MBA财政会计实务英文版(ppt )

1、Outline of todays lecture1. Value of a firm to investors and creditors2. Analysis of profitability: ROA3. Analysis of profitability: ROCE4. Analysis of profitability: EPS2021/5/281The value of a firm to equity investorsV = D1/(1+r) + D2/(1+r)2 + D3/(1+r)3 . profitabilityrisk2021/5/282The value of a

2、firm to creditorsV = I1/(1+r) + I2/(1+r)2 + I3/(1+r)3 + P/(1+r)3 Ii: interest revenues in period iP: return of principalprofitabilityrisk2021/5/283Financial Statement Analysis1.Understand the relation between the expected return and risk of investment alternatives, and the role of analysis in provid

3、ing risk and return information.2. Understand the usefulness of the rate of return on assets (ROA) as a measure of a firms operating profitability.3. Understand the usefulness of the rate of return on common shareholders equity (ROCE) as a measure of profitability. 4. Understand the strengths and we

4、aknesses of earnings per common share as a measure of profitability.2021/5/284What to compare?1. The planned ratio for the period2. The corresponding ratio from a prior period (time-series analysis)3. The corresponding ratio for another firm in the same industry (cross-section analysis)4. The averag

5、e ratio for other firms in the same industry (cross-section analysis)2021/5/285Analysis of Profitabilitya.Return on assets (ROA): return to the firm as a wholeb. Return on common equity (ROCE): return to common shareholders onlyc.Earnings per common share2021/5/286Analysis of ProfitabilityROA: retur

6、n to the firmROCE: return to common Shareholders only2021/5/287Return on Assets (ROA)ROA presents profitability independent of the source of financing Does not consider leverage Measure of how well the firm uses its assets to generate income As if the firm is financed by equity alone2021/5/288Horrig

7、an CorporationYear 4Sales Revenue$ 475Less expense: COGS 280 Selling 53 Administrative 22 Depreciation 18 Interest 16Total 389Next income before tax 86Income tax expense 26Next Income 602021/5/289Horrigan Corporation-assuming no debtsYear 4Sales Revenue$ 475Less expense: COGS 280 Selling 53 Administ

8、rative 22 Depreciation 18 Interest 16 - 16Total 389 - 16 = 373Next income before tax 86 + 16 = 102Less Income tax expense 26 + 4.8 = 30.8Next Income 60 + 16 4.8 = 71.22021/5/28109、 人的价值，在招收诱惑的一瞬间被决定。21.7.1521.7.15Thursday, July 15, 202110、低头要有勇气，抬头要有低气。20:37:5420:37:5420:377/15/2021 8:37:54 PM11、人总是

9、珍惜为得到。21.7.1520:37:5420:37Jul-2115-Jul-2112、人乱于心，不宽余请。20:37:5420:37:5420:37Thursday, July 15, 202113、生气是拿别人做错的事来惩罚自己。21.7.1521.7.1520:37:5420:37:54July 15, 202114、抱最大的希望，作最大的努力。2021年7月15日星期四下午8时37分54秒20:37:5421.7.1515、一个人炫耀什么，说明他内心缺少什么。2021年7月下午8时37分21.7.1520:37July 15, 202116、业余生活要有意义，不要越轨。2021年7月1

10、5日星期四20时37分54秒20:37:5415 July 202117、一个人即使已登上顶峰，也仍要自强不息。下午8时37分54秒下午8时37分20:37:5421.7.15119、 人的价值，在招收诱惑的一瞬间被决定。21.7.1521.7.15Thursday, July 15, 202110、低头要有勇气，抬头要有低气。20:37:5420:37:5420:377/15/2021 8:37:54 PM11、人总是珍惜为得到。21.7.1520:37:5420:37Jul-2115-Jul-2112、人乱于心，不宽余请。20:37:5420:37:5420:37Thursday, Jul

11、y 15, 202113、生气是拿别人做错的事来惩罚自己。21.7.1521.7.1520:37:5420:37:54July 15, 202114、抱最大的希望，作最大的努力。2021年7月15日星期四下午8时37分54秒20:37:5421.7.1515、一个人炫耀什么，说明他内心缺少什么。2021年7月下午8时37分21.7.1520:37July 15, 202116、业余生活要有意义，不要越轨。2021年7月15日星期四20时37分54秒20:37:5415 July 202117、一个人即使已登上顶峰，也仍要自强不息。下午8时37分54秒下午8时37分20:37:5421.7.15

12、12Horrigan Corporation ROAAverage total assets of this company in year 4 (520+650)/2 = 585,Then ROA = 71.2/585 = 12.2%Why add back interest income net of income tax savings in the numerator?1) If all equity, the firm wont pay $16 interest expense, which increase net income by $16;2) at 30% tax rate,

