Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Profitability Ratios
Purpose:
Provide insight about ability to generate income
Return on assets
= Net income + interest * (1 - tax rate) Assets
Return on equity
= Net income / equity
Return on Equity
Simply stated:
ROE = Net income / equity
DuPont ROE
Decompose: ROE = Net income / equity Into:
ROE = Return on sales * Asset turnover * Financial leverage
Analyze trends in the components Critically examine both good and bad performance.
FIN 551:Fundamental Analysis 4
Turnover Ratios
Purpose:
Measure efficiency in managing assets
Definition:
Sales / asset
A slight digression:
Assume total assets = Cash + receivables + inventory + fixed assets $1,000 = $100 + $300 + $200 + $400 & sales = $5,000
10
Note:
All financing costs are excluded from EBIT Taxes have been excluded from EBIT
Show a separate tax effect later.
FIN 551:Fundamental Analysis 14
15
Interpretation:
The proportion of $1 of operating earnings (before interest expense) that is left after paying interest.
16
18
4 3 2 1 0 0 2 4 6 8 10 12 14 16 18 20
20
Years
10
Interpretation
The proportion of $1 of pretax income left after paying income tax.
FIN 551:Fundamental Analysis 21
11
24
12
Sustainable Growth
Definition:
Growth the firm can sustain
Without issuing new equity Maintaining current financial policies
An Example
LY TY Assets 200 330 Debts 40 80 Equity 160 250 Sales growth = 75% Asset growth = 65%
Growth =
Retention ratio * ROE . 1 - (Retention ratio * ROE) = .60 x .625/[1 - .60 x .625] = .60 x .60/[1 - .60 x .60]
FIN 551:Fundamental Analysis
60.0% 56.3%
26
13
-.038 .054 .046 .068 .085 .125 .196 .096 .036 .096
Inflation-Adjusted Statements
Important considerations:
Inflation sensitivity of assets and liabilities Old assets vs. relatively new assets Price vs. volume gains Productivity gains?
28
14
Adjusted 1,849,802 1,300,000 17,282 623,646 -91,126 7,033 787 -135,927 21,122 -152,398
29
The End
30
15