Five Categories of Fin. Ratios
Liquidity: Ability to meet current obligations
Asset Mgmt: Proper & effective use of assets
Asset utilization (i.e., Total Asset Turnover Ratio:
TAT = Sales / T. Assets
Debt Mgmt: extent of debt & level of safety afforded creditors
Debt utilization (i.e., Equity Multiplier:
EM = T. Assets / T. Eqty
Profitability: reflects effects of liquidity, asset mgmt, & debt on operating results
Expense Control: Profit Margin:
PM = Net Income / Sales
Market Value: indicators of what investors think of firm’s past results & future prospects
The opportunity to explore how a company uses the Capital Asset Pricing Model (CAPM) to compute the cost of capital for each of its divisions. The use of Weighted Average Cost of Capital (WACC) formula and the mechanics of applying it are stressed.
The opportunity to explore how a company uses the Capital Asset Pricing Model (CAPM) to compute the cost of capital for each of its divisions. The use of Weighted Average Cost of Capital (WACC) formula and the mechanics of applying it are stressed.
Fin 515 Education Redefined - snaptutorial.comDavisMurphyC88
For more classes visit
www.snaptutorial.com
FIN 515 Week 2 Project Financial Statement Analysis (Nike)
FIN 515 Week 3 Project Financial Statement Analysis (Nike)
FIN 515 Week 6 Project Calculating the Weighted Average Cost of Capital (Nike)
http://finishedexams.com/homework_text.php?cat=15945
Immediate access to solutions for ENTIRE COURSES, FINAL EXAMS and HOMEWORKS “RATED A+" - Without Registration!
http://finishedexams.com/homework_text.php?cat=15944
Immediate access to solutions for ENTIRE COURSES, FINAL EXAMS and HOMEWORKS “RATED A+" - Without Registration!
1
CHAPTER 3
Analysis of Financial Statements
2
Topics in Chapter
Ratio analysis
Du Pont system
Effects of improving ratios
Limitations of ratio analysis
Qualitative factors
3
Value = + + +
FCF1
FCF2
FCF∞
(1 + WACC)1
(1 + WACC)∞
(1 + WACC)2
Free cash flow
(FCF)
Market interest rates
Firm’s business risk
Market risk aversion
Firm’s debt/equity mix
Cost of debt
Cost of equity
Weighted average
cost of capital
(WACC)
Net operating
profit after taxes
Required investments
in operating capital
−
=
Determinants of Intrinsic Value:
Using Ratio Analysis
...
For value box in Ch 3 ratios FM13.
4
Overview
Ratios facilitate comparison of:
One company over time
One company versus other companies
Ratios are used by:
Lenders to determine creditworthiness
Stockholders to estimate future cash flows and risk
Managers to identify areas of weakness and strength
5
Income Statement20102011ESales$5,834,400 $7,035,600COGS4,980,000 5,800,000Other expenses720,000 612,960Deprec.116,960 120,000 Tot. op. costs5,816,960 6,532,960 EBIT17,440 502,640Int. expense176,000 80,000 EBT(158,560)422,640Taxes (40%)(63,424)169,056Net income($ 95,136)$ 253,584
6
Balance Sheets: Assets20102011ECash$ 7,282 $ 14,000S-T invest.20,000 71,632AR632,160 878,000Inventories1,287,360 1,716,480 Total CA1,946,802 2,680,112 Net FA939,790 836,840Total assets$2,886,592 $3,516,952
7
Balance Sheets: Liabilities & Equity20102011EAccts. payable$ 324,000 $ 359,800Notes payable720,000 300,000Accruals284,960 380,000 Total CL1,328,960 1,039,800Long-term debt1,000,000 500,000Common stock460,000 1,680,936Ret. earnings97,632 296,216 Total equity557,632 1,977,152Total L&E$2,886,592 $3,516,952
8
Other Data20102011EStock price$6.00$12.17# of shares100,000 250,000EPS-$0.95$1.01DPS$0.11$0.22Book val. per sh.$5.58$7.91Lease payments$40,000$40,000Tax rate0.40.4
9
Liquidity Ratios
Can the company meet its short-term obligations using the resources it currently has on hand?
