RatioAnalysis(英文版)

1、 Author: Collins QianRatio AnalysisMarch 19981Ratio AnalysisBOS Agenda Using ratiosTypes of key ratiosprofitabilityturnoverleverageliquiditycoverageReturn on EquityRatio exercisesForecasting exerciseAbbreviationsKey takeaways2Ratio AnalysisBOS Analyzing Ratios Ratios in isolation are meaningless. A

2、companys ratios must be examined over time and/or against its competitors ratios.Historical comparisonCompetitive comparisonCompare present ratios with same companys historical ratiosIn stable situations, historical ratios may be used to project future performanceCompare a companys ratios with simil

3、ar firms ratios or with industry averages at the same point in timeLook for trendsLook at relative performance3Ratio AnalysisBOS 本资料来源本资料来源4Ratio AnalysisBOS The Art of Ratio Analysis Which ratios are most important in a given situation?What items should be included/excluded in calculating the ratio

4、s?How much influence does management have over the ratios?What do the ratios say about the firms strategy?Ratio analysis is an art as well as a science.5Ratio AnalysisBOS The Need for Judgment Potential ProblemManagement can substantially influence financials in the short termImplicationsNeed to use

5、 judgment to understand financialsRatio analysis requires keen judgment.Financial statement data is historical, not pro formaCross-company comparisons are meaningless if adjustments are not made for different accounting conventionsThe timing of the reporting period influences funds flows and require

6、mentsNeed to understand that history does NOT necessarily predict futureNeed to be very sensitive about industry-specific seasonality and cyclicalityNeed to standardize across companies to adjust for different accounting methods6Ratio AnalysisBOS Agenda Using ratiosTypes of key ratiosprofitabilitytu

7、rnoverleverageliquiditycoverageReturn on EquityRatio exercisesForecasting exerciseAbbreviationsKey takeaways7Ratio AnalysisBOS Types of RatiosRatios help us understand how well a company is performing. Specifically, how much return is it generating with what level of risk?How well does the company m

8、anage costs relative to revenues?ReturnRiskCoverageInterest chargeFixed charge coverageLiquidityCurrent ratioQuick ratioLeverageAsset to equityDebt to equityDebt to total capitalTurnover ReceivablesInventoryPayablesAssetProfitabilityOperating marginROSGross marginHow effective is the company in mana

9、ging its resources?What are the respective claims of debt and equity owners? How risky is the business?Is the company able to meet its short-term obligations?Is the company able to meet its long-term obligations?8Ratio AnalysisBOS Profitability Ratios - Definitions* This is not a profitability ratio

10、, but it does impact ROSProfitability ratios use line items from the income statement.RatiosDefinitionsGross profit margin(or gross margin)Sales - cost of goods soldSalesOperating profit margin(or operating margin)Earnings before interest and taxesSalesReturn on sales(ROS)Profit after taxSalesEffect

11、ive tax rate*TaxesProfit before tax9Ratio AnalysisBOS Profitability Ratios - Description Profitability (or margin) ratios are a function of both the industry and a companys position within the industryboundaries are set by the operating characteristics of the industrywithin these boundaries profitab

12、ility ratios are determined by a players relative positionBain typically uses gross profit and operating profit to measure profitabilityROS can be altered by non-operating activities, such as sources of financing or tax rate manipulationsExtraordinary items, because they are for unusual events, such

13、 as discontinued items or asset sales, are excluded when we analyze the performance of the base businessProfitability ratios measure a firms ability to manage costs relative to revenues.10Ratio AnalysisBOS Profitability Ratios - Over Time Gross profit margin should stay constant or increase because

14、cost of goods sold should be a constant percent of sales or should decrease as company gets price increases and/or volume discounts Operating margin should increase as fixed administrative and sales costs are spread over a greater number of unitsEffective tax rate should stay constant or decrease si

15、nce a larger firm is able to take advantage of more tax sheltersAs a company grows, its return on sales should increase.Higher return on sales 11Ratio AnalysisBOS Profitability Ratios - Market Leader Gross profit margin should be higher since a market leader can typically charge more for its goods a

16、nd/or receive the greatest volume discounts from suppliersOperating profit margin should be significantly higher, because higher volume means fixed costs are spread over more units and because the gross profit margin is higherThere should be no significant difference in the effective tax rateReturn

