Business Finance Slide

BUSINESS FINANCE
© Angkasa Training Centre, 2010 1

Chapter 1: The World of Finance
• Finance is the process by which money is

transferred among businesses, individuals
and governments through the process of
financing and investing
• It also can be defined as the application of
the principles of financial economist to an
inter-related set of monetary problems.

1.1 Importance of Financial Statements
• Financial statements are formal records of
the financial activities of a business, person,
or other entity which provide an overview of a
business or person's financial condition in
both short and long term.
• four basic financial statements:
1. Balance Sheet
2. Income Statement
3. Statement of Retained Earnings
4. Statement of Cash Flow

1.2 Understanding Profit and Loss Accounts
• represents a summary of the firm’s operating

results over a period, normally for 1-year period.
IIFC Products Bhd
Income Statement for year ended Dec 31, 2009 (in RM`000)
Net Sales 1,500

Cost of Goods Sold 750
Gross Profits 750
Operating expenses 30
Depreciation Expense 180
Earnings before interest and tax (EBIT) 540
Interest expense 40
Earnings before tax 500
Taxes (40%) 200
Earnings after tax (Net Income) 300
Preferred stock dividend 7
Earnings available to common stock holders (EACS) 293
Common Stock dividends 200
Addition to Retained Earnings 93

1.3 Understanding Balance Sheet
• presents a quantitative summary statement of a company’s financial
position at a given point in time, including assets, liabilities and
shareholders’ equity or net worth.
IIFC Products Bhd
Balance Sheet for year ended Dec 31, 2009
Current Assets Current Liabilities

Cash 108,000 Account Payable 178,200
Marketable Securities 103,500 Notes Payable 4,050
Accounts Receivable 124,200 Accruals 21,330
Inventories 9,000 Total Current Liabilities 203,580
Total Current Assets 344,700 Long Term Debt 202,500
Net Fixed Assets 306,000 Total Liabilities 406,080
Total Assets 650,700 Shareholders' equity
Preferred Stock 40,000
Common Stock 64,620
Retained Earnings 140,000
Total liabilities and
shareholders' equity 650,700

Chapter 2: Analysis of Financial
Statement
• Financial analysis is the assessment of a
firm’s past, present and anticipated future
financial performance
• helps an individual to check whether a
business is doing better this year than it
was last year, or whether it is doing better
or worse than other companies in the
same industries

2.1 Assessing Financial Health
• company will be considered as “financially

healthy” when its performance
outperformed other companies in the
same industry and also outperformed the
industry’s benchmark
• The principal tool of financial analysis is
financial ratios.

2.2 The Basics Financial Ratios
• Financial ratios are divided into five main

categories:
1. liquidity ratios
2. efficiency/activity ratios
3. leverage ratios
4. profitability ratios
5. market value ratios

Liquidity Ratios
• show a firm’s ability to meet its short term financial

obligations. In other words, they show whether the firm
has the resources to pay its creditors when payments
are due
a. Current Ratio
Current Ratio = Current Assets_
Current Liabilities
= 344,700
203,580
= 1.69 times

Liquidity Ratios
b. Quick/Acid Test Ratio

Quick/Acid Test Ratio
= Current Assets – Inventories
Current Liabilities
= 344,700 – 9,000
203,580
= 1.65 times

Efficiency/Activity Ratios
• measure how effectively the firm is managing its
assets in generating sales. They show the amount of
sales generated for every dollar of assets investment
a. Inventory Turnover Ratio

Inventory Turnover Ratio
= Cost of Goods Sold (COGS)
Inventories
= 750,000
9,000
= 83.33 times

b. Average Collection Period (ACP)

