Ratio analysis
- Created by: Shreeya Bhan
- Created on: 08-04-13 06:07
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- Financial ratios: relationships determined from firm's financial info and used for comparison purposes - used to compare firms of diff sizes or same firm in diff periods of time
- Short term solvency/ liquidity ratios : ability of firm to pay bills over the short run without undue stress - of interest to ST creditors
- Current ratio: helps find the CA for every $1 of CL - must be more than 1
- Acid test ratio: depends on the firm and how much inventory the firm has
- Cash ratio:
- NWC to total assets: low value means low level of liquidity
- Interval measure: measures how long the business can run if the cash inflows dry up
- Long term solvency measures: firm's ability to meet its financial leverage
- Total debt ratio
- Debt equity ratio:
- Equity multiplier: 1 plus the debt equity ratio
- Long term debt ratio: focuses on debt mgmt policy and not on trade prac
- Times interest earned: how well a firm has its interest obligations covered
- Cash coverage: firm's ability to generate cash from operations
- Asset mgmt ratios: efficiency of a firm in using its assets to generate sales
- Inventory turnover: how much time it takes to sell the inv
- Receivables turnover: hwo fast we can collect sales
- Asset turover ratios: measures *** much work we get out of our NWC
- Profitability measures:focus on net inc
- profit margin:how much profit for every dollar of sale
- ROA: profit per dollar of assets
- ROE: return for every dollar on equity
- Mkt value measures:
- Price earnings ratio: measures how much current investors are willing to pay per dollar of current earnings
- Price sales ratio:
- Untitled
- Short term solvency/ liquidity ratios : ability of firm to pay bills over the short run without undue stress - of interest to ST creditors
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