10
Forecasted Current and Quick Ratios for 2011.
CR10 = = = 2.58.
QR10 =
= = 0.93.
CA
CL
$2,680
$1,040
$2,680 - $1,716
$1,040
CA - Inv.
CL
11
Comments on CR and QR2011E20102009Ind.CR2.581.462.32.7QR0.930.50.81.0
Expected to improve but still below the industry average.
Liquidity position is weak.
12
Asset Management Ratios
How efficiently does the firm use its assets?
How much does the firm have tied up in assets for each dollar of sales?
13
Inventory Turnover Ratio vs. Industry Average
Inv. turnover =
= = 4.10.
Sales
Inventories
$7,036
$1,716
2011E 2010 2009 Ind.
Inv. T. 4.1 4.5 4.8 6.1
14
Comments on Inventory Turnover
Inventory turnover is below industry average.
Firm might have old inventory, or its control might be poor.
No improvement is currently forecasted.
.
Fin 515 Education Redefined - snaptutorial.comDavisMurphyC88
For more classes visit
www.snaptutorial.com
FIN 515 Week 2 Project Financial Statement Analysis (Nike)
FIN 515 Week 3 Project Financial Statement Analysis (Nike)
FIN 515 Week 6 Project Calculating the Weighted Average Cost of Capital (Nike)
http://finishedexams.com/homework_text.php?cat=15945
Immediate access to solutions for ENTIRE COURSES, FINAL EXAMS and HOMEWORKS “RATED A+" - Without Registration!
http://finishedexams.com/homework_text.php?cat=15944
Immediate access to solutions for ENTIRE COURSES, FINAL EXAMS and HOMEWORKS “RATED A+" - Without Registration!
Similar to Analysis of Financial Statements.(Ratio analysis, Du Pont system ,Effects of improving ratios ,Limitations of ratio analysis, Qualitative factors)
1
CHAPTER 3
Analysis of Financial Statements
2
Topics in Chapter
Ratio analysis
Du Pont system
Effects of improving ratios
Limitations of ratio analysis
Qualitative factors
3
Value = + + +
FCF1
FCF2
FCF∞
(1 + WACC)1
(1 + WACC)∞
(1 + WACC)2
Free cash flow
(FCF)
Market interest rates
Firm’s business risk
Market risk aversion
Firm’s debt/equity mix
Cost of debt
Cost of equity
Weighted average
cost of capital
(WACC)
Net operating
profit after taxes
Required investments
in operating capital
−
=
Determinants of Intrinsic Value:
Using Ratio Analysis
...
For value box in Ch 3 ratios FM13.
4
Overview
Ratios facilitate comparison of:
One company over time
One company versus other companies
Ratios are used by:
Lenders to determine creditworthiness
Stockholders to estimate future cash flows and risk
Managers to identify areas of weakness and strength
5
Income Statement20102011ESales$5,834,400 $7,035,600COGS4,980,000 5,800,000Other expenses720,000 612,960Deprec.116,960 120,000 Tot. op. costs5,816,960 6,532,960 EBIT17,440 502,640Int. expense176,000 80,000 EBT(158,560)422,640Taxes (40%)(63,424)169,056Net income($ 95,136)$ 253,584
6
Balance Sheets: Assets20102011ECash$ 7,282 $ 14,000S-T invest.20,000 71,632AR632,160 878,000Inventories1,287,360 1,716,480 Total CA1,946,802 2,680,112 Net FA939,790 836,840Total assets$2,886,592 $3,516,952
7
Balance Sheets: Liabilities & Equity20102011EAccts. payable$ 324,000 $ 359,800Notes payable720,000 300,000Accruals284,960 380,000 Total CL1,328,960 1,039,800Long-term debt1,000,000 500,000Common stock460,000 1,680,936Ret. earnings97,632 296,216 Total equity557,632 1,977,152Total L&E$2,886,592 $3,516,952
8
Other Data20102011EStock price$6.00$12.17# of shares100,000 250,000EPS-$0.95$1.01DPS$0.11$0.22Book val. per sh.$5.58$7.91Lease payments$40,000$40,000Tax rate0.40.4
9
Liquidity Ratios
Can the company meet its short-term obligations using the resources it currently has on hand?
