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RATIOS, WORKING CAPITAL DAYS (Funding requirement): (Inventory days+Acc…
RATIOS
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FINANCIAL STRENGHT RATIOS
:the company’s ability to meet interest and principal payments in the long-run.
D/E RATIO: Total Debt (i.e. total liabilities-owners'funds) /Owners'funds:
- values between 0.5 and 1.5 are good. Lower D/E ratio indicates that the company relies less on debt to finance its operation! Therefore, while the company's lower D/E ratio is a sign of prudent financial management it may also limit its ability to pursue aggressive growth strategies.
- < 1 indicates that the company is (over capitalized)
- > 2 may indicates excessive risk in the capital structure
COST OF INTEREST: Total interest/Debt % Is considered good when it is relatively low meaning that the company is paying less interest for its borrowed funds!
INTEREST COVERAGE: EBIT/Interest
- if the ratio falls below 1 indicates bad financial situation;
- a ratio <1.5 suggests that the company is in a risky zone and the ability to meet interest expenses is questionable . Worst situation: EBIT declines and interest increases over time!
The lower the ratio, the more the company is burdenend by debt expense!
- An high ratio indicates that the company is in a strong position to cover its interest payment!
- how many times a firm’s operating income exceeds interest
expenses.
LIQUIDITY RATIOSmeasure (short/long-
term) solvency, i.e. the
capacity for the
company to pay bills
as they arrive
QUICK RATIO:Current assets-Inv./Current liabilities.
- A value of 1 is very high, Around 0.8 is a good figure. Showing that the company has enough liquid assets to cover its short-term obligations whithout relying on inventory
CURRENT RATIO: Current assets/Current liabilities.
- A ratio greater than 1 tells us that the firm has enough near-cash assets to cover payments due in the immediate future.
• However depending on industry etc
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INVENTORY DAYS: Inventory/sales⋅365
- How many days on average an item stays in the inventory (the shorter the better)
ACC.RECEIVABLE DAYS (Debtor days):Acc.receivable/sales ⋅365
- Or “collection period”; How many days on average it takes to get paid by customers (the shorter the better)
CAPITAL EMPLOYED : Owners'funds+long term loans
or also fixed assets+current assets-current liabilities
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WORKING CAPITAL DAYS (Funding requirement): (Inventory days+Acc.receivable days) -Acc.payable days. The shorter the better! - Long time (bad): longer to sell company’s products, to receive payments from customers,too quick payment of bills
The goal for companies is to minimize this gap. A shorter working capital cycle means that the business has access to cash, which can be reinvested or used to reduce reliance on external financing.
- How many days on average it takes to pay suppliers (the
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NON C'è NEL FORMULARIO Turnover rate: how quickly your employees change jobs, the percentage of employees who have left a company over a certain period of time. The lower the better