Module 5

MODULE 5
RATIO ANALYSIS
Horizontal and vertical analyses compare one figure to another within the same
category. It is also essential to compare figure from different categories. This is
accomplished through ratio analysis. Financial ratios are used by investors, creditors,
management, and regulators to assess a firm’s financial condition and performance.
Ratios can “standardize” financial information and make it possible to compare
companies of varying sizes.
Ratio analysis of a firm’s financial statements is of interest to shareholders, creditors,
and the firm’s management. Stockholders are interested in the firm’s current and future
level of risk and return, which directly affect the stock price. The firm’s creditors are
primarily interested in the short-term liquidity of the company and in its ability to make
interest and principal payments. Internal management is concerned with all aspects of
the firm’s financial performance. Therefore, they attempt to produce financial ratios that
will be considered favorable to both owners and creditors. Additionally, management
uses ratios to monitor the firm’s performance from period to period. Unexpected changes
or variances are identified to isolate developing problem areas.
Value of Ratio Analysis

Ratios are not the end-game answers. Ratios are just the starting point and indicate
where to conduct further investigation. The goal is to understand the reasons for
differences between a company’s performance vs. its peers…hence, the importance of
selecting appropriate benchmarks. Even ratios that remain stable require understanding
(and analysis) because there could be accounting policies selected to smooth out the
trends.
 Evaluation of past performance
 Assessment of the current financial position
 Gain insights useful for projecting future results:
 Microeconomic relationship within a company
 Financial flexibility: Ability to obtain cash to grow the business, ability to
pay obligations, etc.
 Management’s capability
Limitations of Ratio Analysis

 Ratios could tell “what” happened, but not “why” it happened. Analyst must therefore
understand why things happened. It could tell which company is more profitable but
analysts should find why the firm has higher net profit margin. Is it due to higher selling
price or better cost control or something else?
 The use of alternative accounting methods can distort the comparability of ratios;
hence, analyst adjustments might be necessary. For example, if the company uses
moving-average method instead of first-in, first-out method would affect these ratios:
 Inventory turnover
 Days to sell inventory
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 Operating cycle
 Cash conversion cycle
 Gross profit margin
 Operating profit margin
 Net profit margin
 Return on assets
 Return on equity
 Current ratio
 Some ratios are not relevant to certain companies or industries.
 Conglomerates may have divisions operating in many different industries, which can
make it difficult to find comparable industry ratios at the parent company level.
 The need to use human judgment in gathering data, interviewing management,
selecting the ratios, and analyzing results.
 Some ratios might indicate conflicting signals.
 Inflationary conditions can distort ratios.
 The number of rations that can be created is practically limitless. When faced with a
new ratio, simply analyze each component separately in order to understand it.
Financial ratios will eventually vary across time and across industries. The challenge
is to interpret the differences properly. In some cases, interpretation can be situation-
specific.
Major Categories of Financial Mix Ratio

1.Liquidity Ratios
 Liquidity measure the company’s ability to meet its short-term obligations
2. Activity Ratios
 Activity ratios measure how effectively the company is using its assets for its
operations and how efficiently it performs day-to-day tasks, such as the collection of
receivables and management of inventory.
3. Solvency Ratios
 Solvency ratios measure a company’s ability to meet long-term obligations. Subsets
of these ratios are also known as “leverage” and “long-term debt” ratios.
4. Profitability Ratios
 Profitability ratios pertain to the ability of the business to generate profit. Profitability
ratios measure the ability of the business to generate profit in relation to sales, investments,
assets, equities, or common shares outstanding.
5. Cash Flow Ratios
 Cash flow ratios evaluate the ability of the firm to generate cash flow to support its
operation, investing and financing activities.
6. Valuation Ratios
 Valuation ratios measure the quantity of an asset or flow (e.g., earnings) associated
with ownership of a specified claim (e.g., a share or ownership of the enterprise).
LIQUIDITY RATIOS
To test the degree of protection afforded to lenders, it is important to focus on the
ability of the firm to convert its current assets into cash and its ability to pay its maturing
obligations. An asset is liquid if it can be readily converted into cash, while a liability is liquid
if it must be repaid in the near future. Liquidity ratio is defined as a class of financial metrics
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that is used to determine a company’s ability to pay off its short-term debt obligations.
Generally, the higher the value of the ratio, the larger the margin of safety that the
company possesses to cover short-term debts.
Liquidity ratios commonly include the operating cash ratio, the quick ratio and the
current ratio. Different analysts consider different assets to be relevant in calculating
liquidity. Some analyst will calculate only the sum of cash and cash equivalents divided by
current liabilities because they feel that they are the most liquid assets and most likely to be
used to cover short-term debts in an emergency.
The firm’s ability to turn short-term assets into cash to cover debt is of the utmost
importance when creditors are seeking payment. Bankruptcy analysts and mortgage
originators frequently use the liquidity ratios to determine whether a company will be able
to continue.
Current Assets
Current assets are important to business because they are the assets that are used
to fund day-to-day operations and pay ongoing expenses. A current asset is a balance
sheet account that represents the value of all assets that are reasonably expected to be
converted into cash within one year in the normal course of business. Current assets
include cash, marketable securities, accounts receivable, inventory, prepaid expenses and
other liquid assets that can be converted to cash.
In personal finance, current assets are all assets that a person can readily convert to
cash to pay outstanding debts and cover liabilities without having to sell fixed assets.
Current Liabilities
Current liabilities are those claims of outsider, which are expected to mature for
payment within an accounting year that includes, accounts payable, bills payable and
short-term loans payable.
Working Capital Management

