A TYPICAL BALANCE SHEET

Current Assets Current liabilities

Cash and equivalents Accrued wages and taxes
Tiền và tương đương tiền Chi phí dồn tích (Accruals) và Thuế
Accounts receivable Accounts payable
Khoản phải thu Khoản phải trả
Inventory Notes payable
Hàng tồn kho Nợ phải trả

Long-Term (Fixed) Assets Long-Term

Debt
Net plant and equipment
Giá trị còn lại (Nguyên giá - Khấu hao)
Other long-term assets

Stockholders’ Equity
Common stock + Retained earnings
must equal
Total assets – Total liabilities

Total Assets Total Liabilities and Equity

Book value per share = Total common equity/Shares outstanding = $940/50 = $18.80.

Net working capital = Current assets - Current liabilities = $1,000 - $310 = $690 million.

Net operating working capital (NOWC)

= Operating current assets – Operating current liabilities

= (Current assets – Excess cash) – ( Current liabilities – Notes payable)

= ($1,000 - $0) - ($310 - $110)

= $800 million.

Total debt = Short-term debt + Long-term debt = $110 + $750 = $860 million.

Total liabilities = Total debt + (Accounts payable + Accruals)

= $860 + ($60 + $140) = $1,060 million = $1.06 billion.

 THE INCOME STATEMENT

Operating income (or EBIT) = Sales revenues - Operating costs = $3,000.0 - $2,716.2 = $283.8 million

Note: Allied has 50 million shares of common stock outstanding. Note that EPS is based on net
income available to common stockholders. Calculations of EPS, DPS, and BVPS for 2018 are as
follows:

Net income $ 117,500,000

Earnings per share=EPS= = =$ 2.35
Common shares outstanding 50,000,000

¿ $ 57,500,0
Dividends per share=DPS=Dividends paid ¿ common stockholders =
Common shares outstanding 50,000,00
Total common equity $ 940,000,000
Book value per share=BVPS= = =$ 18.80
Common shares outstanding 50,000,000
When a firm has options or convertibles outstanding or it recently has issued new common stock, a
more comprehensive EPS, “diluted EPS,” is calculated.

EBITDA, an acronym for earnings before interest, taxes, depreciation, and amortization.

EBITDA 2018 = $383.8 million.

 STATEMENT OF CASH FLOWS

j/ Gross investment = Net investment + Depreciation = $130 + $100 = $230.

 FREE CASH FLOW

Net Operating Profit After Taxes (NOPAT): The profit a company would generate if it had no debt
and held only operating assets.

NOPAT = EBIT(1 – T)

Capital expenditures: Investment in the fixed assets.

= Changes in net plant and equipment + depreciation.

FCF

= [EBIT(1 - T) + Depreciation and amortization] + [Capital expenditures + ∆Net operating working

capital]

= [NOPAT + Depreciation and amortization] + [Capital expenditures + ∆Net operating working

capital]

Economic Value Added (EVA)

= Net operating profit after taxes (NOPAT) - Annual dollar cost of capital

= EBIT(1 - T) – (Total invested capital x After-tax percentage cost of capital)

 RATIOS

We divide the ratios into five categories:

1. Liquidity ratios, which give an idea of the firm’s ability to pay off debts that are maturing within a
year.

2. Asset management ratios, which give an idea of how efficiently the firm is using its assets.

3. Debt management ratios, which give an idea of how the firm has financed its assets as well as the
firm’s ability to repay its long-term debt.

4. Profitability ratios, which give an idea of how profitably the firm is operating and utilizing its
assets.

5. Market value ratios, which give an idea of what investors think about the firm and its future
prospects.

LIQUIDITY RATIOS

current assets
Current ratio=
current liabilities
If a company is having financial difficulty, it typically begins to pay its accounts payable more slowly
and to borrow more from its bank, both of which increase current liabilities.

If current liabilities are rising faster than current assets, the current ratio will fall, and this is a sign of
possible trouble.

