Chapter 3: Analysis of Financial Statements 103

TABLE 3-2
Micro Drive Inc.: Summary of Financial Ratios
(Millions of Dollars)
INDUSTRY FORMULA
CALCULATION RATIO AVERAGE COMMENT
RATIO

Liquidity Current
$1,000
Current assets Current liabilities
3.2
=
Poor
$310

$385

Quick
Current assets – Inventories
Current liabilities
1.2
Poor
$310

Asset Management Inventory turnover

Sales Inventories
 $3,000 $615
4.9

9.0
Poor

$375
Receivables Annual sales/365
15.6
36.0
Days sales outstanding (DSO)
Poor
$8.219

Fixed assets turnover

Sales Net fixed assets
$3,000 $1,000
3.0
3.0
OK

Total assets turnover

Sales Total assets
$3,000 $2,000 =
1.5
1.8
Poor

Debt Management Debt ratio

Total liabilities
Total assets
$1,064 $2,000
53.2%
40.0%
High (risky)
$283.8
Earnings before interest and taxes (EBIT)
Interest charges
=
3.2
6.0

Times-interest-earned (TIE)

Low (risky)
$88

$411.8
EBITDA coverage
EBITDA + Lease pmts. Interest + Principal payments + Lease pmts.
=
3.0
4.3

Low (risky)
$136

Profitability Profit margin on sales

Net income available to common stockholders
Sales
$113.5 $3,000
3.8%
5.0%
Poor

Earnings before interest and taxes (EBIT)

Total assets
$283.8 $2,000
14.2%
Basic earning power (BEP)
17.2%
Poor
Net income available to common stockholders
Total assets
$113.5 $2,000
5.7%
Return on total assets (ROA)
9.0%
Poor

$113.5
Net income available to common stockholders
Common equity
=

12.7%
15.0%
Return on common equity (ROE)
Poor
$896

Market Value Price/earnings (P/E)

$23.00
Price per share Earnings per share
10.1
12.5
Low
$2.27

$23.00
Price/cash flow
Price per share Cash flow per share

5.4
5.4
6.8

6.8
Low
$4.27

$23.00
Market/book (M/B)
Market price per share Book value per share

R
13
1.3

17
1.7
Low
$17.92