Working capital management involves the relationship between a firm’s short-term
assets and its short-term liabilities. The basic goal of working capital management is to
ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy
both maturing short-term debt and upcoming operational expenses. The management of
working capital involves managing inventories, accounts receivable, accounts payable,
short-term loans and cash. The success of the firm is its ability to continuously support its
operation.
Net Working Capital

The networking capital is the lifeblood of a business. After settling or paying all
current liabilities, this is the amount of working capital remaining to the firm. Most short-
term creditors evaluate the networking capital because this is the amount that they can
claim if they will lend an amount to the firm. A high net working capital may indicate
favorableness to the creditors but it may indicate inefficiency of the firm to utilize credit.
Net working capital = Current Assets – Current Liabilities
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CASH RATIO
This measures the firm’s ability to pay its short-term obligations without necessarily
collecting from customers and disposing inventories.
Cash + Short-term Marketable Securities

Cash Ratio =
Current Liabilities
Quick Check:
Cash………………………………………………..100,000
Short-term Marketable Securities…………..300,000
Current Liabilities………………………………..450,000
Cash Ratio = ?
QUICK (ACID-TEST) RATIO

Quick ratio is a stringent test that indicates whether a firm has enough short-term
assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far
more strenuous than the working capital ratio, primarily because the working capital ratio
allows for the inclusion of inventory assets. The quick ratio is better if higher.
Cash + Short-term Marketable Securities + Accounts
Quick Ratio = Receivable
Current Liabilities
Or
Current Assets – Inventories and Prepaid Expenses
Quick Ratio =
Current Liabilities
Quick Check:
Cash and Cash Equivalents…………………………..400,000
Marketable Securities…………………………………..150,000
Accounts Receivable……………………………………..600,000
Inventories………………………………………………….800,000
Prepaid Expenses………………………………………….100,000
Current Assets…………………………………………..2,050,000
Current Liabilities………………………………………1,500,000
Quick Ratio = ?
CURRENT RATIO
Current ratio measures the ability of the firm to pay back its short-term liabilities (debt
and payables) with its current assets. The higher the ratio, the more capable the company
is paying its obligations. A ratio less than one (1) suggest that the company would be
unable to pay off its obligations if they came due at that point. While this shows the
company is not in good financial health, it does not necessarily mean that it will go
bankrupt—as there are many ways to access financing-0but it is definitely not a good sign.
The current ratio can give a sense of the efficiency of the company’s operating
cycle or its ability to turn its current assets into cash. Companies that have trouble getting
paid on their receivables or have long inventory turnover can run liquidity problems
because they may not be able to meet their obligations.
Low current ratio indicates poor liquidity. The implication is that the firm has strong
reliance on Operating Cash Flow and external financing to meet short-term obligations.
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Current ratio assumes that inventories and accounts receivable are truly liquid.
Double check current ratio against the inventory turnover and accounts receivable
turnover ratios. If ITO and ARTO are poor, then it’s better to use the Quick Ratio or Cash
Ratio
Current Assets
Current Ratio =
Current Liabilities
Quick Check:
Current Asset………………………………400,000
Current Liabilities………………………….300,000
Current Ratio = ?
DEFENSIVE INTERVAL RATIO
Defensive interval ratio is similar to “burn rate” metric. It measures how long the firm
can pay its cash expenditures using only the existing liquid assets without any additional
cash inflow. To estimate the daily expenditures: exclude taxes.
Cost of Goods Sold
Add: Selling, General, and Administrative Expenses
Research and Development Expense
Less: Non-Cash Expenses: Depreciation, Amortization, etc.
Estimated Total Cash Expenditure
Divide: Number of days in the period
Estimated daily cash expenditure
Cash + Marketable Securities + Accounts Receivable