Quick ,∨acid test , ratio

Current assets – Inventories
¿
Current liabilities
Cash∧equivalents+ Accounts receivable
¿
Current liabilities

Asset Management Ratios

A set of ratios that measure how effectively a firm is managing its assets.

Sales
Inventory turnover ratio=
Inventories
It indicates how many times inventory is turned over during the year.

Days Sales Outstanding (DSO) Ratio

Receivables Receivables
DSO= =
Average sales per day Annual sales
365
It indicates the average length of time the firm must wait after making a sale before it receives cash.

Fixed Assets Turnover Ratio

Sales
¿ assets turnover ratio= assets ¿
Net ¿
It measures how effectively the firm uses its plant and equipment.

Total Assets Turnover Ratio

It measures how effectively the firm uses its total assets.

Sales
Total assets turnover ratio=
Total assets

Debt Management Ratios

A set of ratios that measure how effectively a firm manages its debt.

Total Debt to Total Capital

The ratio of total debt to total capital; it measures the percentage of the firm’s capital provided by
debtholders.

Total debt Total debt

=
Total capital Total debt + Equity

Times-InterestEarned (TIE) Ratio

The ratio of earnings before interest and taxes (EBIT) to interest charges; a measure of the firm’s
ability to meet its annual interest payments.

EBIT
TIE=
Interest charges

Profitability Ratios

A group of ratios that show the combined effects of liquidity, asset management, and debt on
operating results.

Operating Margin

This ratio measures operating income, or EBIT, per dollar of sales; it is calculated by dividing
operating income by sales.

EBIT
Operating margin=
Sales
(Net) Profit Margin

This ratio measures net income per dollar of sales and is calculated by dividing net income by sales.

Net income
Profit margin=
Sales

Return on Total Assets (ROA)

The ratio of net income to total assets; it measures the rate of return on the firm’s assets.

Net income
ROA=
Total assets

Return on Common Equity (ROE)

The ratio of net income to common equity; it measures the rate of return on common stockholders’
investment.

Net income
ROE=
Common Equity

Return on Invested Capital (ROIC)

The ratio of after-tax operating income to total invested capital; it measures the total return that the
company has provided for its investors.

EBIT∗( 1−T ) EBIT∗(1−T )

ROIC= =
Total invested capital Debt + Equity
ROIC differs from ROA in two ways.

First, its return is based on total invested capital rather than total assets.

Second, in the numerator it uses after-tax operating income (NOPAT) rather than net income.

The key difference is that net income subtracts the company’s after-tax interest expense and
therefore represents the total amount of income available to shareholders, while NOPAT is the
amount of funds available to pay both stockholders and debtholders.

Basic Earning Power (BEP) Ratio

This ratio indicates the ability of the firm’s assets to generate operating nincome; it is calculated by
dividing EBIT by total assets.

EBIT
BEP=
Total assets
 Market Value Ratios

Ratios that relate the firm’s stock price to its earnings and book value per share.

The market value ratios are used in three primary ways:

(1) by investors when they are deciding to buy or sell a stock,

(2) by investment bankers when they are setting the share price for a new stock issue (an IPO),

(3) by firms when they are deciding how much to offer for another firm in a potential merger.

Price/Earnings (P/E) Ratio

The ratio of the price per share to earnings per share; shows the dollar amount investors will pay for
$1 of current earnings.

Price per share

P/ E=
Earnings per share

Market/Book (M/B) Ratio

The ratio of a stock’s market price to its book value.

Common equity
Book value per share=
Shares outstanding
M Market price per share Market price of the firm( debt+ equity)
= =
B Book value per share Book value of the firm(debt +equity )

DuPont Equation

A formula that shows that the rate of return on equity can be found as the product of profit margin,
total assets turnover, and the equity multiplier. It shows the relationships among asset
management, debt management, and profitability ratios.

ROE
¿ ROA∗Equity multiplier
¿ Profit margin∗Total assets turnover∗Equity multiplier
Net income
∗Sales
Sales
∗Total assets
Total assets
¿
Total common equity
 ¿ ∗Assets
ROE Equity Assets
= ¿ : ¿ = = =Equity multiplier
ROA Equity Assets ¿ Equity