F305 Intermediate Corporate Finance: Ratio Analysis

These flashcards cover essential terms and concepts related to financial ratios, liquidity, leverage, profitability, and growth rates relevant to corporate finance.

Liquidity Ratio

A financial metric used to assess a company's ability to meet its short-term obligations using its most liquid assets.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations; calculated as Current Assets divided by Current Liabilities.

Quick Ratio

A measure of a company's short-term liquidity, calculated as (Current Assets - Inventory) divided by Current Liabilities.

Leverage Ratio

A financial ratio that measures the amount of debt a company has in comparison to its equity or other financial metrics.

Debt-to-Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

Return on Assets (ROA)

An indicator of how profitable a company is relative to its total assets, calculated as Net Income divided by Total Assets.

Return on Equity (ROE)

A measure of financial performance calculated by dividing net income by shareholders' equity.

DuPont Identity

A formula that is used to analyze the factors that drive a company's ROE, expressed as ROE = Net Profit Margin x Total Asset Turnover x Equity Multiplier.

Retention Ratio

A measure of the proportion of net income that is retained in the company rather than being paid out as dividends.

Internal Growth Rate (IGR)

The maximum growth rate a firm can achieve without outside financing, calculated using retained earnings.

Sustainable Growth Rate (SGR)

The maximum growth rate a firm can sustain without having to increase financial leverage or issue new equity.

Cash Conversion Cycle (CCC)

A metric that expresses the time taken between outlaying cash for raw material and receiving cash from product sales.

Working Capital Cycle

The duration it takes for a company to convert its current assets and current liabilities into cash.

Efficiency Ratio

A measure of how well a company can convert its assets into revenue, often used to assess operational effectiveness.

Financial Statement Analysis

The process of analyzing a company's financial statements to assess its performance and make informed economic decisions.