Average Collection Period (ACP)
= ____Account Receivable____
Annual Credit Sales/360 days
= ___124,200___
1,500,000/360
= 29.80 days

c. Fixed Asset Turnover

Fixed Asset Turnover
= _____Sales_____
Net Fixed Assets
= 1,500,000
306,000
= 4.9 times

d. Total Asset Turnover

Total Asset Turnover
= ___Sales__
Total Assets
= 1,500,000
650,700
= 2.3 times

Leverage Ratios
• measure the level of debt or borrowings in a firm. They
tell us whether the company depends more on the debt
financing or equity financing. They also highlight the
ability of the firm to honour its medium and long term
debt commitments in terms of repayment of the principal
as well as the interest charges
a. Debt Ratio
Debt Ratio = _Total Debt_
Total Assets
= 446,080
650,700
= 0.6855 @ 68.55%

Leverage Ratios
b. Debt to Equity Ratio

Debt to Equity Ratio
= _Total Debt_
Total Equity
= 446,080
204,620
= 2.18

Leverage Ratios
c. Times Interest Earned / Interest Coverage

Ratio
Times Interest Earned
= Earnings Before Interest and Tax (EBIT)
Interest Expense
= 540,000
40,000
= 13.5 times

Profitability Ratios
• measure how effectively the firm uses its assets to make
profits. Profitability ratios show the profits earned for every
single dollar of sales made or the profits earned for every
investment in assets made.
a. Gross Profit Margin (GPM)

Gross Profit Margin (GPM)
= Gross Profit
Sales
= _750,000_
1,500,000
= 50%

b. Operating Profit Margin

Operating Profit Margin
= Earnings Before Interest and Tax (EBIT)
Sales
= _540,000_
1,500,000
= 36%

c. Net Profit Margin

Net Profit Margin
= Earnings Available to Common Stockholders
Sales
= _293,000_
1,500,000
= 19.53%


d. Return on Assets (ROA)

Return on Assets (ROA)
Total Assets
= _293,000_
650,700
= 45.03%

e. Return on Equity (ROE)

Return on Equity (ROE)
Total Equity
= _293,000_
204,620
= 143.19%

Market Value Ratios
• relate a firm’s stock price to its earnings and book value per
share. They give the management an indication of what
investors think of the firm’s past performance and future
prospect.
a. Earnings Per Share (EPS)

Earnings Per Share
Number of ordinary shares issued
= _293,000_
200,000
= RM1.465

Market Value Ratios
b. Dividend Per Share (DPS)

Dividend Per Share
= _______Ordinary Dividends_______
Number of Ordinary Shares Issued
= _200,000_
200,000
= RM1.00

Market Value Ratios
c. Dividend Payout Ratio (DPR)

Dividend Payout Ratio
= _Dividend Per Share_
Earnings Per Share
= _RM1.00_
RM1.465
= 0.68

Market Value Ratios
d. Price/Earnings Ratio
Price/Earnings Ratio
= _Market Price Per Share_
Earnings Per Share
= _RM25.00_
RM1.465
= 17.06 times

2.3 Trend Analysis and Industry
Comparisons
1. Trend analysis
• It is also known as time series analysis, which evaluates
performance of the company over time.
• Comparisons are made between current to past performance using
ratios to assess the company’s progress.

2. Cross sectional
• This analysis involves the comparison of different companies’
financial ratios at the same point in time.
• Ratios of other companies within the same industry are needed in
order to analyze the performance of the company.
• Analysts are often interested in how well a company has performed
in relation to other companies in the same industry.

Chapter 3 : The Time Value of Money
• means a dollar received today is worth

more than the same dollar received in the
future.
• crucial in financial management as it will
enable us to further understand how
stocks and bonds are valued, how to
decide on the capital budgeting and many
more.

3.1 Why Money Has Time Value
• In investment, the more time taken, the

more interest you may earn
• investors would be compensated for his
waiting time in making their investment
due to their willingness to forgo their
current consumption in expectation of
future earnings

3.2 Measuring the Time Value of Money
• a single sum of money or a series of equal, evenly-

spaced payments or receipts promised in the future can
be converted to an equivalent value today.
• Conversely, you can determine the value to which a
single sum or a series of future payments will grow to at
some future date
• Time Value of Money can be further subdivided into two;
1. Present Values (PV)
2. Future Values. (FV)

3.3 The Present Value of a Single Amount
Future Value and Compounding

• future value is the value to be received in
the future, given a value today
Example 1:
Find the future value of RM7, 000 to be
invested for 4 years at 10% compounded
annually.

