贝恩分析方法-ratioanalysis2.ppt

1、Author: Collins Qian,Ratio Analysis,March 1998,Agenda,Using ratios Types of key ratios profitability turnover leverage liquidity coverage Return on Equity Ratio exercises Forecasting exercise Abbreviations Key takeaways,Analyzing Ratios,Ratios in isolation are meaningless. A companys ratios must be

2、examined over time and/or against its competitors ratios.,Historical comparison,Competitive comparison,Compare present ratios with same companys historical ratios In stable situations, historical ratios may be used to project future performance,Compare a companys ratios with similar firms ratios or

3、with industry averages at the same point in time,Look for trends,Look at relative performance,The Art of Ratio Analysis,Which ratios are most important in a given situation? What items should be included/excluded in calculating the ratios? How much influence does management have over the ratios? Wha

4、t do the ratios say about the firms strategy?,Ratio analysis is an art as well as a science.,The Need for Judgment,Potential Problem,Management can substantially influence financials in the short term,Implications,Need to use judgment to understand financials,Ratio analysis requires keen judgment.,F

5、inancial statement data is historical, not pro forma,Cross-company comparisons are meaningless if adjustments are not made for different accounting conventions,The timing of the reporting period influences funds flows and requirements,Need to understand that history does NOT necessarily predict futu

6、re,Need to be very sensitive about industry-specific seasonality and cyclicality,Need to standardize across companies to adjust for different accounting methods,Agenda,Using ratios Types of key ratios profitability turnover leverage liquidity coverage Return on Equity Ratio exercises Forecasting exe

7、rcise Abbreviations Key takeaways,Types of Ratios,Ratios 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 manage costs relative to revenues?,Return,Risk,Coverage Interest charge Fixed charge coverag

8、e,Liquidity Current ratio Quick ratio,Leverage Asset to equity Debt to equity Debt to total capital,Turnover Receivables Inventory Payables Asset,Profitability Operating margin ROS Gross margin,How effective is the company in managing its resources?,What are the respective claims of debt and equity

9、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?,Profitability Ratios - Definitions,* This is not a profitability ratio, but it does impact ROS,Profitability ratios use line items from the income stateme

10、nt.,Ratios,Definitions,Gross profit margin (or gross margin),Sales - cost of goods sold Sales,Operating profit margin (or operating margin),Earnings before interest and taxes Sales,Return on sales (ROS),Profit after tax Sales,Effective tax rate*,Taxes Profit before tax,Profitability Ratios - Descrip

11、tion,Profitability (or margin) ratios are a function of both the industry and a companys position within the industry boundaries are set by the operating characteristics of the industry within these boundaries profitability ratios are determined by a players relative position Bain typically uses gro

12、ss profit and operating profit to measure profitability ROS can be altered by non-operating activities, such as sources of financing or tax rate manipulations Extraordinary items, because they are for unusual events, such as discontinued items or asset sales, are excluded when we analyze the perform

13、ance of the base business,Profitability ratios measure a firms ability to manage costs relative to revenues.,Profitability Ratios - Over Time,Gross profit margin should stay constant or increase because cost of goods sold should be a constant percent of sales or should decrease as company gets price

14、 increases and/or volume discounts Operating margin should increase as fixed administrative and sales costs are spread over a greater number of units Effective tax rate should stay constant or decrease since a larger firm is able to take advantage of more tax shelters,As a company grows, its return

15、on sales should increase.,Higher return on sales,Profitability Ratios - Market Leader,Gross profit margin should be higher since a market leader can typically charge more for its goods and/or receive the greatest volume discounts from suppliers Operating profit margin should be significantly higher,

16、 because higher volume means fixed costs are spread over more units and because the gross profit margin is higher There should be no significant difference in the effective tax rate Return on sales should be significantly higher because the operating margin should be significantly higher,The market

17、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 sales,Turnover Ratios - Definitions,Note: Average=(Year Beginning+Year End)/2 * Sales is often a good proxy *Cos

18、t of goods sold is often a good proxy *Typically we use 365 days (i.e., 1 year) for the period,Turnover ratios use a combination of income statement and balance sheet items.,Ratios,Definitions,Receivables turnover,Credit sales in period* Accounts receivable average balance,Inventory turnover,Cost of

19、 goods sold in period Average inventory in period,Payables turnover,Purchases on account* Accounts payable average balance,Asset turnover,Sales in period Average assets,Any turnover ratio can be expressed as a period ratio which measures the number of days in the cycle,Days in period* Turnover ratio

20、,Period ratio =,Turnover Ratios - Transaction Cycle,* Accounts payable, inventory, and accounts receivable are the major components of working capital,It is critical for a firm to manage its payables, inventory, and receivables.*,Cash inflow,Cash collected for sales made,Cash outflow,Raw materials p

21、urchased,Cash disbursed for raw materials purchased,Finished goods inventory,Sales made,Accounts receivable period,Accounts payable period,X,X,X,Turnover Ratios - Description,Turnover ratios measures how many times per year a given resource is consumed Period ratios measure the number of days that i

