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ANALYSIS + INTERPRETATION (MARKET VALUE (3.Dividend cover *EPS / DPS…
ANALYSIS + INTERPRETATION
LIQUIDITY
1.Current Ratio - CA:CL
2.Quick ratio - liquid assets:CL
CASH FLOW
[1]Operating activities
1.Ability to cover fin charges
*Operations CFs / Int paid
2.Cash generating ability of Co
*Operations CFs / Turnover
3.Asset sales, 4.Amort of expenses
5.Current asset lvls, 6.Quality of earnings
7.Re-investment policy, 8.Free Cash Flow
CF to debt
*Operations CFs / tot debt
[2]Investment activities
1.Maintenance
2.Expansion
*look at purpose for exp + growth
[3]Finance activities
1.ST or LT financing?
2.Debt vs Equity focus?
DEBT MNGMNT
2.Interest cover
*EBIT(DA) / interest
3.Debt/Equity Ratio
*tot debt / equity
gearing, fin risk
1.Debt Ratio
*tot debt / tot assets
solvency
MARKET VALUE
3.Dividend cover
*EPS / DPS
compare to div policy
4.PE ratio
*Share price /EPS
how much people are willing to pay
2.Dividend yield
*DPS / Share price
5.Forward PE
*Share price / EPS(nxt yr)
1.Earnings yield
*EPS / Share price
6.PEG
*PE / expected sust growth
lower ratio = better value of share
ito price, compared to earnings
& future growth
ASSET MNGMNT
2.Inventory days
*[Inv / Cost of sales] x 365
slow stock, obsolete inv?
3.Ave collection period
*[Ave Debtors / Cr sales] x 365
ideal: shorter than Cr period
1.Inventory turnover
*Cost of sales / Inv
4.Ave payment period
*[Ave Creditors / Cr purchases] x 365
ideal: longer than Dr period
5.Fixed Asset turnover
*Sales / Fixed assets
6.Asset turnover
*Sales / Operating assets
PROFITABILITY
1.Profit margin
*GP / Sales
could use EBIT, EBITDA, NP too
2.ROA
*EBIAT / Tot assets
profitability of firm wholly, relating to assets used
3.ROI
*EBIAT / Net assets
excl CLs because it's part of working cap
4.ROE
*NP /Equity
Shareholders interested here
ROE>ROA = +ve fin leverage
ROE<ROA = -ve fin leverage
Du PONT
structured analysis
ratio combos = overall Co pic
ROE is overall success indicator
ROE = [NP / Sales] x [Sales / Tot (A)s] x [Tot (A)s / Equity]
*profit margin x asset turnover x equity multiplier
QUALITATIVE
Ratio limitations
pg 5-30,31
Warning signs
pg 5-37,38,39
Additional factors
pg5-39,40,41,42