Formulae
FV = PV (1 + i )n
where;
PV = Present Value of the future sum of money
FV = Future Value of an investment at the end of
n years
i = annual discount rate
n = number of years before payment is
received

FV = PV (1 + i )n
= 7, 000 ( 1+0.1)4
= 10,248.70
or
FV = PV (FVIFI,n)
= PV (FVIF10%,4)
= 7, 000 (1.464)
= 10,248.00
Example 2:
semi annually
n = 4 years x 2 times per year
=8
i = 10% per annum / 2 times a year
= 5%
FV = PV (1 + i )n
= 7, 000 ( 1+0.05)8
= 10,342.19
or
FV =PV (FVIF5%,8)
= 7, 000 (1.477)
= 10,339.00

Example 3:
quarterly
FV = PV (1 + i )n
= 7, 000 ( 1+0.025)16
= 10,391.54

Example 4:
monthly.
FV = PV (1 + i )n
= 7, 000 ( 1+0.1/12)48
= 10,425.48

Example 5:
daily.
FV = PV (1 + i )n
= 7, 000 ( 1+0.1/365)4x365
= 10,442.20

Present Value and Discounting
• The present value is the value today of a
sum of money to be received in the future.
Example 1:
What is the present value of RM5, 000 to
be received 3 years from today if the
required rate of return is 8% compounded
annually?

Formulae
PV = __FV__
(1+i)n
where;
PV = Present Value of the future sum of money
FV = Future Value of an investment at the end of n
years
n = number of years before payment is
received

PV = __FV__
(1+i)n
= __5, 000__
(1+ 0.08)3
= 3,969.16
or
PV = FV (PVIFI,n)
= FV (PVIF8%,3)
= 5, 000 (0.7938)
= 3,969.00

Example 2:
What is the present value of RM5, 000 to be
received 3 years from today if the required
rate of return is 8% compounded semi
annually?
=6
= 4%
PV = __FV__
(1+i)n
= __5, 000__
(1+ 0.04)6
= 3,951.57
or
PV = FV (PVIF4%,6)
= 5, 000 (0.7903)
= 3,951.50

Example 3:
rate of return is 8% compounded quarterly?
= 12
= 2%

PV = __FV__
(1+i)n
= __5, 000__
(1+ 0.02)12
= 3,942.47
or
PV = FV (PVIF2%,12)
= 5, 000 (0.7885)
= 3,942.50

Example 4:
rate of return is 8% compounded monthly?
PV = __FV__
(1+i)n
= __5, 000__
(1+ 0.1/12)36
= 3,708.70

Example 5:
What is the present value of RM5, 000 to
be received 3 years from today if the
required rate of return is 8% compounded
daily?
PV = __FV__
(1+i)n
= __5, 000__
(1+ 0.1/365)3x365
= 3,704.24

3.4 Working with Annuities
• An annuity is a series of equal payments made
at fixed intervals for a specific number of
periods
• divided into two main types:
1. Ordinary annuity: payments made at the
end of each period (i.e payment of Astro
bills)
2. Annuity due: payment made at the
beginning of each period (i.e rental
payments)

Future Value of an Ordinary Annuity
FVA = PMT (1+i )n - 1
i
where:
FVA = the total future value at the end of n periods
PMT = the equal payments made for each period
n = number of payments made
Or
FVA = PMT (FVIFA I,n)

Future Value of an Annuity Due
FVAD = PMT (1+i )n – 1 (1+i)
i

where:
FVA = the total future value at the end of n periods
Or
FVA = PMT (FVIFA I,n) (1+i)

Present Value of an Ordinary Annuity
PVA = PMT (1+i )n – 1
i (1+i)n

where:
PVA = the total present value of n annuity
Or
PVA = PMT (PVIFAi,n)

Present Value of an Annuity Due
PVAD = PMT (1+i )n – 1 (1+i)
i (1+i)n

where:
PVA = the total present value of n annuity
Or
PVA = PMT (PVIFAi,n)(1+i)

Chapter 4: Capital Budgeting
Decision Methods
• The purpose of this chapter is to evaluate
and decide whether to purchase new
equipment, the acquisition of property or
acquisition of another company. Therefore
the best project can give a maximum
return from the company’s investment.