22、s 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 periods for accounts receivable and inventory (i.e., have high accounts receivable and inventory turnover),Turnover ratios measur

23、e how well a firm is managing its resources.,Turnover Ratios - Tradeoffs,Ratio Improvements,Decrease the receivables collection period i.e., collect the accounts receivable faster Decrease the inventory holding period i.e., sell completed products faster Increase the account payable period i.e., tak

24、e longer to pay suppliers,Strategic Tradeoff,If the receivables collection period is too short, customers may buy at a competitor that has more generous credit terms. (Often this period is dictated by industry norms) If the inventory holding period is too short the company may not have enough invent

25、ory 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 facilities If the accounts payable period is too long, suppliers could raise their prices, charge interest (often at very high rates), or even refuse to suppl

26、y 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-offs.,Leverage Ratios - Definitions,* All three ratios here are called “leverage” ratios by different people, so be sure to understand

27、which ratio is being used when someone is talking about leverage,Leverage ratios use line items from the balance sheet.,Ratios*,Definitions,DuPont leverage ratio,Assets Equity,Debt to equity ratio,Long-term debt Equity,Debt to total capital or debt to total assets ratio,Total liabilities Debt + equi

28、ty,Total liabilities Assets,=,Leverage Ratios - Description,Money can be raised from debt sources (banks, bond markets) or equity sources (stockholders) Leverage ratios reflect both the financing policies of the firm and the riskiness of the business In order to analyze a firms leverage ratios, one

29、needs to understand the definitions of debt and equity,Leverage ratios measure the respective claims of debt and equity holders.,Debt Versus Equity,Contractual payments over the life of the loan Investor legally guaranteed full return of principle plus interest nothing above that In case of liquidat

30、ion, debtor has preferential claim on proceeds from sale of assets,No guaranteed payments from common stock Investor “owns” part of firm right to appreciation of firms value In case of liquidation, equity owner takes what is left (may be nothing),Debt and equity have very different characteristics.,

31、Debt = anything that contractually requires payments to be made before the equity holders have access to the firms earnings,Equity = the value of the firm left over after all the debt holders have been paid,Lower risk to investor; investor demands lower return,Higher risk to investor; investor deman

32、ds higher return,Debt Questions - Debt and Equity,Debt in Leverage Ratios Bain typically looks only at long-term debt (debt with a term of 1 year or more) Accountants measure debt as short-term debt plus long term debt Equity in Leverage Ratios Bain typically uses the market value of equity (I.e., t

33、he share price multiplied by the number of shares). Others may use the book value of equity, which is the amount shown on the balance sheet,Debt Questions,Accounts payable? Short-term debt? Long-term debt? Cancelable leases? Noncancelable leases? Preferred stock? Common stock? Deferred tax?,Would yo

34、u define the following as debt?,Debt Answers,Accounts payable Short-term debt Long-term debt Cancelable leases Noncancelable leases,Some 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 rec

35、eivables that it is used to finance,Debt, if it used to finance capital expansions of the company Not debt, if it used to finance working capital,Debt.,Not debt. Because they are cancelable, they are not contractual obligations,Debt. Because they are non-cancelable, they are contractual obligations.

36、 (For all publicly traded US companies, the present value of all the noncancelable lease payments must be disclosed in balance sheet footnotes.),Debatable Argument for equity - contractual obligations to pay dividends on preferred stock are met after debtholders claims are met Argument for debt - th

37、ere is a contractual obligation to pay dividends on preferred stock before common stock dividend payments can be made,Not debt. It is equity,Common stock,Debt, but debatable. Often considered debt given long-term nature,Deferred tax,Preferred stock,Liquidity and Coverage Ratios - Definitions,Liquidi

38、ty ratios use line items from the balance sheet. Coverage ratios use line items from the income statement.,Ratios,Definitions,Current ratio,Current assets Current liabilities,Quick ratio (acid test),Cash + marketable securities + receivables Current liabilities,Interest coverage ratio,Earnings befor

39、e interest and taxes Interest expense,Fixed charge coverage,Earnings before interest and taxes All essential payments (including lease payments),Liquidity:,Coverage:,Liquidity and Coverage Ratios - Description,Acceptable values for these ratios differ by industry. However, when the current ratio or

40、coverage ratios fall below 1 that means the firm is unable to meet its obligations It is a useful exercise to calculate how much revenue could drop (or costs rise) before coverage would drop below 1,Liquidity ratios measure the firms ability to meet its short-term obligations. Coverage ratios measur

41、e the firms ability to meet its long-term obligations.,Agenda,Using ratios Types of key ratios profitability turnover leverage liquidity coverage Return on Equity Ratio exercises Forecasting exercise Abbreviations Key takeaways,Return on Equity,Return on equity is defined as profit after tax (earnin

42、gs) divided by equity. It relates economic outputs (profit) to inputs (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. Only some

43、 portion of the earnings will be returned now in the form of dividends. The remainder (retained earnings) will be re-invested in the company to finance growth The size of the divided is decided by the board of directors; an individual stockholder has no influence over when he/she actually receives t

