FINANCIAL MANAGEMENT (CH4) Net Incone

Profit Margin =
Sales
Ratios Net Income
ROA =
1. Liquidity Ratios - firm’s ability to pay off debts Total Assets
that are maturing within one year. Net Incone
ROE =
2. Asset Management Ratios - how efficiently the Common Equity
firm is using the asset. EBIT (1 −T )
ROIC =
3. Debt Management Ratios - how the firm has Total Invested Capital
financed its asset as well as the firm’s ability to EBIT
Basic Earning Power =
repay its long-term debt. Total Assets
4. Profitability Ratios - how profitably the firm is
operating and utilizing its asset. Market Value Ratios
5. Market Value Ratios - what investors think about Price Per Sℎare
Price/ Earning =
the firm and its future prospects. Earnings Per Sℎare
Market price per sℎare
Market/Book =
Liquidity Ratios Book value per sℎare
Liquid Asset - An asset that can be converted to Common Equity
Book Value =
cash quickly without having to reduce the asset’s Sℎares outstanding
price very much. Enterprise Value/ EBITDA
Liquidity Ratios - Ratios that shows the relationship = MV of Equity + MV of Total Debt + MV of Other
of a firm’s cash and other current assets to its Financial Claims - Cash and Equivalents
current liabilities. = EV / EVITDA

Current Assets ROE = ¿ + ¿ = ¿ x Assets =

Current Ratio =
Current Liabilities ROA Equity Assets Equity ¿
Quick, or Acid Test Ratio = Assets = Equity Multiplier
Current Assets − Invetories Equity
Current Liabilities
DuPont = Profit Margin x Total Assets Turnover x
Asset Management Ratios Equity Multiplier
Cost of Goods Sold
Inventory Turnover =
Inventories - it shows the relationship among asset
Receivables Receivables management, debt management, and profitability
DSO = =
Ave . Sales per day Annual Sales/365 ratios.
Sales
Fixed Assets Turnover = Assets ¿
Net ¿
Sales
Total Assets Turnover =
Total Assets

Debt Management Ratios

Total Debt
Total debt - Total Capital =
Total Debt + Equity
EBIT
Time Interest Earned =
Interest Cℎarges

Profitability Ratios
EBIT
Operating Margin =
Sales