Defensive Interval Ratio =
Daily Cash Expenditures
Quick Check:
Total Operating Expenses…………………………………….…..500,000
Depreciation and Amortizations…………………………….…..100,000
Cash, Marketable Securities and Accounts Receivable…….1,000,000
Defensive Interval Ratio = ?
ACTIVITY RATIOS
Activity ratios measure how effectively the enterprise is using its assets for its
operations. Enterprises typically try to turn their production into cash or sales as fast as
possible because this will generally lead to higher revenues. Such ratios are frequently
used when performing fundamental analysis on different companies. The asset turnover
ratio and inventory turnover ratio are good examples of activity ratios.
Using “Average” vs. “Yearend”

Some analyst may use yearend balances to determine the average however an
analyst can use end-Quarter or end-Month figures to account for seasonality. If the
denominator is fairly stable all throughout the year (s), then it would not matter if
“beginning”, “ending”, or “average” amounts are used. If the denominator either
increased or decreased substantially during the year, then use the “average” amount.
Here are possible types of averages:
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January 1 + December 31
,Average =
2
January 1 + June 30 + December 31

Average =
3
January 1 + March 31 + June 30 + September 30 + December 31

Average =
5
Average = Jan 1 + Jan 31 + Feb 28 + Mar 31 +…+ Dec 31

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RECEIVABLE TURNOVER
Receivable Turnover is used to measure the firm’s effectiveness in extending credit
as well as collecting debts. The receivables turnover is an activity ratio, measuring how
efficient a firm uses its asset. Trade receivables include open account and on notes. By
maintaining trade receivable, firms are indirectly extending interest-free loans to their
clients. A high ratio implies either that the company operates on a cash basis or that its
extension of credit and collection of accounts receivable is efficient. A low ratio implies
the company should re-assess its credit policies in order to ensure the timely collection of
imparted credit that is not earning interest for the firm.
Net Credit Sales
Receivables Turnover =
Average Trade Receivables
Quick Check:
Accounts Receivable Beginning……………………..400,000
Accounts Receivable Ending…………………………600,000
Net Credit Sales…………………………………………2,000,000
Receivables Turnover = ?
COLLECTION PERIOD (RECEIVABLE DAYS)

It indicates the length of time trade receivables are collected.
360 days (365 days)
Collection Period =
Receivables Turnover
OR
Average Trade Receivables
Collection Period =
Daily Sales
Inventory Turnover Ratio

Inventories are those raw materials, work-in-process goods and finished goods that
are considered to be the portion of a business’s assets intended for sale. Inventory
represents the most important assets because the turnover of inventory represents one of
the primary sources of revenue generation and subsequent earnings for the company’s
shareholders/owners.
Inventory turnover shows how many times the inventory of a company is sold and
replaced over a specific period of time.
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Sales
Inventory Turnover =
Average Inventory
OR
Cost of Goods Sold
Inventory Turnover =
Average Inventory
Although the first calculation is frequently used, COGS (Cost of goods sold) may
substituted because sales are recorded at market value, while inventories are usually
recorded at cost. Also average inventory may be used instead of the ending inventory
level to minimize seasonal factors.
Inventory turnover ratio should be compared against industry averages. A low
turnover implies poor sales and therefore, excess inventory. A high ratio could mean either
strong sales or ineffective buying. High inventory levels are unhealthy because they
represent an investment with a rate of return of zero. It also opens the company up to
trouble should prices begin to fall.
Quick Check:
Inventory Beginning……………………..400,000
Inventory Ending…………………………320,000
COGS…………………………………………5,920,000
Inventory Turnover = ?
Inventory Days
It indicates the length of time spent before average inventory is sold to customers.
360 days (365 days)
Inventory Days =
Inventory Turnover
OR
Average Inventory
Inventory Days =
Sales per day
Materials Turnover
It indicates the number of times materials were used on the average during the
period.
Materials Used
Materials Turnover =
Average Materials Inventory
Work-in-Process Turnover
It indicates the number of times average work-in-process inventories is converted
into finished goods.
Cost of Goods Manufactured
Work-in-Process Turnover =
Average Work-in-Process Inventory
Finished Goods Inventory Turnover

