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Ratio Analysis - A Comprehensive Approach

Ratio Analysis - A Comprehensive Approach

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Published by Hardik Gandhi

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Published by: Hardik Gandhi on Jul 25, 2011
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6/13/2011Investment Banking
RATIO ANALYSIS
A Comprehensive Approach
 
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6/13/2011Investment Banking
Table of Contents
Working Notes ........................................................................................................................................ 5I. Activity Ratios ................................................................................................................................. 71. Receivables turnover .................................................................................................................. 72. Days of sales outstanding or average collection period ............................................................. 73. Inventory turnover ...................................................................................................................... 74. Days of inventory on hand or avg. inventory processing period ................................................ 75. Payables turnover ....................................................................................................................... 86. Number of days payables or payables payment period ............................................................. 87. Total asset turnover .................................................................................................................... 88. Fixed asset turnover .................................................................................................................... 89. Working capital turnover ............................................................................................................ 9II. Liquidity Ratios .............................................................................................................................. 101. Current ratio.............................................................................................................................. 102. Quick ratio ................................................................................................................................. 103. Cash ratio .................................................................................................................................. 104. Defensive interval ..................................................................................................................... 115. Cash conversion cycle ............................................................................................................... 11III. Solvency Ratios ......................................................................................................................... 121. Debt-to-equity........................................................................................................................... 122. Debt-to-capital .......................................................................................................................... 123. Debt-to-assets ........................................................................................................................... 124. Financial leverage ..................................................................................................................... 135. Interest coverage ...................................................................................................................... 136. Fixed charge coverage .............................................................................................................. 13IV. Profitability Ratios ..................................................................................................................... 141. Net profit margin ...................................................................................................................... 142. Gross profit margin ................................................................................................................... 143. Operating profit margin ............................................................................................................ 144. Pre-tax margin ........................................................................................................................... 155. Return on assets (ROA) ............................................................................................................. 156. Operating return on assets ....................................................................................................... 16
 
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6/13/2011Investment Banking7. Return on total capital (ROTC) .................................................................................................. 168. Return on equity (ROE) ............................................................................................................. 169. Return on common equity ........................................................................................................ 17V. Cash flow ratios ............................................................................................................................. 181. Performance ratios ................................................................................................................... 18a. Cash flow-to-revenue ............................................................................................................ 18b. Cash return-on-assets ........................................................................................................... 18c. Cash return-on-equity ........................................................................................................... 18d. Cash-to-income ..................................................................................................................... 19e. Cash flow per share ............................................................................................................... 192. Coverage ratios ......................................................................................................................... 19a. Debt coverage ....................................................................................................................... 19b. Interest coverage .................................................................................................................. 20c. Reinvestment ........................................................................................................................ 20d. Debt payment ....................................................................................................................... 20e. Dividend payment ................................................................................................................. 20f. Investing and financing ......................................................................................................... 21VI. Valuation Ratios (Equity Analysis) ............................................................................................. 221. Per share valuation ratios ......................................................................................................... 22a. Earnings per share ................................................................................................................ 22i. Basic EPS................................................................................................................................ 22ii. Diluted EPS ............................................................................................................................ 23b. Cash flow per share (Please refer to cash flow ratios point e) ............................................. 242. Price valuation ratios or Price Multiples ................................................................................... 24a. Price-to-earnings (P/E) ratio ................................................................................................. 24b. Price-to-cash flow (P/CF) ratio .............................................................................................. 25c. Price-to-sales (P/S) ratio ....................................................................................................... 26d. Price-to-book value (P/B) ratio ............................................................................................. 263. Enterprise Value Multiple ......................................................................................................... 274. Dividend .................................................................................................................................... 28a. Dividend Yield ....................................................................................................................... 28b. Retention rate (RR) ............................................................................................................... 28c. Sustainable growth rate ........................................................................................................ 29

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