10
Forecasted Current and Quick Ratios for 2011.
CR10 = = = 2.58.
QR10 =
= = 0.93.
CA
CL
$2,680
$1,040
$2,680 - $1,716
$1,040
CA - Inv.
CL
11
Comments on CR and QR2011E20102009Ind.CR2.581.462.32.7QR0.930.50.81.0
Expected to improve but still below the industry average.
Liquidity position is weak.
12
Asset Management Ratios
How efficiently does the firm use its assets?
How much does the firm have tied up in assets for each dollar of sales?
13
Inventory Turnover Ratio vs. Industry Average
Inv. turnover =
= = 4.10.
Sales
Inventories
$7,036
$1,716
2011E 2010 2009 Ind.
Inv. T. 4.1 4.5 4.8 6.1
14
Comments on Inventory Turnover
Inventory turnover is below industry average.
Firm might have old inventory, or its control might be poor.
No improvement is currently forecasted.
.
It is a power point presentation on Ratio analysis which is part of Management Accounting. It is useful for the analysis of financial statements of the company.
FIN 534 – FINANCIAL MANAGEMENTwithDr. charity ezenwa.docxcharlottej5
FIN 534 – FINANCIAL MANAGEMENT
with
Dr. charity ezenwa
WELCOME
1
Chapter 3:
ANALYSIS OF FINANCIAL STATEMENTS
WEEK 2
2
Course Learning Outcome(s)
Analyze financial statements for key ratios, cash flow positions, and taxation effects.
3
Topics
Ratio analysis
DuPont equation
Effects of improving ratios
Limitations of ratio analysis
Qualitative factors
4
Why Financial Statement Analysis?
To facilitate comparison of:
One company over time
One company versus other companies
Uses: How can stakeholders benefit and why?
Lenders to determine creditworthiness
Stockholders to estimate future cash flows and risk
Managers to identify areas of weakness and strength
Financial statement analysis involves (1) comparing a firms; performance with that of the other firms in the same industry; and (2)Evaluating trends in the firm’s financial position over time.
Financial statement analysis is used by managers to identify situations needing attention. Potential lenders use financial statement analysis to determine whether a company is credit worthy, and stockholders use it to help them predict future earnings, dividends, and free cash flow.
5
Ratio Analysis
Used to extract information not obvious from simply examining financial statements.
Provides standardized comparison of firms
Example: Giant owes $10 million in debt while Safeway owes $20 million in debt. Which firm has a stronger financial position?
It is very difficult to answer this question without first determining each company's debt relative to its assets, earnings, and interests. Ratio analysis allows us to standardize these debts so as to easily compare the two forms.
6
The Income Statement Example
20162017ESales$5,834,400 $7,035,600COGS except depr.4,980,000 5,800,000Other expenses720,000 612,960Deprec.116,960 120,000 Tot. op. costs5,816,960 6,532,960 EBIT17,440 502,640Int. expense176,000 80,000 EBT(158,560)422,640Taxes (40%)(63,424)169,056Net income($ 95,136)$ 253,584
7
The Balance Sheet – Assets Example
20162017ECash$ 7,282 $ 14,000S-T invest.20,000 71,632AR632,160 878,000Inventories1,287,360 1,716,480 Total CA1,946,802 2,680,112 Net FA939,790 836,840Total assets$2,886,592 $3,516,952
8
The Balance Sheet – Liabilities & Equity
20162017EAccts. payable$ 324,000 $ 359,800Notes payable720,000 300,000Accruals284,960 380,000 Total CL1,328,960 1,039,800Long-term debt1,000,000 500,000Common stock460,000 1,680,936Ret. earnings97,632 296,216 Total equity557,632 1,977,152Total L&E$2,886,592 $3,516,952
9
Other Data
20162017EStock price$6.00$12.17# of shares100,000 250,000EPS-$0.95$1.01DPS$0.11$0.22Book val. per sh.$5.58$7.91Lease payments$40,000$40,000Tax rate0.40.4
10
What are Liquidity Ratios?
