- The document evaluates the financial performance of Timberland using various ratios calculated from Timberland's 1997-1998 financial statements, including return on equity (ROE), return on assets (ROA), profit margin, asset turnover, financial leverage, and various control ratios.
- Timberland's 1998 ROE was 22.2%, which was the result of a 6.9% profit margin, 1.8 asset turnover, and 1.8 financial leverage.
- Various ratios are examined to analyze different aspects of Timberland's performance, like its profitability, capital intensity, management of assets and liabilities, and use of financial leverage. The analysis provides insight into Timberland's overall financial
This document provides an introduction to financial management. It discusses that finance uses accounting information together with other information to make decisions that affect a firm's market value. There are three primary decision areas in finance: investment decisions, financing decisions, and dividend decisions. The goal of a firm should be to maximize stock price in order to maximize owners' wealth. Important concepts in finance include focusing on market values rather than book values and cash flows rather than accounting income.
This document outlines what constitutes Financial Analysis to study a company's Balance Sheet, Profit and Loss accounts, Cash Flow Statements. It also provides guidance to do Ratio Analysis.
Get a sample on Financial statement analysis explaining how equity investors have the objectives to know the business future earning capacity, growth potential and security of their holdings. All the investors are very much interested to get higher amount of returns. Therefore, they make risk and return analysis associated with their invested funds. Lenders such as bond investors have the objectives to know the short term as well as long term solvency of the business (Bushman and Smith, 2001).
This document provides an overview of ratio analysis and different types of ratios used to analyze financial statements. It discusses various ratio categories like liquidity, leverage, efficiency, and profitability ratios. It also explains Dupont analysis which breaks down return on equity into profit margin, asset turnover, and financial leverage. Additional topics covered include common size statements, comparative financial statements, trend analysis, advantages and limitations of these analytical tools. Ratios and other techniques allow comparison of performance over time and across companies.
Evaluating a Firm’s Financial Performancesatriachan24
This document discusses evaluating a firm's financial performance through ratio analysis. It provides examples of key financial ratios to analyze a company's liquidity, asset use efficiency, leverage, and profitability. These include current ratio, acid test ratio, average collection period, operating income return on investment, operating profit margin, asset turnover, accounts receivable turnover, inventory turnover, fixed asset turnover, and leverage ratios. The document uses CyberDragon Corporation's financial statements to calculate various ratios and compare them to industry averages to determine areas of strong or weak financial performance.
The document discusses various issues related to acquisition valuation, including considering synergy and control premium. It outlines 5 steps for an acquisition valuation: 1) establish acquisition motive, 2) choose target, 3) value target with motive, 4) decide on payment method, 5) choose accounting method. Synergy can come from cost savings, growth opportunities, or tax/debt benefits. Control premium reflects additional value from improving management.
This document discusses financial statement analysis. It defines financial statement analysis as evaluating financial statements to understand a firm's operations and make decisions. The document outlines various tools for financial statement analysis, including comparative statements, common size statements, trend analysis, ratio analysis, cash flow analysis, and fund flow analysis. It also describes different types of ratios used in analysis, such as liquidity, leverage, profitability, and market test ratios.
This document provides an introduction to financial management. It discusses that finance uses accounting information together with other information to make decisions that affect a firm's market value. There are three primary decision areas in finance: investment decisions, financing decisions, and dividend decisions. The goal of a firm should be to maximize stock price in order to maximize owners' wealth. Important concepts in finance include focusing on market values rather than book values and cash flows rather than accounting income.
This document outlines what constitutes Financial Analysis to study a company's Balance Sheet, Profit and Loss accounts, Cash Flow Statements. It also provides guidance to do Ratio Analysis.
Get a sample on Financial statement analysis explaining how equity investors have the objectives to know the business future earning capacity, growth potential and security of their holdings. All the investors are very much interested to get higher amount of returns. Therefore, they make risk and return analysis associated with their invested funds. Lenders such as bond investors have the objectives to know the short term as well as long term solvency of the business (Bushman and Smith, 2001).