It indicates the number of times average finished goods is sold during the period.
Finished Goods Inventory Turnover = Cost of Goods Sold
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Average Finished Goods Inventory
Operating Turnover
Operating turnover measures the speed of the business cycle and the number of
days cash was invested in the normal business operations until it was recovered back.
Operating Turnover = Collection Period + Inventory Days
Payables Turnover
Payable turnover measures effectiveness in using trade credit facility from suppliers.
Net Credit Purchases
Payables Turnover =
Average Trade Payables
Quick Check:
Trade Payables Beginning……………………..12, 555
Trade Payables Ending…………………………25,121
Net Credit Purchases…………………………………………113,555
Payables Turnover = ?
Payables Deferral Period (Payable Days)

It indicates the length of time spent before paying liabilities to suppliers.
360 days (365 days)

Payables Deferral Period =
Payables Turnover
OR
Purchases per day
OR
Cost of goods sold /365 days (360 days)
Cash Turnover
Cash turnover measures the ability of the business to meet operating expenses
payments given a particular cash balance.
Cash Operating Expenses
Cash Turnover =
Average Cash Balance
Days to Pay Operating Expenses

It indicates the number of days spent before meeting operating expenses payments.
360 days (365 days)
Days to Pay Operating Expenses =
Cash Turnover
Cash Conversion Cycle

It indicates the average length of time involved from the purchase of inventory,
collection of receivables to payment to suppliers.
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Cash Conversion Cycle = Inventory Days + Collection – Payables Deferral Period
OR
Cash Conversion Cycle = Material Inventory Days + Work-in-Process Inventory Days +

Finished Goods Inventory Days + Collection Period – Payables
Deferral Period
Working Capital Turnover

It measures the adequacy and effective use of working capital. It also indicates the
reasonableness of the amount of current assets.
Net Sales
Working Capital Turnover =
Average Working Capital
Quick Check:
Net Sales……………………..12,000,000
Average Working Capital…………………………2,000,000
Working Capital Turnover = ?
Current Assets Turnover

It indicates the reasonableness of the amount of current assets.
Net Sales excluding depreciation

= and amortization
Current Assets Turnover
Average Current Assets
Total Assets Turnover

It measures how much sales is being generated in every 1 peso use of assets. It also
measure how often total assets are being used to generate sales.
Net Sales
Total Assets Turnover =
Average Total Assets
Fixed Assets Turnover

It measures how effectively the firm uses its plant and equipment to generate
revenues.
Net Sales
Fixed Assets Turnover =
Average Net Fixed Assets
PROFITABILITY RATIOS
Profitability ratios show the effect of liquidity, asset management, and debt
management on operating results. They focus on the profitability of the firm. It pertains to
the ability of the business to generate profit in relation to sales, investments, assets, equities,
or common shares outstanding.
Return on Sales (Net Profit Margin on Sales) (Net Profit Rate) (ROS)
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It presents the ratio of earnings available to common stockholders to nets sales. It
measures the profit percentage of each peso (dollar) sales remaining after all costs and
expenses, including interest and taxes, have been deducted. An increase in the return on
sales would mean an effective and efficient handling of all the costs and expenses
encountered in the operating cycle.
Net Income
Return on Sales =
Net Sales
Gross Profit Margin (Gross Profit Rate)

It measures the gross profit rate on sales to recover operating expenses. By
comparing gross profit percentage to net sales, it indicates the manufacturing efficiency
as well as the pricing policy of the firm.
Gross Profit
Gross Profit Margin =
Net Sales
Basic Earnings Power Ratio

This ratio is useful for comparing firms in different tax situations and with different
degrees of financial leverage.
EBIT
Basic Earnings Power Ratio =
Return on Total Assets (ROTA)

It measures the overall asset profitability. It indicates how well the assets have been
employed by management. It measures the ability of the management to generate return
on every peso (dollar) of resources employed on operating the business.
Net Income + Interest, net of tax

Return on Total Assets =
Return on Stockholders’ Equity (ROSE)

It measures percentage of income derived for every peso (dollar) of stockholder’s
equity. Return on stockholders’ equity measures the effectiveness of management in
generating wealth from the normal business operations in relation to the amount invested
by the owners.
Net Income
Return on Stockholder’s Equity =
Average Stockholders’ Equity
Return on Common Stockholders’ Equity (ROSE)

