To Remember
Assets = Debt + Equity
Current means things that can be cash in short (i.e. 30 - 45 days) time frame
Operational Analysis
Costs of goods sold = costs of sales / sales
cost of sales = buying raw materials, manufacturing, building etc.
Gross Margin = gross profit / sales
gross profit = sales - cost of sales
Profit Margin = net earnings / sales
net earnings = money left after everything including expenses & taxes is taken out
Resource Mgmt
Asset Turnover = Net (Total) Sales/Average inventory
Profitability
Return on Assets (ROA) = Net profit (earnings) / Assets
EBIT ROA = Net profit before interest & taxes / Average Assets
EBIT is Earning Before Income Taxes
Owners Profitability
Return on Net worth = Net profit / equity (net worth)
Price/Earnings (P/E) ratio = Market price per shar / Earnings per share
commonly used as a rough rule of thumb in valuing companies for purposes of acquisition. Higher ratio as compared to industry average means that market thinks their have more potential at their current earnings level as compared to the rest of the industry
Lenders point of view
Current Ratio = Current assets / Current liabilities
current assets & current liabilities should be listed
current assets are cash, accounts receivables , inventories, prepaid expenses, deferred income taxes, etc….
common rule of thumb is 2:1 is "about right" for most businesses, because this ratio appears to permit a shrinkage of up to 50 percnet in value of currnet assets while still providing enough cushion to cover all current liabilities.
Acid Test (quick ratio) = Cash + Marketable securities + Recievables / current liabilities
Debt to Assets = Total Dept / Total assets
Debt to Equity = Total debt / net worth (equity)
BETA - 0 to 1 is less risky then the comparable index, 1+ is more risky then the comparable index, theoretically when the index goes up, a company with a beta of 1.5 should go up 1.5 times as much, but is 1.5 times more risky
long-term debt/networth (equity)