This document provides an overview of ratio analysis and different types of ratios used to analyze financial statements. It discusses various ratio categories like liquidity, leverage, efficiency, and profitability ratios. It also explains Dupont analysis which breaks down return on equity into profit margin, asset turnover, and financial leverage. Additional topics covered include common size statements, comparative financial statements, trend analysis, advantages and limitations of these analytical tools. Ratios and other techniques allow comparison of performance over time and across companies.
Evaluating a Firm’s Financial Performancesatriachan24
This document discusses evaluating a firm's financial performance through ratio analysis. It provides examples of key financial ratios to analyze a company's liquidity, asset use efficiency, leverage, and profitability. These include current ratio, acid test ratio, average collection period, operating income return on investment, operating profit margin, asset turnover, accounts receivable turnover, inventory turnover, fixed asset turnover, and leverage ratios. The document uses CyberDragon Corporation's financial statements to calculate various ratios and compare them to industry averages to determine areas of strong or weak financial performance.
The document discusses various issues related to acquisition valuation, including considering synergy and control premium. It outlines 5 steps for an acquisition valuation: 1) establish acquisition motive, 2) choose target, 3) value target with motive, 4) decide on payment method, 5) choose accounting method. Synergy can come from cost savings, growth opportunities, or tax/debt benefits. Control premium reflects additional value from improving management.
This document discusses financial statement analysis. It defines financial statement analysis as evaluating financial statements to understand a firm's operations and make decisions. The document outlines various tools for financial statement analysis, including comparative statements, common size statements, trend analysis, ratio analysis, cash flow analysis, and fund flow analysis. It also describes different types of ratios used in analysis, such as liquidity, leverage, profitability, and market test ratios.
Financial statement analysis by BIJAY KUMAR SHAWbijaykumarshaw
This document discusses financial statement analysis. It defines financial statements as presenting a periodic view of a company's financial progress and status. Financial statements are used by shareholders, creditors, stock exchanges, bankers, management, investors, and governments. Financial statement analysis studies the relationships between financial factors disclosed in statements and trends over time. It can be done externally by outsiders without company access or internally by management. The objectives are to understand the company, identify strengths and weaknesses, check fund movements, measure efficiency, and assess growth potential for comparison. Limitations include relying on user intentions, ignoring qualitative factors, and only using historical data. Common techniques discussed are comparative statements, common size statements, and trend analysis.
Basic principle of financial statement analysiskhomsasatun
the basic principle of financial statement analysis. purpose's analysis, method of financial statement analysis, and technic of financial statement analysis
This document analyzes the financial statements of Reliance Industries Ltd over 10 years using various ratio analysis techniques. It calculates ratios such as the current ratio, quick ratio, debt-to-total assets ratio, trade receivables to revenue ratio, gross profit margin, and net profit margin to evaluate the company's performance and financial position over time. The analysis finds that the current ratio, quick ratio and profit margins have generally increased from year 1 to year 10, while debt levels have decreased, indicating an improvement in liquidity and profitability.
Measuring, Projecting, and Evaluating New Venture Financial PerformanceTim R. Holcomb, Ph.D.
This document provides an overview of key financial concepts for new venture finance including how to prepare and interpret balance sheets, income statements, cash flow statements, and various financial metrics and ratios. It discusses calculating and analyzing metrics like net cash burn rate, liquidity ratios, conversion periods, leverage ratios, and comparing company performance to industry peers. The document uses an example company to illustrate how to apply these concepts to a real-world case.
Financial statement analysis involves analyzing a company's financial statements to assess its performance and financial position. It is used to evaluate factors like profitability, solvency, liquidity, and efficiency. Key tools for financial statement analysis include financial ratios, common size analysis, trend analysis, and comparisons to industry standards and past performance. The purpose is to provide useful information to decision makers about a company's historical performance, current condition, and future prospects.
This document discusses financial and operating leverage. It defines key terms like capital structure, financial leverage, and operating leverage. It explains how to measure financial leverage using ratios like debt ratio, debt-equity ratio, and interest coverage. It discusses how financial leverage can impact return on equity and earnings per share. The document also distinguishes between operating risk and financial risk and how financial leverage can increase risk for shareholders through increased variability of earnings per share.