Measures a company’s ability to meet its short-term obligations.
Current Ra.
Financial Statement Analysis - Reading the Numbers Correctly, 2014 CreditScape, Western Region Credit Conference Seminar Slide Deck, sponsored by Credit Management Association. More information: www.creditmanagementassociation.org
Explain the concept of financial leverage.
Discuss the alternative measures of financial leverage.
Understand the risk and return implications of financial leverage.
Analyse the combined effect of financial and operating leverage.
Highlight the difference between operating risk and financial risk.
This presentation is an overview of Capital Structure Theories.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
Publication about Ratios and Financial AnalysisAfrim Alili
Ratios and Financial Analysis
Similar to Analysis of Financial Statements.(Ratio analysis, Du Pont system ,Effects of improving ratios ,Limitations of ratio analysis, Qualitative factors) (20)
Environemtnal influences on hrm-Stages of Analysis,Environmental Factors,Tanjin Tamanna urmi
Scanning: Identify early signals of changes and trends.
Monitoring: following some key indicators affecting organizations.
Forecasting: an attempt to protect the possible impacts on the organization.
Assessing: describing the impact monitored trends and make a adjustment of the possible outcomes.
Start with the value of an all equity firm
Sources of potential increases or decreases in value
PV of tax shields
PV of other benefits or costs of leverage
PV of benefits or costs of control changes
PV of benefits or costs from M&As
Exchange offer mechanics
Provides one or more classes of securities, right or option to exchange part or all of holdings for different class of securities of firm
Terms of offer involve new securities of greater market value than pre-exchange offer announcement market value to induce security holders to accept offer
corporate governance and performance--Corporate Governance Systems in the Uni...Tanjin Tamanna urmi
Corporate Governance Systems in the United States
Limited liability public corporation
Diffuse ownership of voting equity shares
Large number of individual share owners
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Europe is moving toward a common market
Globalization and increased intensity of international competition
Rapid technological change
Consolidation of major industries
Forces Driving Cross Border Mergers
Going private — transformation of a public corporation into a privately held firm
Leverage buyout (LBO) — purchase of a company by a small group of investors using a high percentage of debt financing
Investors are outside financial group or managers or executives of company
Management buyout (MBO) — leveraged buyout performed mainly by managers or executives of the company
share repurchases-cash offers for outstanding shares of common stockTanjin Tamanna urmi
Share repurchases are cash offers for outstanding shares of common stock
Share repurchases change the book capital structure of the firm by reducing the amount of common stock
Investment returns measure financial results of an investment.
Returns may be historical or prospective (anticipated).
Returns can be expressed in:
($) dollar terms.
(%) percentage terms.
Typically, investment returns are not known with certainty.
Investment risk pertains to the probability of earning a return less than expected.
Greater the chance of a return far below the expected return, greater the risk
Time lines
Future value / Present value of lump sum
FV / PV of annuity
Perpetuities
Uneven CF stream
Compounding periods
Nominal / Effective / Periodic rates
Amortization
Book pdf- Working capital management ( cost of capital and working capital)Tanjin Tamanna urmi
The termworking capitaloriginated with the old Yankee peddler who would load
up his wagon and go off to peddle his wares. The merchandise was called
“working capital”because it was what he actually sold, or“turned over,”to
produce his profits. The wagon and horse were his fixed assets. He generally
owned the horse and wagon (so they were financed with“equity”capital), but he
bought his merchandise on credit (that is, by borrowing from his supplier) or with
money borrowed from a bank. Those loans were calledworking capital loans,and
they had to be repaid after each trip to demonstrate that the peddler was solvent
and worthy of a new loan. Banks that followed this procedure were said to be
employing“sound banking practices.”The more trips the peddler took per year,
the faster his working capital turned over and the greater his profits
Strategic International HRM- activities targeting HRM at the international ...Tanjin Tamanna urmi
Strategic International HRM-activities targeting HRM at the international level
It involves projecting global competence supply, forecasting global competence needs, and developing a blueprint to establish global competence pools within companies, so that the supply of managers worldwide will be sufficient to meet with the MNC’s global strategies.
