ Sales in Receivables
        
        = 365/ receivables turnover
    - - = sales / total assets
      - TAT = 0.64 times => for every dollar in assets, we generated $0.64 in sales.
      - the higher the asset turnover ratio, the better the company is performing
  - - - = NT / sales
      - how much out of every dollar of sales a company actually keeps in earnings
      - PM = 16% => generates 16 cents
        in net income for every dollar in sales.
    - - = EBITDA / Sales
      - comparing the profitability of different companies
    - - = NT / Total assets
      - is a measure of profit per dollar of assets.
    - - = NT/ Total Equity
      - how much profit a company generates with the money shareholders have invested.
  - - - = Price per share / Earnings per share
      - measures how much investors are willing to pay per dollar of current earnings
    - - = Price per share x Shares outstanding
      - to determine a company's size
    - - = Market value per share / book value per share
      - find the value of a company by comparing the book value of a firm to its market value.
    - - EV = Market capitalization + Market value of interest bearing debt − Cash
      - is a measure of a company's total value, often used as a more comprehensive alternative to equity market capitalization
    - - = EV / EBITDA
      - estimate the value of the firm’s total business
      - useful because it allows comparison of one firm with another when there are differences in capital structure (interest expense), taxes, or capital spending.
- - - - to work with percentages instead of total dollars
    - - express each item as a percentage of total sales
      - tell us what happens to each dollar in sales
      - commonly used measures of earnings (numbers in millions)
        
        Net income
        
        called bottom line (chỉ tiêu đo lường lợi nhuận chính yếu)
        
        total revenue - total expenses
        
        reflects
        
        differences in a firm's capital structure and taxes
        
        operating income
        
        interest expense and taxes are subtracted from operating income
        
        dividend payout and retained earnings are closely linked to net income
        
        EPS
        
        = NI / shares outstanding
        
        expresses net income on a per share basis
        
        EBIT
        
        called "income from operations"
        
        operations revenues - operating expenses = EBIT
        
        Analysts like EBIT because it abstracts from differences in earnings from a firm’s capital structure (interest expense) and taxes
        
        EBITDA
        
        EBITDA = EBIT + depreciation and amortization
        
        Analysts like to use EBITDA because it is a better measure of before-tax operating CF
        
        amortization refers to a noncash expense similar to depreciation except it applies to an intangible asset (such as a patent), rather than a tangible asset (such as a machine)