5 rules of successful stock investing finnaclePArth457080
The document outlines 5 rules of successful stock investing: 1) have an investing philosophy and stick to it, 2) do thorough research on companies, 3) find economic moats that protect companies from competition, 4) have a margin of safety by buying stocks at a discount, and 5) hold investments for the long term. It also discusses knowing when to sell an investment based on changes in a company's fundamentals.
Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions. These statements include the income statement, balance sheet, statement of cash flows, and a statement of changes in equity.
The document discusses various aspects of receivables management including accounts receivable, credit policies, receivable control methods like DSO, aging schedules, and payment patterns. It covers establishing credit standards and terms, monitoring accounts receivable aging, and analyzing payment patterns to evaluate credit policy effectiveness and forecast working capital needs.
This document discusses decentralization in organizations and responsibility centers. It provides benefits and disadvantages of decentralization. It defines cost centers, profit centers, and investment centers as types of responsibility centers. Managers of these centers have varying levels of control over costs, revenues, and investment funds. The document uses an example company, Superior Foods Corporation, to illustrate how these centers work within an organizational structure. It also discusses concepts like traceable vs common fixed costs, segments, return on investment (ROI), and residual income as alternative performance measures.
This document provides an overview of analyzing financial statements and key ratios. It discusses understanding the business, industry, and economic factors. It then covers various commonly used ratios to analyze a company's profitability, liquidity, solvency, and market performance including return on equity, return on assets, current ratio, quick ratio, and price-to-earnings ratio. Sample calculations are shown for analyzing the financial statements of Home Depot using these different ratios.
This document discusses operating leverage, financial leverage, and combined leverage. It defines operating leverage as the relationship between changes in sales and changes in net operating income due to the presence of fixed costs. Financial leverage magnifies the effect of changes in net operating income on shareholder returns due to the use of fixed-cost capital. Combined leverage is the product of operating leverage and financial leverage, further magnifying the effects of sales changes. The document provides examples and conditions for each type of leverage to operate, as well as their significance and limitations.
Ratio analysis measures relationships between financial variables to show how a firm's situation compares to its past, other firms, and the industry. Ratios are used to identify performance, standardize information, provide early warnings, and enable trend spotting. Key types of ratios include liquidity, activity, debt, and profitability. Liquidity ratios measure a firm's ability to pay obligations and include current, quick, and cash ratios. Activity ratios evaluate efficiency through measures like inventory turnover, accounts receivable period, and asset turnover.
A beginners’ Guide for Financial Statements.
What are the financial statements?
Why financial statements are important?
Types of financial statements? And what is the basic purpose of each financial statement?
Financial Statements are the financial documents providing significant information about the financial activities of the business entity.
This document provides an overview of an accounting training workshop. It includes:
1) Objectives of helping participants understand key financial concepts and statements and make better business decisions.
2) An outline of course contents covering accounting principles, financial statement analysis, and key metrics.
3) Examples of accounting concepts discussed like the accounting equation, revenue and expense recognition, and the purpose of financial statements.
Mba 2 fm u 4 operating and financial leverage,management of working capitalRai University
This document discusses financial and operating leverage. It defines financial leverage as using debt and preference shares in addition to equity in a company's capital structure. This allows earnings from fixed-cost funds like debt to be leveraged to increase returns to shareholders if the cost of debt is lower than returns on assets. However, it also increases risk. The document also defines operating leverage as how much a company's operating profits (EBIT) change with sales. It discusses how financial and operating leverage combine to impact earnings per share and risk.
This document provides an overview of key concepts in corporate finance including financial statements, ratios, and international consolidation. It discusses the stockholders' report, income statement, balance sheet, statement of retained earnings, and statement of cash flows. It also covers using financial ratios to analyze liquidity, activity, financial leverage, and profitability. Specific ratios like current ratio, quick ratio, and return on equity are defined. The document concludes with an explanation of the DuPont system for a complete ratio analysis.
Timberland experienced its first major financial loss in 1995 when it closed two U.S. manufacturing plants and laid off 540 employees. This damaged relationships with employees and shareholders. To rebuild trust, Timberland pledged $5 million to City Year and increased community service efforts. However, Timberland failed to clearly communicate the importance of these initiatives to key stakeholders. It implemented strategies like media campaigns and internal communications but did not thoroughly explain how community involvement would benefit the company's future. Timberland needed to transparently convey the value of service to rebuild relationships with employees, shareholders and the public.