Succession management-identifying and developing new leaders Tanjin Tamanna urmi
Succession management is the process of ensuring that pools of skilled employees are trained and available to meet the strategic objectives of the organization.
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Succession management continuity in leadership develop the next generation of players
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A change agent is the facilitator, educator, adviser of the change. He/she helps the sponsor and the implementers stay aligned with each other. The change agent acts as data gatherer, meeting facilitator and coach.
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These strategic process is comprehensive, planned and contribute to the success of the organization and has long-term value creating potentiality. SHRM is the management of HR philosophies, policies, and practices to enable the achievement of the organizational strategy.
Generally, these philosophies, policies, practices, develops a system to attract, develop, utilize, and retain employees for smooth functioning of the organization.
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The Bangladesh Labor Act, 2006, consolidates and amends the laws relating to employment of labor, relations between workers and employers, payment of wages and compensation for injuries to workers, and other matters related to labor.
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how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
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how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
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What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
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• Real GDP growth slowed down due to problems with access to electricity caused by the destruction of manoeuvrable electricity generation by Russian drones and missiles.
• Exports and imports continued growing due to better logistics through the Ukrainian sea corridor and road. Polish farmers and drivers stopped blocking borders at the end of April.
• In April, both the Tax and Customs Services over-executed the revenue plan. Moreover, the NBU transferred twice the planned profit to the budget.
• The European side approved the Ukraine Plan, which the government adopted to determine indicators for the Ukraine Facility. That approval will allow Ukraine to receive a EUR 1.9 bn loan from the EU in May. At the same time, the EU provided Ukraine with a EUR 1.5 bn loan in April, as the government fulfilled five indicators under the Ukraine Plan.
• The USA has finally approved an aid package for Ukraine, which includes USD 7.8 bn of budget support; however, the conditions and timing of the assistance are still unknown.
• As in March, annual consumer inflation amounted to 3.2% yoy in April.
• At the April monetary policy meeting, the NBU again reduced the key policy rate from 14.5% to 13.5% per annum.
• Over the past four weeks, the hryvnia exchange rate has stabilized in the UAH 39-40 per USD range.
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You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
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You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
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2. Topics in Chapter
Ratio analysis
Du Pont system
Effects of improving ratios
Limitations of ratio analysis
Qualitative factors
2
3. 3
Value = + + +
FCF1 FCF2 FCF∞
(1 + WACC)1 (1 + WACC)∞(1 + WACC)2
Free cash flow
(FCF)
Market interest rates
Firm’s business riskMarket risk aversion
Firm’s debt/equity mixCost of debt
Cost of equity
Weighted average
cost of capital
(WACC)
Net operating
profit after taxes
Required investments
in operating capital
−
=
Determinants of Intrinsic Value:
Using Ratio Analysis
...
4. Overview
Ratios facilitate comparison of:
One company over time
One company versus other companies
Ratios are used by:
Lenders to determine creditworthiness
Stockholders to estimate future cash flows and risk
Managers to identify areas of weakness and strength
4
8. Other Data
2010 2011E
Stock price $6.00 $12.17
# of shares 100,000 250,000
EPS -$0.95 $1.01
DPS $0.11 $0.22
Book val. per sh. $5.58 $7.91
Lease payments $40,000 $40,000
Tax rate 0.4 0.4
8
9. Five Categories of Fin. Ratios
Liquidity
Asset Mgmt
Debt Mgmt
Profitability
MarketValue
9
10. Five Categories of Fin. Ratios
Liquidity: Ability to meet current obligations
Asset Mgmt: Proper & effective use of assets
Asset utilization (i.e.,Total AssetTurnover Ratio:
TAT = Sales /T. Assets
Debt Mgmt: extent of debt & level of safety
afforded creditors
Debt utilization (i.e., Equity Multiplier:
EM =T. Assets /T. Eqty
10
11. Five Categories of Fin. Ratios
Profitability: reflects effects of liquidity, asset
mgmt, & debt on operating results
Expense Control: Profit Margin:
PM = Net Income / Sales
MarketValue: indicators of what investors think of
firm’s past results & future prospects
11
12. Liquidity Ratios
Can the company meet its short-term
obligations using resources it currently has on
hand?