It refers to the earnings available to common stockholders equals net income less
preferred dividends. It measures the percentage of profit derived for every peso (dollar) of
common equity money used. When compared to the return on total assets, it measures
the extent to which financial leverage is working for or against common stockholders.
Return on Common = Net Income – Preferred Dividends
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Stockholder’s Equity Average Common Stockholders’ Equity
Times Preferred Dividend Earned

It measures the adequacy of current earnings to meet preferred dividend payments.
Net Income
Times Preferred Dividend Earned =
Preferred Dividend Requirements
GROWTH RATIOS
The growth ratios are indicative of the organization’s potential and attractiveness as
an investment option. Some of the growth ratios are the price-earnings ratio, the dividend
yield ratio, dividend payout ratio, and the book value per share.
Earnings Per Share (EPS)

EPS indicates the quantum of net profit of the year that would be ranking dividend
for each share of the company being held by the equity shareholder. The EPS is a top of
the line measure of the management’s effectiveness on profitability. The higher the EPS,
the more impressive the operations.
Net Income – Preferred Dividends

Earnings per Share (EPS) =
Average Common Shares Outstanding
The expanded formula is:
Net
Incom Net Average Stockholders'
e Sales Total Asset Equity
EPS = x x x
Net Average Stockholders' Common
Sales Total Equity Shares
Asset Outstanding
Equity Book value

EPS = ROS x TATO x x
Multiplier per share
Let us compare the following companies. Data were provided as of 2012.

Company EPS
Far Eastern University 5.66
Holcim Philippines, Inc 0.56
Aboitiz Power Corporation 5.09
BDO Unibank, Inc. 3.21
Jollibee Foods Corporation 3.14
San Miguel Corporation 1.44
Ayala Land, Inc. 0.55
Bank of the Philippine Islands 4.32
Manila Electric Cooperative 6.32
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Price Earnings Per Share
P/E Ratio shows the “multiple” of earnings at which a stock sells. Higher “multiple”
means investor have higher expectations for future growth, and have bid up the stock’s
price. The P/E ratio also shows how much investors are willing to pay per dollar (peso) of
reported profits. P/E Ratio shows the “multiple” of earnings at which a stock sells. Higher
“multiple” means investor have higher expectations for future growth, and have bid up the
stock’s price.
Market Price per Share

Price-Earnings Ratio =
Earnings per Share
X company Y Company
Earnings per share 80 120
Market Price per share 200 600
P/E ratio (MPPS/EPS) 2.5:1 5 : 1'
Rational investor says buy do not buy
Market price per share will increase decrease
more
Stock price will be expensive cheaper
Intelligent investor says do not buy buy
Dividend Yield Ratio

The yield ratio reflects the ability of the organization to return investments to owners
in terms of cash or dividend, not in terms of accrual net income. Investors are interested in
cash returns that in accrual “paper” income. This makes liquidity rather than profitability a
priority of investors in relation to investment recovery.
Dividend Per Share
Dividend Yield Ratio =
Market Price Per Share
Book Value per Share

Book value per share is a measure of a company’s wealth based on the value of its
net assets (e.g., owners’ equity). The net assets of a business is valued on a mix of objective
price such as cost, net realizable value, market value, and even discounted value.
Stockholders’ Equity
Book Value per Share =
Average Shares Outstanding
Common Stockholders’ Equity

Book Value per
= Average Common Shares
Common Share
Outstanding
Book Value per Preferred Stockholders’ Equity

=
Preferred Share Average Preferred Shares Outstanding
Dividend Payout Ratio
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The payout ratio indicates how generous management is in distributing its earnings
to the owners. A high payout ratio means management is confident on the stability of
future cash flow streams, hence they can dispose of their current cash and satisfy the
interest of the owners. A high payout ratio attracts investors to buy stocks, escalates the
company’s market value, increases its cash inflows from financing, and creates
organizational wealth.
Dividend per Share
Dividend Payout Ratio =
Earnings per Share
Sample Problem:
provided the following inforamtion:
Earnings per share Php. 0.51
Market price per share Php. 4.50
Dividend per common share Php. 0.49
Net Stockholders’ equity Php. 19,526,215
Common Shares outstanding Php. 6,452,099
Compute for:
1. Price earnings ratio
2. Dividend yield ratio
3. Dividend payout ratio
4. Book value per share
LEVERAGE RATIOS (SOLVENCY RATIOS) (STABILITY RATIOS) (DEBT MANAGEMENT RATIOS)