4.1 The Capital Budgeting Process
The process of capital budgeting involved

four steps which is as follow :
1. Estimates the cash flows after tax from
investment.
2. Consider the risk involved associated to the
investment.

Cont.
3. Choose the best methods to evaluate the

project ; non-discounted method and
discounted method.
4. Make a best decision to ensure those
investments provides a positive return to the
company’s value. The decision is based on
mutual exclusive investment and/or
independent investment.

Capital Budgeting Decision
Methods
• 2 cash flow methods :
• Non-discounted cash flow
• Discounted cash flow method

Non-discounted cash flow
• This method does not consider the time

value of money in calculating and analyze
the capital investment. Under this method,
there are two techniques that commonly
used by Financial Manager to calculate
and evaluate the best investment i.e.
Average Rate of Return and Payback
Period.

The Accounting Rate of Return
(ARR)
• This method is to measures the average
on profitability of proposed capital
investment as the ratio of average net
income after tax to the average
investment.
• ARR = Average Net Income After Tax
Average Investment

The Payback Period
• The payback period method focuses on

the time value of money and uses cash
flow after tax, instead of net profit in
evaluating an investment. This method
use to measure the length of time that the
company needs to consider to recover
back the cost of investment. Thus,
payback occurs when the total of cash
inflows equal to the initial investment :
Payback period (When the cash flows are
an annuity)
= IO / Average CF

Payback period (When the cash flows are
mixed stream)
= (Yr – 1) + [ (IO – Cum. inflow before Yr.) ]
Cash inflow in Yr.
Example
• Shasha Farzana is the Financial Manager

for RIDZ Sdn Bhd. She needs to
considering the potential investment for
company i.e. Project A and Project B
which can maximize the company’s return.

Cont.
• The below table shows the detail of each

projects :
Year Project A Project B
1 RM2,500 RM2,500
2 RM2,500 RM700
3 RM2,500 RM3,300
Total Inflow RM7,500 RM6,500
Initial Outlay RM5,000 RM5,000
Discounted cash flow method
• Discounted cash flow method considers

the time value of money in the analysis.
This method support the goal of the firm
i.e. to maximize the shareholders’ wealth.
• There are three common techniques in
discounted cash flow ; net present value,
internal rate of return and profitability
index.

Net Present Value (NPV)
• This technique among the common

techniques and is widely used in analyzing
the best investment for company. NPV is
the present value of an investment’s
annual cash flows less the initial outlay. It
can be expressed as follows :

Cont.
• NPV (mixed stream cash flows) =

= [ PV1 + PV2 + … + PVn ] - IO
(1 + i)1 (1 + i)1 (1 + i)n
• NPV (an annuity)

• = PV [ 1 – 1 ]
(1 + i)n - IO
i
Profitability Index (PI)
• Profitability index measures the ratio of

present value of cash flow to the cost of
investment. This index can be expressed
as follows :
PI = [ PV1 + PV2 + … + PVn ]
(1 + i)1 (1 + i)1 (1 + i)n
-----------------------------------------
Initial Outlay

Internal Rate of Return (IRR)
• IRR is the discount rates that cause the

NPV to equal zero. Therefore, IRR is when
NPV is equates to zero :
IRR = Σ [ CFATt / (1 + IRR)t ] – IO


Capital Rationing
• Capital rationing is referring to placing a

limit on the dollar size of the capital
budget. There are three basic principles
for imposing a capital-rationing constraint.