This document discusses lullabies and their purpose. Lullabies are soothing songs sung to help put children to sleep. They are often simple and repetitive with alternating tonic and dominant harmonies. Traditionally, lullabies have religious themes about angels, mythical sleep entities, or scary figures. Examples of common lullabies are provided like "All the Pretty Little Horses" and "Brahm's Lullaby." Different types like ragtime lullabies are also described. Sources on lullabies are listed at the end.
This document appears to be a transcript of title cards from the beginning of a film. It lists the production companies, film title, main actors and roles, and production crew in descending order of importance, ending with the director. Minor details are omitted due to the brevity of the information provided.
Financial statement analysis by BIJAY KUMAR SHAWbijaykumarshaw
This document discusses financial statement analysis. It defines financial statements as presenting a periodic view of a company's financial progress and status. Financial statements are used by shareholders, creditors, stock exchanges, bankers, management, investors, and governments. Financial statement analysis studies the relationships between financial factors disclosed in statements and trends over time. It can be done externally by outsiders without company access or internally by management. The objectives are to understand the company, identify strengths and weaknesses, check fund movements, measure efficiency, and assess growth potential for comparison. Limitations include relying on user intentions, ignoring qualitative factors, and only using historical data. Common techniques discussed are comparative statements, common size statements, and trend analysis.
Basic principle of financial statement analysiskhomsasatun
the basic principle of financial statement analysis. purpose's analysis, method of financial statement analysis, and technic of financial statement analysis
This document analyzes the financial statements of Reliance Industries Ltd over 10 years using various ratio analysis techniques. It calculates ratios such as the current ratio, quick ratio, debt-to-total assets ratio, trade receivables to revenue ratio, gross profit margin, and net profit margin to evaluate the company's performance and financial position over time. The analysis finds that the current ratio, quick ratio and profit margins have generally increased from year 1 to year 10, while debt levels have decreased, indicating an improvement in liquidity and profitability.
Measuring, Projecting, and Evaluating New Venture Financial PerformanceTim R. Holcomb, Ph.D.
This document provides an overview of key financial concepts for new venture finance including how to prepare and interpret balance sheets, income statements, cash flow statements, and various financial metrics and ratios. It discusses calculating and analyzing metrics like net cash burn rate, liquidity ratios, conversion periods, leverage ratios, and comparing company performance to industry peers. The document uses an example company to illustrate how to apply these concepts to a real-world case.
Financial statement analysis involves analyzing a company's financial statements to assess its performance and financial position. It is used to evaluate factors like profitability, solvency, liquidity, and efficiency. Key tools for financial statement analysis include financial ratios, common size analysis, trend analysis, and comparisons to industry standards and past performance. The purpose is to provide useful information to decision makers about a company's historical performance, current condition, and future prospects.
This document discusses financial and operating leverage. It defines key terms like capital structure, financial leverage, and operating leverage. It explains how to measure financial leverage using ratios like debt ratio, debt-equity ratio, and interest coverage. It discusses how financial leverage can impact return on equity and earnings per share. The document also distinguishes between operating risk and financial risk and how financial leverage can increase risk for shareholders through increased variability of earnings per share.
5 rules of successful stock investing finnaclePArth457080
The document outlines 5 rules of successful stock investing: 1) have an investing philosophy and stick to it, 2) do thorough research on companies, 3) find economic moats that protect companies from competition, 4) have a margin of safety by buying stocks at a discount, and 5) hold investments for the long term. It also discusses knowing when to sell an investment based on changes in a company's fundamentals.
Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions. These statements include the income statement, balance sheet, statement of cash flows, and a statement of changes in equity.
The document discusses various aspects of receivables management including accounts receivable, credit policies, receivable control methods like DSO, aging schedules, and payment patterns. It covers establishing credit standards and terms, monitoring accounts receivable aging, and analyzing payment patterns to evaluate credit policy effectiveness and forecast working capital needs.
