Profitability ratios: measure the company’s use of its assets and control of its expenses to generate an acceptable rate of return Gross Margin: % of sales that company retains as gross profit, varies industry to industry, software companies have higher margin than manufacturing OR Operating Margin: (Operating income a. k. a. EBIT a. k. a. operating profit): measures operating efficiency Profit Margin: (a. k. a. Net Margin or Net Profit Margin) : how much of every dollar a company keeps from its revenues, increased earnings does not necessarily mean improved profit margin
Return on Equity (ROE): how much the company generates with shareholder’s money Return on Assets (ROA) OR Return on net assets (RONA) Return on capital (ROC) Risk adjusted return on capital (RAROC) OR Return on capital employed (ROCE) Cash flow return on investment (CFROI) Efficiency ratio Net gearing Basic Earnings Power Ratio Liquidity ratios: measure the availability of cash to pay debt. Working Capital (Current Ratio): Current Assets/Current Liabilities Acid Test Ratio (Quick Ratio)
Cash Ratio: used to determine how quickly a company can pay its short term debt; useful for creditors if they want to determine how much cash willing to extend Operating Cash Flow Ratio: Activity ratios (Efficiency Ratios): measure the effectiveness of the firm’s use of resources. Average collection period: Degree of Operating Leverage (DOL) DSO Ratio: Average payment period: Asset turnover: Stock turnover ratio[20][21] Receivables Turnover Ratio Inventory conversion ratio Inventory conversion period (essentially same thing as above) Receivables conversion period
The Essay on Ratio Analysis And Statement Of Cash Flows For Ford And GM
General Motors and the Ford Motor Company are the number one and number two, automotive manufacturers in the United States, respectively. Both companies strive for success each and every year. The success of these two automotive giants, as well as other corporations, can be measured by analyzing a few important goals of management, the company’s solvency, liquidity, and profitability. To ...
Payables conversion period Cash Conversion Cycle: Inventory Conversion Period + Receivables Conversion Period – Payables Conversion Period Debt ratios (leveraging ratios) quantify the firm’s ability to repay long-term debt. Debt ratios measure financial leverage. Debt ratio Debt to equity ratio Long-term Debt to equity (LT Debt to Equity) Times interest earned ratio (Interest Coverage Ratio) OR Debt service coverage ratio Market ratios Market ratios measure investor response to owning a company’s stock and also the cost of issuing stock.
These are concerned with the return on investment for shareholders, and with the relationship between return and the value of an investment in company’s shares. Earnings per share (EPS) Payout ratio OR Dividends cover (the inverse of Payout Ratio) P/E ratio Dividend yield Cash flow ratio or Price/cash flow ratio Price to book value ratio (P/B or PBV) Price/sales ratio PEG ratio * Enterprise Value/EBITDA: Enterprise multiple that can tell if a company may be under/overvalued.
In high growth (tech) -> higher multiple, lower growth (railroad) -> lower multiple EBITDA is essentially net income but with interest, depreciation and amortization added back in, ignores the effects of financing and accounting decisions Enterprise Value: market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. EV includes debt in valuation, essentially take over price * Enterprise/Sales: gives a sense of how much to buy a company’s sales. The lower the multiple, the more undervalued a company is
The Essay on Are the Company’s Prices and Costs Competitive?
Tutor: Date: Are the company’s prices and costs competitive? The pricing system as well as cost deployed by an organization contributes to a large part in its competitive edge. Notably, in the current competitive world meticulous consideration is crucial in both pricing and costing on either products or services. Considering pricing as well as costs in Xerox, an organization dealing in consumer ...