44、he return that he/she has earned It is a combination of profitability, turnover, and leverage ratios,Return on equity, ROE, is the acid test of success for a business.,DuPont Formula,By separating ROE into its components, one can gain insight into how to improve the performance of a business.,ROE =,

45、Profit after tax Equity,ROE =,Profit after tax Sales,Sales Assets,Assets Equity,X,X,Return on Assets,Leverage,ROS,Asset turnover,This is known as the DuPont formula,ROE = Profitability X Turnover X Leverage,Agenda,Using ratios Types of key ratios profitability turnover leverage liquidity coverage Re

46、turn on Equity Ratio exercises Forecasting exercise Abbreviations Key takeaways,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

47、 following page. Please match each of the six industries to the financial information,Coal mining Grocery stores Hotels and motels Legal services Packaged software Potato chips and snacks,Unidentified Industries Exercise - Data,Unidentified Industries Exercise - Answer,Characteristics:,Financial rat

48、ios:,Companies:,Hotels and Motels,Very high fixed assets Low inventory Short collection period Low asset turnover High gross margin High leverage,Fixed assets = 65% Inventory = 1% Collection period = 9 days Asset turns = 0.7x Gross margin = 64% Total liabilities to net worth = 127%,A,Coal Mining,Ver

49、y high fixed assets Low inventory Long collection period,Fixed assets = 52% Inventory = 2% Collection period = 52 days,B,Potato Chips current ratio = 1.9x,D,Legal Services,High percentage of cash Almost zero inventory High asset turnover High profitability Long collection period,Cash = 31% Inventory

50、 = 1% Assets turns = 4.0 x Gross margin = 57%; ROS = 12%; ROE = 29% Collection period = 52 days,E,Prepackaged Software,High percentage of cash High accounts receivable Low inventory High gross margin Low fixed assets Significant intangible assets (patents),Cash = 22% Accounts receivable = 32% Invent

51、ory = 5% Gross margin = 59% Fixed assets = 19% Other non-current assets = 13.4%,F,Gillette Exercise,Exercise: Please calculate Gillette Companys key financial ratios based on its 1996 annual report,Profitability Turnover Leverage Liquidity and coverage,The objective of this exercise is to test your

52、ability to calculate key financial ratios.,Note: For this exercise, do not include merger-related costs in the calculations.,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 inclu

53、ded in the operating profit margin.,Ratios,Gillette Ratio Calculations,Gross profit margin (or gross margin),Sales - cost of goods sold Sales,Operating profit margin (or operating margin),Earnings before interest and taxes* Sales,Return on sales (ROS),Profit after tax* Sales,Effective tax rate*,Taxe

54、s Profit before tax,2,049.3 9,697.7,=,= 21.1%,1,231.7 9,697.7,=,= 12.7%,(p.24),(p.24),(p.24, p.27),(p.24),Page Number in 1996 Annual Report,1,636.3 + 413.0 9,697.7,=,948.7 + 283.0 9,697.7,=,Gillette Exercise - Turnover Ratios,Note: Average=(Year Beginning+Year End)/2 * Sales is often a good proxy *C

55、ost of goods sold is often a good proxy,Ratios,Gillette Ratio Calculations,Receivables turnover,Credit sales in period* Accounts receivable average balance,9,697.7 (2,724.6 + 2,290.8)/2,=,= 3.87,(p.24, p.25),or,365 3.87,= 94 days,Inventory turnover,Cost of goods sold in period Average inventory in p

56、eriod,3,681.7 (1,358.2 + 1,267.6)/2,= 2.80,(p.24, p.25),or,365 2.80,= 130 days,=,Payables turnover,Purchases on account* Accounts payable average balance,3,681.7 (547.3 + 498.0)/2,= 7.04,(p.24, p.29),or,365 7.04,= 52 days,=,365 1.00,Asset turnover,Sales in period Average assets,9,697.7 (10,435.3 + 8

57、,940.1)/2,= 1.00,(p.24, p.25),or,= 365 days,=,Page Number in 1996 Annual Report,Gillette Exercise - Leverage Ratios,* 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 leverage. *The inclusion of d

58、eferred income taxes in long-term debt is debatable.,Ratios*,Gillette Ratio Calculations,DuPont leverage ratio,Assets Equity,Debt to equity ratio,Long-term debt* Equity,Debt to total capital or debt to total assets ratio,(p.25),14.5 + 1,490.4 + 298.9 4,490.9,=,= 0.40,(p.25),5,944.4 10,435.3,=,= 0.57

59、,(p.25),Page Number in 1996 Annual Report,1,803.8 4,490.9,=,Total liabilities Debt + equity,Total liabilities Assets,=,Gillette Exercise - Liquidity and Coverage Ratios,Ratios,Gillette Ratio Calculations,Current ratio,Current assets Current liabilities,Quick ratio (acid test),Cash + marketable securities + receivables Current liabilities,Interest coverage ratio,Earnings before interest and taxes* Interest expense,Fixed charge coverage,Earnings before interest and taxes* All essential payments (including l