Example
• Company ABC has a budget constraint of

RM4 million and there are four projects
available. The table below is the
information for each of proposed projects :
Project Initial Outlay NPV (RM)
(RM)
AA 2.0 million 0.8 million
BB 1.0 million 0.4 million
CC 1.2 million 0.6 million
DD 1.8 million 0.9 million
Chapter 5 : Capital Structure Basics
• Capital structure is the mix or combination

of firm’s permanent long term financing
including firm’s debt, preferred stock and
common stock.

• Different companies may imply different
optimal structure. The objectives of capital
structure are as follows :
– Investment decision
– Financing decision
– Dividend policy decision

Breakeven Analysis and Leverage
• Breakeven analysis is focus on the

relationship between sales volume and
profitability, which has a direct relationship
to the firm’s total cost structure.

Break Even Point
• Also known as a cost-volume analysis which

is finding the level of sales where operating
profit or net income before interest and tax
equals to zero that is the total revenues
equal to total cost. EBIT is;
EBIT = Q (P – V) – FC
Where ;
• Q : Sales quantity (in unit)
• P : Price per unit
• V : Variable cost per unit
• FC : Fixed cost

Sales Break Even
• It involves the same formula except the

sales break even uses contribution margin
(CM). The sales break even can be
calculated as follows :
CM = 1 – Variable cost ratio

= 1 – (V / P)

Cash Break Even (CBE)
• It concern with the sales level in order to

meet operating cash requirement. This is
because cash receipts and expenditure do
not correspond directly with the sales and
expenses as per income statement. In
CBE, non-cash expenses such as
depreciation are not included as it will
overstate the CBE. The CBE can be
computed as follows;
Cont.
• CBE (in unit) = (FC – depreciation)

(P – V)
• CBE (in RM) = (FC – depreciation)

[ 1 - (V / P)

Break Even Margin
• This technique is used to calculate the

margin of safety when the level of sales is
known. This relates to the firm’s current
sales level to break even point and thus it
will measures the risk on how much the
sales can be decline before meet the
break even point which result in negative
operating earnings.

Cont.
• Break even margin (BEM) can be

computed using the following formula :

BEM = S0 – BE (in RM) / S0

Leverage
• Leverage implies the usage of fixed costs

in a business to firm’s earnings. The
leverage is included the operating
leverage and financial leverage.
• Operating leverage is the fixed operating

costs which is appear in the firm’s income
statement.

Cont.
• Financial leverage relates to the financial

sources which carry fixed financing
charges that the company willing to bear in
order to maximize their returns on
shareholders’ wealth. The combination
between operating leverage and financial
leverage known as the total leverage.

Degree of Operating Leverage
(DOL)
• DOL is the percentage change in a firm’s
operating profit due to the change in sales
volume.
• The formula to calculate DOL is as follows:
DOL = Percentage chg. in operating profit
Percentage change in sales

Degree of Financial Leverage
(DFL)
• DFL is defined as the percentage of
change in EPS as the result from
percentage change in EBIT. The level of
financial leverage can be determined by
applying the following formula :

Cont.
• DFL = % change in EPS____

% change in operating profit
• DFL= ________EBIT_______
EBIT – 1 – Preferred divd.
/ (1 – Tax)

Example
Company Syarikat Syarikat Syarikat
Mama Mimi Mumu
Sales (RM) 5,500 9,750 5,000
Operating
cost : 1,000 7,000 3,500
Fixed cost
(RM)
Variable cost 3,500 1,500 1,000
(RM)
Operating profit 1,000 1,250 500
Fixed cost 0.22 0.82 0.78
Cont.
• The above illustration, it shows that

Syarikat Mimi has the highest percentage
of fixed cost of 0.82. This is requires a
large amount of sales in this company as
compared to Syarikat Mama and Mumu in
recovering the total costs and thus able to
make a highest profit.

