Buscar
Estás en modo de exploración. debe iniciar sesión para usar MEMORY

   Inicia sesión para empezar

level: Level 1

Questions and Answers List

level questions: Level 1

QuestionAnswer
Gross Margin (profitability ratio)=gross profit/sales -shows ability to sell more than cost
Operating Margin (profitability ratio)Operating income/sales -what you earn BEFORE interest/tax FROM EACH DOLLAR OF SALES
EBIT margin (profitability ratio)EBIT/Sales -similar to operating margin -help assess relative efficiency of oepration *SMALLER THE BETTER
Net Profit Margin (profitability ratio)net income/sales -fraction of each dollar in revenues available to equity holders after interest/taxes paid -differences (when comparing) can be due to leverage (not just efficiency) which determines interest expense + assumption differences
Current Ratio (liquidity ratio)current assets/current liabilities -assess if you have sufficient working capital to meet short-term needs Between: 1.5-2.5 Below 1 is an issue
Quick Ratio (liquidity ratio)only cash comparison (AR + short-term investments) to current liabilities -more stringent -higher=less risk of cash shortfall in future *exclude inventory as may not be liquid
Cash RatioCash/current liabilities -most stringent ratio -ratios can be poor even if highly liquid/generate quick cash
Working Capital Ratios do what?evaluate speed at which turn sales into cash
Higher inventory turnover=shorter days=more efficient use of working capital
Why are working capital ratios useful?useful when compared over time or within an industry, but across industries there are too large of differences
Interest Coverage Ratiosconsider EBIT as a multiple of its interest expenses -higher ratio=earning more than necessary to meet required interest payments
What is deducted when computing EBITDA?depreciation/amortization expenses
When do we calculate EBITDA (earnings before interest, tax, depreciation/amortization)?when need measure of the cash a firm generates from operations and what it has available to make interest payments
Leverage ratiosextent it relies on debt as a source of financing
What is P/E ratio used for?value of equity to firms earnings -used to assess if stock is over or undervalued based on idea if value of stock should be proportional to earnings level it generated from shareholders
Who is P/E Ratio highest for?-industries with higher expected growth rates
what affects P/E ratio?-risk -sensitive to leverage choice
What are valuation ratios used for / which is best ro use?INTRAindustry comparison of how firms priced in market -best to use enterprise value when comparing ratios as had both debt and equity
When are P/E EBIT EBITDA not useful?when have negative earnings -look at enterprise value instead
Operating returns evaluate what?evaluate return on investment by comparing income to investment
What does return on equity measure?measures return that firm earned on past investments -High ROE=able to find profitable opportunities
Return on assets good as...its less sensitive to leverage but sensitive to working capital so use return on invested capital when needed
Return on invested capital measures?after-tax profit generated excluding interest expense + compares it to raised capital from equity and debt holders already deployed -most useful to assets underlying performance
what does the Dupoint identify give?more insight to ROE
Debt to Capital RatioTotal debt/ (Total Equity + Total debt)
Debt-to-Enterprise Value RatioNet Debt / Enterprise Value
Equity MultiplierTotal Assets/Book Value of equity
Equity MultiplierEnterprise Value / Market Value of equity
Price-Earnings RatioShare Price/Earnings per share
Enterprise value to salesEnterprise Value / Sales
Enterprise Value to EBITEV/EBIT
Asset TurnoverSales/Total Assets
ROENet Income / Book value of equity
Return on Assets(Net Income + interest expense)/Book Value of assets
ROICEBIT(1-Tax) / (book value + net debt)
Debt to Equity ratio (book)Total Debt / Book Value of Equity -can also use market value of equity
Inventory DaysInventory/Average Daily cost of sales