12
13. Forecasted Current and Quick
Ratios for 2011.
13
CR10 = = = 2.58.
QR10 =
= = 0.93.
CA
CL
$2,680
$1,040
$2,680 - $1,716
$1,040
CA - Inv.
CL
14. Comments on CR and QR
2011E 2010 2009 Ind.
CR 2.58 1.46 2.3 2.7
QR 0.93 0.5 0.8 1.0
Expected to improve but still below industry
average.
Liquidity position is weak.
14
15. Asset Management Ratios
How efficiently does firm use its assets?
How much does firm have tied up in assets
for each dollar of sales?
15
16. Inventory Turnover Ratio vs.
Industry Average
16
Inv. turnover =
= = 4.10.
Sales
Inventories
$7,036
$1,716
2011E 2010 2009 Ind.
Inv. T. 4.1 4.5 4.8 6.1
17. Comments on Inventory Turnover
Inventory turnover:
Firm might have old inventory, or its control
might be poor.
No improvement is currently forecasted.
17
Below industry average
18. DSO: average number of days
from sale until cash received.
18
DSO =
= =
= 45.5 days.
Receivables
Average sales per day
$878
$7,036/365
Receivables
Sales/365
19. Appraisal of DSO
Firm collects too slowly, and situation is
getting worse.
Poor credit policy.
19
2011 2010 2009 Ind.
DSO 45.5 39.5 37.4 32.0
20. =
= = 8.41.
Fixed Assets and Total Assets
Turnover Ratios
20
Total assets
turnover
=
= = 2.00.
Sales
Total assets
$7,036
$3,517
Fixed assets
turnover
Sales
Net fixed assets
$7,036
$837
21. Fixed Assets and Total Assets
Turnover Ratios
FA turnover:
TA turnover not up to industry average. Implication?
2011E 2010 2009 Ind.
FA TO 8.4 6.2 10.0 7.0
TA TO 2.0 2.0 2.3 2.5
21
expected to exceed industry average.
Good.
Caused by excessive current assets (A/R and inventory).
22. Debt Management Ratios
Does company have too much debt?
Can company’s earnings meet its debt
servicing requirements?
22
23. Calculate the debt, TIE, and
EBITDA coverage ratios.
23
Total liabilities
Total assetsDebt ratio =
= = 43.8%.
$1,040 + $500
$3,517
EBIT
Int. expense
TIE =
= = 6.3.$502.6
$80 (More…)
25. Debt Management Ratios vs.
Industry Averages
25
Recapitalization improved situation, but
lease pmts drag down EBITDA Cov.
2011E 2010 2009 Ind.
D/A 43.8% 80.7% 54.8% 50.0%
TIE 6.3 0.1 3.3 6.2
EC 5.5 0.8 2.6 8.0
26. Equity Multiplier =
T. Assets/Cmn Eqty
Firms with large amts of debt financing (high
leverage) have high Eqty Multiplier
Think: Assets = Debt + Eqty
26
27. Equity Multiplier =
T. Assets/Cmn Eqty
Firms with small amts of debt financing (low
leverage) have smaller Eqty Multiplier
27
31. Profit Margins vs. Industry
Averages
31
Very bad in 2010, but projected to
meet or exceed industry average in
2011.
2011E 2010 2009 Ind.