The more debt a firm uses in relation to its total assets, the greater the firm’s financial
leverage. Financial leverage refers to the magnification of risk and return introduced
through the use of fixed-cost financing such as debt (and preferred stock). The more fixed-
cost debt, or financial leverage, a firm uses, the greater will be its risk and its expected
return.
Total Debt
Debt-to-Equity Ratio =
Net Stockholders’ Equity
Total Debt
Debt-to-Assets Ratio =
Total Assets
Equity-to-Assets Ratio Net Stockholders’ Equity

=
(Equity Ratio) Total Assets
Total Assets (Equity)

Equity Multiplier =
Net Stockholders’ Equity
EBIT
Times Interest Earned =
Interest Expense
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Total Assets
Total Assets-to-Total Liabilities Ratio =
Total Liabilities
Non-current assets -to-long-term Non-current Assets

=
liabilities ratio Long-term Liabilities
CASH FLOW RATIOS
Cash from Operations

Cash Flow Adequacy =
Long-term Debt paid + Purchases of Assets
Long-term debt payments

Long-term debt Payment =
Dividend payout on cash Dividends

=
from operations Cash from Operations
Purchase of Assets
Reinvestment =
Total Liabilities
Total Debt Coverage =

Cash Flow to Sales =
Sales

Cash Flow to Net Income =
Income from Ordinary Operations

Cash Flow Return on Sales =
FREE CASH FLOW MEASURES

The free cash flow gives the investors another way to assess the value of the
company that is comparable to the P/E ratio. since this measure uses free cash flow, the
free cash flow yield provides a better measure of a company’s performance.
The most common way to calculate the free cash flow yield is to use market
capitalization as the divisor. Market capitalization is widely available, making it easy to
determine.
Free Cash Flow
Free Cash Flow Yield =
Market Capitalization
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Another way to calculate free cash flow is to use enterprise value as the divisor. To
many, enterprise value is a more accurate measure of the value of a firm, as it includes the
debt, value of preferred shares and minority interest, but minus cash and cash equivalents.
Free Cash Flow
Free Cash Flow Yield =
Enterprise Value
Both methods are valuable tools for investors. Use of market capitalization is
comparable to the P/E ratio. Enterprise value provides a way to compare companies
across different industries and companies with various capital structures. To make the
comparison to the P/E ratio easier, some investors invert the free cash flow yield, creating a
ratio of either market capitalization or enterprise value to free cash flow.
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MODULE 5

Value of Ratio Analysis

Limitations of Ratio Analysis

Major Categories of Financial Mix Ratio

Working Capital Management

Net Working Capital

Net working capital = Current Assets – Current Liabilities

Cash + Short-term Marketable Securities

QUICK (ACID-TEST) RATIO

Cash + Marketable Securities + Accounts Receivable

Using “Average” vs. “Yearend”

January 1 + June 30 + December 31

January 1 + March 31 + June 30 + September 30 + December 31

Average = Jan 1 + Jan 31 + Feb 28 + Mar 31 +…+ Dec 31

COLLECTION PERIOD (RECEIVABLE DAYS)

Inventory Turnover Ratio

Finished Goods Inventory Turnover

Operating Turnover = Collection Period + Inventory Days

Payables Deferral Period (Payable Days)

360 days (365 days)

Days to Pay Operating Expenses

Cash Conversion Cycle

Cash Conversion Cycle = Material Inventory Days + Work-in-Process Inventory Days +

Working Capital Turnover

Current Assets Turnover

Net Sales excluding depreciation

Total Assets Turnover

Fixed Assets Turnover

Gross Profit Margin (Gross Profit Rate)

Basic Earnings Power Ratio

Return on Total Assets (ROTA)

Net Income + Interest, net of tax

Return on Stockholders’ Equity (ROSE)

Return on Common Stockholders’ Equity (ROSE)

Times Preferred Dividend Earned

Earnings Per Share (EPS)

Net Income – Preferred Dividends

The expanded formula is:

Equity Book value

Let us compare the following companies. Data were provided as of 2012.

Market Price per Share

Dividend Yield Ratio

Book Value per Share

Common Stockholders’ Equity

Book Value per Preferred Stockholders’ Equity

Dividend Payout Ratio

LEVERAGE RATIOS (SOLVENCY RATIOS) (STABILITY RATIOS) (DEBT MANAGEMENT RATIOS)

Equity-to-Assets Ratio Net Stockholders’ Equity

Total Assets (Equity)

Non-current assets -to-long-term Non-current Assets

CASH FLOW RATIOS

Cash from Operations

Long-term debt payments

Dividend payout on cash Dividends

Cash from Operations

Cash from Operations

Cash from Operations

FREE CASH FLOW MEASURES

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