analysis & planning

efficiency

how effectively a company uses its assets to generate revenue

(avg of yrs)

asset turnover = sales / assets
inventory turnover = COGS / inventory
inventory period = inventory / COGS
receivables turnover = sales / receivables
receivables period = receivables / sales

leverage

how much financial debt/leverage a company has taken on

(end of yr)

long term debt ratio = long term debt / long term debt + equity
long term debt-equity ratio = long term debt / equity
total debt ratio = total liabilities / total assets
times-interest earned = EBIT/interest payments
cash coverage ratio = EBIT + dep / interest payments

liquidity

ability to meet short term obligations

(end of yr)

NWC to total assets = NWC / total assets
current ratio = CA / CL
quick ratio = cash + ce + receivables / CL
cash ratio = cash + ce / CL

performance/profitability

companys ability to generate profits relative to its sales, assets and equity

MVA = market cap * equity bv (end)
market-to-book = market cap / equity bv
EVA = (after tax interest + net income) - (COC x capital)
ROA = after-tax interest + net income / assets
ROE = net income / equity
ROC = after-tax interest + net income / capital
(start)
op profit margin = after tax interest + net income / sales (end)
dupoint = asset turnover x op profit

CCC

measures how long cash is tied up in operations before it is recovered

inventory days + receivables days - payables days

inventory days = avg inventory / COGS / 365
receivables days = avg receivables / sales / 365
payables days = avg payables / COGS / 365
operating cycle = inventory days + receivables days

adv & disadv ratio anlaysis

adv: easy to access & calculate, highlight strengths & weakness, allow comparison over time
disadv: based on book values (incomplete - intangible assets), accounting policies differ in firms, can be distorted by seasonality/events, industry diff make benchmarking misleading

benchmarks

own company over years, comp companies in industry

what shortens CCC + how to help managment investment in NWC

extending payable days

assess efficiency, identify bottlenecks, benchmark, optimise CF, shorter CCC: reduce financing needs and improve liquidity

3 steps cash budget

1) sources
2) uses
3) surplus/shortage
shortage:
- bank loan
- stretching payables