Capital Structure
• This capital structure theory assumes that

there is an optimal capital structure,
whereby when a company increases the
amount of debt in capital structure, the
weighted average cost of capital (WACC)
will be reduced. The WACC will increase
when the company has more debt. This is
due to the required return by investors will
increase and thus reduced the debt fund.
Chapter 6 : Working Capital Policy
1. Inventory Management
• The Economic Order Quantity (EOQ) model will
determine the optimal order size for an inventory
item and therefore helps to minimize the
inventory costs.
• Other system of inventory also may be used
such as the ABC Approach, Materials
Requirement Planning (MRP) Approach and
Just-In-Time (JIT) Approach

2. Account Receivable Management
• starts with the process of credit Selection whereby
the customers will be evaluated using the 5C’s of
credit before any credit sales is granted.
- Character
- Capital
- Conditions
- Collateral
- Capacity

3. Cash Management
• concerned with maintaining the liquidity of
the firm in order to minimize the risk of
going bankrupt
• three motives of holding cash by firms:
– Transaction Motive
– Precautionary Motive
– Speculative Motive

4. Marketable Securities
• assets that can be quickly converted into cash.
• Examples :treasury bills, commercial paper,
negotiable certificate of deposit (NCD) and
Banker’s Acceptance (BA).
• rationales for holding marketable securities:
- As a substitute of cash
- As a temporary investment

Managing Current Liabilities: Risk
and Return
Source of Cost Risk
finance
Short-term Low High
Long-term High Low

Three Working Capital Financing
Approaches
• Aggressive approach to financing working
capital
• Conservative approach to financing
working capital
• Moderate approach to financing working
capital

Aggressive approach to financing
working capital
• The aggressive method is where a
company predominantly finance all its
fluctuating current assets and most of its
permanent current assets using short-
term source of finance and it is only a
small proportion of its permanent current
assets that is financed using long-term
source of finance.

Conservative approach to financing
working capital
• The conservative method is where a
company predominantly finance all its
permanent current assets and most of its
fluctuation current assets using long-
term source of finance and it is only a
small proportion of its fluctuating current
assets that is financed using short-term
source of finance.

Moderate approach to financing
working capital
• This approach makes distinction between
fluctuating current assets and permanent
current assets with the suggestion that to
finance working capital; short-term source
of finance should be used to finance
fluctuating current assets, whiles long-term
source of finance should be used to
finance permanent current assets.

Working Capital Financing and
Financial Ratios
• Working capital financing is essential to any
growing business. It helps keep the
business current and competitive in the
market.
• Financial ratios can be used to analyze
trends and to be compared with other firms
in the same industry. In the some cases,
financial ratios can predict future
bankruptcy.
Chapter 7 : Managing Cash
• Cash is defined as coins and currency

plus demand deposit account that
available to meet individual’s need and is
use in a daily transaction.

• Management of cash refer to the liquidity
of a firm and thus can minimize the risk of
solvency in a company. A company can
become insolvent when they unable to
meet its maturing liabilities due to lack of
necessary liquidity to make prompt
payment on its current debts.

• The firm has to hold cash a a few reasons:
– Transaction
– Precautionary
– Speculation
– Compensating balance

Forecasting Cash Needs
• Cash forecast requires four basic steps:

– Estimate sales for the forecast period, a year
in this instance
– Break down the annual sales figure into
monthly units to reflect any seasonal factors.
– Construct pro forma income statements from
the monthly sales figures.
– Translate the income statement information
into a cash forecast.

Preparing the Statement of Cash
Flow
• Operating Cash Flow: Operating cash
flow, often referred to as working capital, is
the cash flow generated from internal
operations. It comes from sales of the
product or service of your business, and
because it is generated internally, it is
under your control. The company’s income
statement will be converted from accrual
basis to cash basis.
Cont.
• Investing Cash Flow : Investing cash

flow is generated internally from non-
operating activities. This includes
investments in plant and equipment or
other fixed assets, nonrecurring gains or
losses, or other sources and uses of cash
outside of normal operations.