PM 3.6% -1.6% 2.6% 3.6%
OPM 7.1 0.3 6.1 7.1
GPM 17.6 14.6 16.6 15.5
32. Basic Earning Power &
Subway vs. Smelly Deli
EBIT=
T.Assets=
BEP= EBIT/TA
32
33. Basic Earning Power (BEP)
33
BEP =
= =
EBIT
Total assets
$502.6
$3,517
=14.3%
34. Basic Earning Power vs.
Industry Average
BEP removes effect of taxes and financial
leverage. Useful for comparison.
Projected to be below average.
Room for improvement.
34
2011E 2010 2009 Ind.
BEP 14.3% 0.6% 14.2% 17.8%
35. Return on Assets (ROA)
and Return on Equity (ROE)
35
ROA =
= = 7.2%.
NI
Total assets
$253.6
$3,517
(More…)
36. Return on Assets (ROA)
and Return on Equity (ROE)
36
ROE =
= = 12.8%.
NI
Common Equity
$253.6
$1,977
(More…)
37. ROA and ROE vs. Industry
Averages
37
2011E 2010 2009 Ind.
ROA 7.2% -3.3% 6.0% 9.0%
ROE 12.8% -17.1% 13.3% 18.0%
Both below average but improving.
38. Effects of Debt on ROA & ROE
No Debt (unlevered) vs. Debt (levered)
38
39. Effects of Debt on ROA and ROE
ROA is lowered by debt--interest expense
lowers net income, which also lowers ROA.
However, use of debt lowers equity, and if
equity is lowered more than net income, ROE
increases.
39
40. Important Implications of Debt
Financing (Financial Leverage)
By raising $ thru debt, stockholders can maintain
control of firm w/o increasing their investment.
Greater the equity stake, the less risk faced by
lenders (creditors)
If company earns greater return on investment
financed with debt than it pays in interest on
borrowed funds, then it the return on owners
equity is magnified, or leveraged.
40
41. The Internal Growth Rate
The internal growth rate tells us how much
the firm can grow assets using retained
earnings as the only source of financing.
Intrnl Grth rate = (ROA x Retention %)
1- (ROA x Retention %)
42. The Sustainable Growth Rate
The sustainable growth rate tells us how
much the firm can grow by using internally
generated funds and issuing debt to
maintain a constant debt ratio.
Sustnbl Grth rate = (ROE x Retention %)
1- (ROE x Retention %)
43. Market Value Ratios
Market value ratios: gives mgmt indication of
what investors think of co.’s past
performance & future prospects
43
44. Market Value Ratios
Increase /decrease:
High current levels of earnings and cash flow
increase market value ratios
High expected growth in earnings and cash flow
increases market value ratios
High risk of expected growth in earnings and cash
flow decreases market value ratios
44
46. Calculate and appraise the
P/E, P/CF, and M/B ratios.
46
Price = $12.17.
EPS = = = $1.01.
P/E = = = 12.
NI
Shares out.
$253.6
250
Price per share
EPS
$12.17
$1.01
47. Market Based Ratios
47
NI + Depr.
Shares out.
CF per share =
= = $1.49.$253.6 + $120.0
250
Price per share
Cash flow per shareP/CF =
= = 8.2.$12.17
$1.49
48. Market Based Ratios (Continued)
48
Com. equity
Shares out.BVPS =
= = $7.91.
$1,977
250
Mkt. price per share
Book value per shareM/B =
= = 1.54.
$12.17
$7.91
49. Interpreting Market Based
Ratios
P/E: How much investors will pay for $1 of
earnings. Higher is better.
M/B: How much paid for $1 of book value.
Higher is better.
P/E and M/B are high if ROE is high, risk is
low.
49
50. Market Value Measures
Value Stocks: Firms w/ low Mrkt to Book
ratios
Growth Stocks: Firms w/ high Mrkt to Book
ratios
Market Capitalization = MrktValue of
Common Equity
EnterpriseValue= MV equity + MV debt –
Cash – mrktbl securities. Measures value of
firm’s underlying business
52. Explain the Du Pont System
The Du Pont system focuses on:
Expense control (PM)
Asset utilization (TATO)
Debt utilization (EM)
It shows how these factors combine to
determine the ROE.
