Fin Stmt Analysis Midterm Prep

(Return on Equity) ROE

Net Income' / Equity'

'Of Parent Company

Earnings per Share

(Net Inc.' - Pref. Div.'*) / Weighted Avg. Ord. Shares Out.

'*Net Inc. Attributable to Parent Company

'**Pref. Div. = 0 if not given

Basic EPS (Earnings per Share)

Profit (or Loss) for the fiscal year / Weighted Avg. Ord. Shares Out.

Diluted EPS (Earnings per Share)

(Net Inc.' - Pref. Div.'* + Int. Exp.) / (Com. Shares + Convertibles + Diluted Options)

'* Net Income Attributable to parent company

'** Pref. Div. = 0 if not given

ROA (Return on Assets)

(Net Income + Fin. Exp. '*' (1 - tax rate)) / Total Assets

OR

Net Inc. / Avg. Total Assets

ROE and ROA Relationship

ROE = ROA + (Debt / Equity Ratio) '*' (ROA - Fin. Exp. / Debt)

OR

ROE = ROA + (Debt / Equity Ratio) '*' (ROA - Cost of Debt)

Price to Earnings Ratio (P/E)

Share Price / Earnings per Share

OR

Share Price / (Net Income / # of Shares)

Dividend Yield

Latest Div. per Ord. Share / Share's Price @ t-1

Payout Ratio

Dividends Paid / Net Income

Change in Market Value

(Stock Price EOP - Stock Price BOP) / Stock Price BOP

Total Shareholder Returns (TSR)

(Stock Price EOP - Stock Price BOP + Div. Paid) / Stock Price BOP

OR

Change in Market Value * Dividend Yield

Financial Leverage (FL)

Total Liabilities / Total Shareholder' Equity

Equity Ratio

Total Shareholders' Equity / Total Assets

Debt Ratio

Total Liabilities / Total Assets

Short Term Debt Ratio (STD)

Short Term Liabilities / Total Liabilities

Total Solvency (TS)

Total Assets / Total Liabilities

Times Interest Earned (TIE) or Interest Coverage Ratio

(Net Inc. + Fin Exp. '*' (1 - tax rate)) / Fin. Exp.

OR

(Ops. Cash Flow - Tax Exp. + Fin. Exp. '*'(1 - tax rate)) / Fin. Exp.

OR

(Profit/(Loss) before Tax Inc. + Net Fin. Exp.) / Net Fin. Exp.

Retention Ratio

(Total Net Inc. - Div. Paid) / Net Inc.

OR

1 - Dividend Payout Ratio

Dividend Payout Ratio

Dividends Paid / Net Income

Sustainable Growth Rate

Return On Equity * Retention Rate

Working Capital

Current Assets - Current Liabilities

Current Ratio

Current Assets / Current Liabilities

Acid Test Or Quick Ratio

(Current Assets - Inventory) / Current Liabilities

Cash Ratio

Cash and Equivalents / Current Liabilities

Cash to Current Assets Ratio

Cash & Equivalents / Current Assets

Asset Turnover (AT)

Total Net Sales / Total Assets

Inventory Turnover

Sales in period t / Avg. Inventory

Collection Period

Avg. Acct. Receivables / Daily Sales

Daily Sales

Sales / 365

Avg Acct. Rec.

(Acct Rec period t + Acct Rec period t-1) / 2

Avg. Payment Period

Avg Acct Payable / Avg Daily Purchases

Avg Daily Purchases

(COGS + (Inventory EOP - Inventory BOP)) / 365

What effect does Financial Leverage have on ROE

Financial Leverage (FL) has a positive impact on ROE if ROA is greater than the cost of debt