Cont.
• Financing Cash Flow. Financing cash

flow is the cash to and from external
sources, such as lenders, investors and
shareholders.

Example
• Prepare the cash flow. Given the balance

sheet and profit and loss statement :

Balance Sheet as of 31/12/2008
and 2009
31/12/2008 31/12/2009
(RM’000) (RM’000)
Cash 200 150
Ac Receivable 450 425
Inventory 550 625
Total Current Assets 1,200 1,200
Plant and Equipment 2,200 2,600
Less : Accumulated Depreciation 1,000 1,200
Net Plant and Equipment 1,200 1,400
Total Assets 2,400 2,600
Account payable 200 150

Notes payable 0 150
Total Current Liabilities 200 300
Bond 600 600
Common stock 300 300
Paid-in capital 600 600
Retained Earnings 700 800
Total owners’ equity 1,600 1,700
Total liabilities and owner’s 2,400 2,600
Income Statement for the Year
Ended 31st Dec 2009
RM’000
Sales 1,450
Cost of Goods Sold 850
Gross Profit 600
Operating Expenses 40
Depreciation 200
Net Income 360
Less : Interest Expenses 300
EBT 120
Less : Taxes Expenses 180
Dividend 80
Additional Retained Earnings 100

Business Finance Slide

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Business Finance Slide

Uploaded by

Copyright:

Available Formats

BUSINESS FINANCE

© Angkasa Training Centre, 2010 1

• Finance is the process by which money is

© Angkasa Training Centre, 2010 2

© Angkasa Training Centre, 2010 3

• represents a summary of the firm’s operating

Net Sales 1,500

© Angkasa Training Centre, 2010 4

Current Assets Current Liabilities

© Angkasa Training Centre, 2010 5

© Angkasa Training Centre, 2010 6

• company will be considered as “financially

© Angkasa Training Centre, 2010 7

• Financial ratios are divided into five main

© Angkasa Training Centre, 2010 8

• show a firm’s ability to meet its short term financial

© Angkasa Training Centre, 2010 9

b. Quick/Acid Test Ratio

© Angkasa Training Centre, 2010 10

a. Inventory Turnover Ratio

© Angkasa Training Centre, 2010 11

b. Average Collection Period (ACP)

© Angkasa Training Centre, 2010 12

c. Fixed Asset Turnover

© Angkasa Training Centre, 2010 13

d. Total Asset Turnover

© Angkasa Training Centre, 2010 14

© Angkasa Training Centre, 2010 15

b. Debt to Equity Ratio

© Angkasa Training Centre, 2010 16

c. Times Interest Earned / Interest Coverage

© Angkasa Training Centre, 2010 17

a. Gross Profit Margin (GPM)

© Angkasa Training Centre, 2010 18

b. Operating Profit Margin

© Angkasa Training Centre, 2010 19

c. Net Profit Margin

© Angkasa Training Centre, 2010 20

d. Return on Assets (ROA)

© Angkasa Training Centre, 2010 21

e. Return on Equity (ROE)

© Angkasa Training Centre, 2010 22

a. Earnings Per Share (EPS)

© Angkasa Training Centre, 2010 23

b. Dividend Per Share (DPS)

© Angkasa Training Centre, 2010 24

c. Dividend Payout Ratio (DPR)

© Angkasa Training Centre, 2010 25

© Angkasa Training Centre, 2010 26

© Angkasa Training Centre, 2010 27

• means a dollar received today is worth

© Angkasa Training Centre, 2010 28

• In investment, the more time taken, the

© Angkasa Training Centre, 2010 29

• a single sum of money or a series of equal, evenly-

© Angkasa Training Centre, 2010 30

Future Value and Compounding

© Angkasa Training Centre, 2010 31

© Angkasa Training Centre, 2010 32

© Angkasa Training Centre, 2010 35

© Angkasa Training Centre, 2010 36

© Angkasa Training Centre, 2010 37

© Angkasa Training Centre, 2010 38

© Angkasa Training Centre, 2010 39