52
53. The Du Pont System
53
( )( )( ) = ROE
Profit
margin
TA
turnover
Equity
multiplier
NI
Sales
Sales
TA
TA
CEx x = ROE
54. Du Pont & Corp Operations
54
( )( )( ) = ROEProfit
margin
TA
turnover
Equity
multiplier
NI
Sales
Sales
TA
TA
CE
x x = ROE
55. The Du Pont System
55
2008: 2.6% x 2.3 x 2.2 = 13.2%
2009: -1.6% x 2.0 x 5.2 = -16.6%
2010: 3.6% x 2.0 x 1.8 = 13.0%
Ind.: 3.6% x 2.5 x 2.0 = 18.0%
NI
Sales
Sales
TA
TA
CEx x = ROE
56. Common Size Balance Sheets:
Divide all items by Total
Assets
Assets 2009 2010 2011E Ind.
Cash 0.6% 0.3% 0.4% 0.3%
ST Inv. 3.3% 0.7% 2.0% 0.3%
AR 23.9% 21.9% 25.0% 22.4%
Invent. 48.7% 44.6% 48.8% 41.2%
Total CA 76.5% 67.4% 76.2% 64.1%
Net FA 23.5% 32.6% 23.8% 35.9%
TA 100.0% 100.0% 100.0% 100.0%
56
57. Divide all items by Total
Liabilities & Equity
Assets 2009 2010 2011E Ind.
AP 9.9% 11.2% 10.2% 11.9%
Notes
pay.
13.6% 24.9% 8.5% 2.4%
Accruals 9.3% 9.9% 10.8% 9.5%
Total CL 32.8% 46.0% 29.6% 23.7%
LT Debt 22.0% 34.6% 14.2% 26.3%
Total eq. 45.2% 19.3% 56.2% 50.0%
57
58. Analysis of Common Size Balance
Sheets
Computron has higher proportion of
inventory and current assets than Industry.
Computron now has more equity (which
means LESS debt) than Industry.
Computron has more short-term debt than
industry, but less long-term debt than
industry.
58
60. Analysis of Common Size Income
Statements
Computron has lower COGS (86.7) than
industry (84.5), but higher other expenses.
Result is that Computron has similar EBIT
(7.1) as industry.
60
61. Percentage Change Analysis: %
Change from First Year (2009)
Income St. 2009 2010 2011E
Sales 0.0% 70.0% 105.0%
COGS 0.0% 73.9% 102.5%
Other exp. 0.0% 111.8% 80.3%
Depr. 0.0% 518.8% 534.9%
EBIT 0.0% -91.7% 140.4%
Int. Exp. 0.0% 181.6% 28.0%
EBT 0.0% -208.2% 188.3%
Taxes 0.0% -208.2% 188.3%
NI 0.0% -208.2% 188.3%
61
62. Analysis of Percent Change
Income Statement
We see that 2011 sales grew 105% from 2009,
and that NI grew 188% from 2009.
So Computron has become more profitable.
62
63. Percentage Change Balance
Sheets: Assets
Assets 2009 2010 2011E
Cash 0.0% -19.1% 55.6%
ST Invest. 0.0% -58.8% 47.4%
AR 0.0% 80.0% 150.0%
Invent. 0.0% 80.0% 140.0%
Total CA 0.0% 73.2% 138.4%
Net FA 0.0% 172.6% 142.7%
TA 0.0% 96.5% 139.4%
63
65. Analysis of Percent Change
Balance Sheets
Total assets grew at rate of 139%, while sales
grew at rate of only 105%. So asset
utilization remains a problem.
65
66. Potential Problems and
Limitations of Ratio Analysis
Comparison with industry averages is difficult
if firm operates many different divisions.
Seasonal factors can distort ratios.
Window dressing techniques can make
statements and ratios look better.
Different accounting and operating practices
can distort comparisons.
66
67. Qualitative Factors
There is greater risk if:
revenues tied to a single customer
revenues tied to a single product
reliance on a single supplier?
High percentage of business is generated overseas?
What is competitive situation?
What products are in pipeline?
What are legal and regulatory issues?
67