17、on sales should be significantly higher because the operating margin should be significantly higherThe market leader in an industry should have the best profitability ratios.This is consistent with the ROS/RMS concept which says that companies with high relative market share have high returns on sal

18、es12Ratio AnalysisBOS Turnover Ratios - DefinitionsNote: Average=(Year Beginning+Year End)/2* Sales is often a good proxy*Cost of goods sold is often a good proxy* Typically we use 365 days (i.e., 1 year) for the periodTurnover ratios use a combination of income statement and balance sheet items.Rat

19、iosDefinitionsReceivables turnoverCredit sales in period*Accounts receivable average balanceInventory turnoverCost of goods sold in periodAverage inventory in periodPayables turnoverPurchases on account*Accounts payable average balanceAsset turnoverSales in periodAverage assetsAny turnover ratio can

20、 be expressed as a period ratio which measures the number of days in the cycleDays in period*Turnover ratioPeriod ratio =13Ratio AnalysisBOS Turnover Ratios - Transaction Cycle* Accounts payable, inventory, and accounts receivable are the major components of working capitalIt is critical for a firm

21、to manage its payables, inventory, and receivables.*Cash inflowCash collected for sales madeCash outflowRaw materials purchasedCash disbursed for raw materials purchasedFinished goods inventorySales madeAccounts receivable periodAccounts payable periodXXX14Ratio AnalysisBOS Turnover Ratios - Descrip

22、tion Turnover ratios measures how many times per year a given resource is consumedPeriod ratios measure the number of days that is takes for a given resource to “turn over”Managements objective is to stretch out the accounts payable period (i.e., have low accounts payable turnover) and shorten the p

23、eriods for accounts receivable and inventory (i.e., have high accounts receivable and inventory turnover)Turnover ratios measure how well a firm is managing its resources.15Ratio AnalysisBOS Turnover Ratios - Tradeoffs Ratio ImprovementsDecrease the receivables collection periodi.e., collect the acc

24、ounts receivable fasterDecrease the inventory holding periodi.e., sell completed products fasterIncrease the account payable periodi.e., take longer to pay suppliersStrategic TradeoffIf the receivables collection period is too short, customers may buy at a competitor that has more generous credit te

25、rms. (Often this period is dictated by industry norms)If the inventory holding period is too short the company may not have enough inventory to fill a big order. Also, the company may not be able to outlast a strike, either at its own facility or at one of its primary suppliers facilitiesIf the acco

26、unts payable period is too long, suppliers could raise their prices, charge interest (often at very high rates), or even refuse to supply the firm on credit. Also, workers may get restless if they have to wait longer to receive their paychecks.Managing turnover ratios means managing strategic trade-

27、offs.16Ratio AnalysisBOS Leverage Ratios - Definitions* All three ratios here are called “leverage” ratios by different people, so be sure to understand which ratio is being used when someone is talking about leverageLeverage ratios use line items from the balance sheet.Ratios*DefinitionsDuPont leve

28、rage ratioAssetsEquityDebt to equity ratioLong-term debtEquityDebt to total capitalor debt to total assets ratioTotal liabilitiesDebt + equityTotal liabilitiesAssets=17Ratio AnalysisBOS Leverage Ratios - Description Money can be raised from debt sources (banks, bond markets) or equity sources (stock

29、holders)Leverage ratios reflect both the financing policies of the firm and the riskiness of the businessIn order to analyze a firms leverage ratios, one needs to understand the definitions of debt and equityLeverage ratios measure the respective claims of debt and equity holders.18Ratio AnalysisBOS

30、 Debt Versus Equity Contractual payments over the life of the loanInvestor legally guaranteed full return of principle plus interestnothing above thatIn case of liquidation, debtor has preferential claim on proceeds from sale of assetsNo guaranteed payments from common stockInvestor “owns” part of f

31、irmright to appreciation of firms valueIn case of liquidation, equity owner takes what is left (may be nothing)Debt and equity have very different characteristics.Debt = anything that contractually requires payments to be made before the equity holders have access to the firms earningsEquity = the v

32、alue of the firm left over after all the debt holders have been paidLower risk to investor;investor demands lower returnHigher risk to investor;investor demands higher return19Ratio AnalysisBOS Debt Questions - Debt and Equity Debt in Leverage RatiosBain typically looks only at long-term debt (debt

33、with a term of 1 year or more)Accountants measure debt as short-term debt plus long term debtEquity in Leverage RatiosBain typically uses the market value of equity (I.e., the share price multiplied by the number of shares). Others may use the book value of equity, which is the amount shown on the b