13、 government will collect an additional amount of $4.8 (16*30%) as tax, then the actual increase of net income is (16 4.8).2021/5/2813Disaggregating ROAROA = Profit Margin ratio * Asset turnover ratioATO measures the firms Ability to generate salesAt a given level ofInvestment in assetsPM measures th

14、e Firms ability to Control cost andExpenses at a givenLevel of sales Activity.2021/5/2814How to increase ROA?1.At the current asset base, increase sales?2.But increased sales increases ATO while decreases PM3.A dilemma!4.So one has to increase sales and at the same time hold down costs and expenses,

15、 i.e., hold PM at certain level.2021/5/2815How to increase ROA?-22021/5/2816The evolution of ROA in the U.S.the graphs in the next few slides are from Penman and Nissim Review of Accounting Studies, 20222021/5/2817RNOA: Return on net operating assetsRegression to the mean （回归到平均值）2021/5/2818Profit m

16、argin2021/5/2819Asset turnover2021/5/2820Revenue growth2021/5/2821Disaggregate PMPM = (sales COGS SGA depreciation .)/SalesCOGS-to-Sales ratioSelling, General and administrative (SGA) expense-to-sales ratioEtc. By observing the time series and cross-section of each expense-to-sales ration, one can i

17、dentify abnormal ratios and investigate the reasons, in order to control costs and expenses to increase PM2021/5/2822Disaggregate ATOATO = Sales/average total assets Average total assets = (average account receivables + average inventory + average fixed assets + average other assets)2021/5/2823Accou

18、nts receivable turnoverMeasures how quickly a firm collects cash.If A.R. turn over twice a year, then they average one half of a year in collection.Less time is preferred to more.A high turnover is preferred to a low one. The days of outstanding for account receivables: 365 days/accounts receivable

19、turnover2021/5/2824Inventory turnover Indicates how fast firms sell merchandise. If inventory turn over twice a year, then they average one half of a year in inventory. Holding inventory is costly because the funds invested in inventory could be used elsewhere. A high turnover is preferred to a low

20、one. Day of inventory in warehouse: 365/Inventory turnover2021/5/2825Fixed asset turnover Measures the relation between investment in long-term or fixed assets (such as property, plant, equipment) and sales. Efficient use of fixed assets would be associated with high sales. If fixed assets turn over

21、 every four years, then each dollar invested in fixed assets is generating a quarter of a dollar in sales per year. A high turnover is preferred to a low one.2021/5/28262021/5/2827Return on Common Equity (ROCE) The numerator measures return as net income reduced by any payments to preferred sharehol

22、ders as these dividends are not available to the common shareholder and have not been deducted from net income. The denominator is the average amount contributed by common shareholders which includes Common stock at par, Additional paid in capital, and Retained earnings.2021/5/2828Relation between R

23、OA and ROCE ROCE is the residual return which goes to the common shareholders. Since it may be low in poor years but high in good years, it has a risk, that is, the residual return is not known. Debt is characterized by a definite schedule of payments, so there is little risk to the debt holders. Pr

24、eferred stock is like debt, the dividends are specified. However, debtors must be paid before preferred shareholders and if the money runs out, then they arent paid.2021/5/2829Relation between ROA and ROCE ROA can be divided into Return to creditors or debtors Return to preferred shareholders, and R

25、eturn to common shareholders (ROCE) Because the return to debtors and preferred shareholders are fixed, in good years when the firm has high returns, there is a lot of profit left over for the common shareholders; in poor years when returns are low, there is little or maybe no profit left over. 2021

26、/5/2830Relation between ROA and ROCE Thus, if ROCE and ROA were both linear, then ROCE would have a greater slope than ROA, that is, it is more highly levered. A prudent firm will borrow funds only when the return on those marginal funds exceed the cost of borrowing giving a net positive return to t

27、he common shareholder. ROCE can be disaggregated into three related ratios1. Profit margin ratio2. Total assets turnover3. Leverage ratio2021/5/2831Relation between ROA and ROCE The first two have been previously defined. Leverage ratio indicates the relative proportion of capital provided by common

28、 shareholders as distinct from that provided by creditors (debtors) or preferred shareholders.2021/5/2832Relation between ROA and ROCE A high leverage ratio means that the firm has a lot of assets at its command, but that the shareholders have less of their own investments at risk. This is good in g

29、ood years because the common shareholders capture all profits over what is needed to service the debt. This is bad in poor years because the debt has to be serviced whether or not the common shareholders make a profit. Therefore, borrowing is only beneficial when ROA is greater than the cost to borrow money2021/5/2833The evolution of ROCE and net borrowing cost (NBC) in the U.S.2021/5/2834Debit-to-Equity ratio (leverage) in the U.S.2021/5/2835Earnings per Share (EPS) of Common Stock This ratio is the profit that goes to each share of co