34、alance sheet20Ratio AnalysisBOS Debt Questions Accounts payable?Short-term debt?Long-term debt?Cancelable leases?Noncancelable leases?Preferred stock?Common stock?Deferred tax?Would you define the following as debt?21Ratio AnalysisBOS Debt Answers Accounts payableShort-term debtLong-term debtCancela

35、ble leasesNoncancelable leasesSome items are clearly debt, others are clearly not debt, still others are debatable.Not debt. It is part of working capital, and is “secured” by the inventory and receivables that it is used to financeDebt, if it used to finance capital expansions of the companyNot deb

36、t, if it used to finance working capitalDebt.Not debt. Because they are cancelable, they are not contractual obligationsDebt. Because they are non-cancelable, they are contractual obligations. (For all publicly traded US companies, the present value of all the noncancelable lease payments must be di

37、sclosed in balance sheet footnotes.)Debatable Argument for equity - contractual obligations to pay dividends on preferred stock are met after debtholders claims are metArgument for debt - there is a contractual obligation to pay dividends on preferred stock before common stock dividend payments can

38、be madeNot debt. It is equityCommon stockDebt, but debatable. Often considered debt given long-term natureDeferred taxPreferred stock22Ratio AnalysisBOS Liquidity and Coverage Ratios - DefinitionsLiquidity ratios use line items from the balance sheet. Coverage ratios use line items from the income s

39、tatement.RatiosDefinitionsCurrent ratioCurrent assetsCurrent liabilitiesQuick ratio(acid test)Cash + marketable securities + receivablesCurrent liabilitiesInterest coverage ratioEarnings before interest and taxesInterest expenseFixed charge coverageEarnings before interest and taxesAll essential pay

40、ments (including lease payments)Liquidity:Coverage:23Ratio AnalysisBOS Liquidity and Coverage Ratios - Description Acceptable values for these ratios differ by industry. However, when the current ratio or coverage ratios fall below 1 that means the firm is unable to meet its obligationsIt is a usefu

41、l exercise to calculate how much revenue could drop (or costs rise) before coverage would drop below 1Liquidity ratios measure the firms ability to meet its short-term obligations. Coverage ratios measure the firms ability to meet its long-term obligations.24Ratio AnalysisBOS Agenda Using ratiosType

42、s of key ratiosprofitabilityturnoverleverageliquiditycoverageReturn on EquityRatio exercisesForecasting exerciseAbbreviationsKey takeaways25Ratio AnalysisBOS Return on Equity Return on equity is defined as profit after tax (earnings) divided by equity. It relates economic outputs (profit) to inputs

43、(equity).It tells us the amount of profits the company earned on each dollar the stockholders invested in the firm. It is important to note that not all of the earnings are paid to the stockholders when they are earned.8Only some portion of the earnings will be returned now in the form of dividends.

44、 The remainder (retained earnings) will be re-invested in the company to finance growth8The size of the divided is decided by the board of directors; an individual stockholder has no influence over when he/she actually receives the return that he/she has earnedIt is a combination of profitability, t

45、urnover, and leverage ratiosReturn on equity, ROE, is the acid test of success for a business.26Ratio AnalysisBOS DuPont Formula By separating ROE into its components, one can gain insight into how to improve the performance of a business.ROE = Profit after taxEquityROE = Profit after taxSalesSalesA

46、ssetsAssetsEquityXXReturn on AssetsLeverageROSAsset turnoverThis is known as the DuPont formulaROE = Profitability X Turnover X Leverage27Ratio AnalysisBOS Agenda Using ratiosTypes of key ratiosprofitabilityturnoverleverageliquiditycoverageReturn on EquityRatio exercisesForecasting exerciseAbbreviat

47、ionsKey takeaways28Ratio AnalysisBOS Unidentified Industries Exercise The objective of this exercise is to test your understanding of financial ratios.Exercise: The balance sheets (in percentage form) and selected ratios for six industries are given on the following page. Please match each of the si

48、x industries to the financial informationCoal miningGrocery storesHotels and motelsLegal servicesPackaged softwarePotato chips and snacks 29Ratio AnalysisBOS Unidentified Industries Exercise - DataIndustry Balance Sheet (%)ABCDEF*Ratios do not tie to balance sheet items because they were calculated

49、using a slightly different data set. *This is NOT inventory turns. Inventory turns would be COGS to inventory.*Sales to assetsSource: Industry Norms Key Business Ratios, Dun & BradstreetCashAccounts receivableNotes receivableInventoryOther currentTotal current assetsFixed assetsOther non-current

50、 assetsTotal assetsAccounts payableBank loansNotes payableOther current liabilitiesTotal current liabilitiesOther long-term liabilitiesDeferred creditsNet worthTotal liabilities & net worthRatios*Quick ratio (times)Current ratio (times)Total liabilities to net worth (%)Collection period (days)Sa

51、les to inventory (times)*Assets turns* (times)Gross margin (%)Return on sales (%)Return on assets (%)Return on equity (%) 9.8%4.00.61.44.620.465.114.5 100.0%3.60.12.411.817.944.60.337.2 100.0%0.7x1.2x127%9.1 days78.5x0.7x 64%7%5%14% 9.3%21.20.22.02.735.451.712.9100.0%15.2-3.315.133.625.5-40.9 100.0%

52、0.9x1.1x87%52.2 days7.9x1.9x 38%3%7%16% 4.8%28.6-14.64.552.535.112.4 100.0%15.40.40.414.030.217.51.750.6 100.0%1.6x2.5x62%30.9 days23.7x2.9x29%2%5%7% 14.1%5.30.932.63.956.830.412.8 100.0%15.70.23.011.630.522.00.347.2100.0%0.6x1.9x93%2.6 days19.0 x5.0 x22%1%6%13% 31.0%18.80.80.713.965.226.08.8 100.0%

53、4.00.44.826.335.510.81.252.5 100.0%1.4x1.9x67%51.8 days63.1x4.0 x57%12%20%29% 22.1%32.20.54.78.568.018.613.4100.0%10.60.22.023.336.110.31.652.0 100.0%1.5x2.0 x74%65.3 days39.9x1.9x 59%6%10%19%30Ratio AnalysisBOS Unidentified Industries Exercise - Answer Characteristics:Financial ratios:Companies:Hot

54、els and MotelsVery high fixed assetsLow inventoryShort collection periodLow asset turnoverHigh gross marginHigh leverageFixed assets = 65%Inventory = 1%Collection period = 9 daysAsset turns = 0.7xGross margin = 64%Total liabilities to net worth = 127%ACoal MiningVery high fixed assetsLow inventoryLo

55、ng collection periodFixed assets = 52%Inventory = 2%Collection period = 52 daysBPotato Chips & SnacksLow percentage of cashLong collection cycleCash = 5%Collection = 31 daysCGrocery StoresHigh percentage of cashLow accounts receivableShort collection periodHigh inventoryGood liquidity ratiosCash

56、 = 14%Accounts receivable = 5%Collection period = 3 daysInventory = 33%Quick ratio = 0.6x; current ratio = 1.9xDLegal ServicesHigh percentage of cashAlmost zero inventoryHigh asset turnoverHigh profitabilityLong collection periodCash = 31%Inventory = 1%Assets turns = 4.0 xGross margin = 57%; ROS = 1

57、2%; ROE = 29%Collection period = 52 daysEPrepackaged SoftwareHigh percentage of cashHigh accounts receivableLow inventoryHigh gross marginLow fixed assetsSignificant intangible assets (patents)Cash = 22%Accounts receivable = 32%Inventory = 5%Gross margin = 59% Fixed assets = 19%Other non-current ass

58、ets = 13.4%F31Ratio AnalysisBOS Gillette Exercise Exercise: Please calculate Gillette Companys key financial ratios based on its 1996 annual report ProfitabilityTurnoverLeverageLiquidity and coverageThe objective of this exercise is to test your ability to calculate key financial ratios.Note: For th

59、is exercise, do not include merger-related costs in the calculations.32Ratio AnalysisBOS Gillette Exercise - Profitability Ratios* This is not a profitability ratio, but it does impact ROS*Excluding merger-related costs. Non-operating charges should not be included in the operating profit margin.Rat

60、iosGillette Ratio CalculationsGross profit margin(or gross margin)Sales - cost of goods soldSalesOperating profit margin(or operating margin)Earnings before interest and taxes*SalesReturn on sales(ROS)Profit after tax*SalesEffective tax rate*TaxesProfit before tax6,016.09,697.7= 62%2,049.39,697.7= = 21.1%1,231