This document discusses decentralization in organizations and responsibility centers. It provides benefits and disadvantages of decentralization. It defines cost centers, profit centers, and investment centers as types of responsibility centers. Managers of these centers have varying levels of control over costs, revenues, and investment funds. The document uses an example company, Superior Foods Corporation, to illustrate how these centers work within an organizational structure. It also discusses concepts like traceable vs common fixed costs, segments, return on investment (ROI), and residual income as alternative performance measures.
This document provides an overview of analyzing financial statements and key ratios. It discusses understanding the business, industry, and economic factors. It then covers various commonly used ratios to analyze a company's profitability, liquidity, solvency, and market performance including return on equity, return on assets, current ratio, quick ratio, and price-to-earnings ratio. Sample calculations are shown for analyzing the financial statements of Home Depot using these different ratios.
This document discusses operating leverage, financial leverage, and combined leverage. It defines operating leverage as the relationship between changes in sales and changes in net operating income due to the presence of fixed costs. Financial leverage magnifies the effect of changes in net operating income on shareholder returns due to the use of fixed-cost capital. Combined leverage is the product of operating leverage and financial leverage, further magnifying the effects of sales changes. The document provides examples and conditions for each type of leverage to operate, as well as their significance and limitations.
Ratio analysis measures relationships between financial variables to show how a firm's situation compares to its past, other firms, and the industry. Ratios are used to identify performance, standardize information, provide early warnings, and enable trend spotting. Key types of ratios include liquidity, activity, debt, and profitability. Liquidity ratios measure a firm's ability to pay obligations and include current, quick, and cash ratios. Activity ratios evaluate efficiency through measures like inventory turnover, accounts receivable period, and asset turnover.
A beginners’ Guide for Financial Statements.
What are the financial statements?
Why financial statements are important?
Types of financial statements? And what is the basic purpose of each financial statement?
Financial Statements are the financial documents providing significant information about the financial activities of the business entity.
This document provides an overview of an accounting training workshop. It includes:
1) Objectives of helping participants understand key financial concepts and statements and make better business decisions.
2) An outline of course contents covering accounting principles, financial statement analysis, and key metrics.
3) Examples of accounting concepts discussed like the accounting equation, revenue and expense recognition, and the purpose of financial statements.
Mba 2 fm u 4 operating and financial leverage,management of working capitalRai University
This document discusses financial and operating leverage. It defines financial leverage as using debt and preference shares in addition to equity in a company's capital structure. This allows earnings from fixed-cost funds like debt to be leveraged to increase returns to shareholders if the cost of debt is lower than returns on assets. However, it also increases risk. The document also defines operating leverage as how much a company's operating profits (EBIT) change with sales. It discusses how financial and operating leverage combine to impact earnings per share and risk.
This document provides an overview of key concepts in corporate finance including financial statements, ratios, and international consolidation. It discusses the stockholders' report, income statement, balance sheet, statement of retained earnings, and statement of cash flows. It also covers using financial ratios to analyze liquidity, activity, financial leverage, and profitability. Specific ratios like current ratio, quick ratio, and return on equity are defined. The document concludes with an explanation of the DuPont system for a complete ratio analysis.
Timberland experienced its first major financial loss in 1995 when it closed two U.S. manufacturing plants and laid off 540 employees. This damaged relationships with employees and shareholders. To rebuild trust, Timberland pledged $5 million to City Year and increased community service efforts. However, Timberland failed to clearly communicate the importance of these initiatives to key stakeholders. It implemented strategies like media campaigns and internal communications but did not thoroughly explain how community involvement would benefit the company's future. Timberland needed to transparently convey the value of service to rebuild relationships with employees, shareholders and the public.
This document discusses lullabies and their purpose. Lullabies are soothing songs sung to help put children to sleep. They are often simple and repetitive with alternating tonic and dominant harmonies. Traditionally, lullabies have religious themes about angels, mythical sleep entities, or scary figures. Examples of common lullabies are provided like "All the Pretty Little Horses" and "Brahm's Lullaby." Different types like ragtime lullabies are also described. Sources on lullabies are listed at the end.
This document appears to be a transcript of title cards from the beginning of a film. It lists the production companies, film title, main actors and roles, and production crew in descending order of importance, ending with the director. Minor details are omitted due to the brevity of the information provided.
Szenaris has developed a remote controlled vehicle simulation system for training explosive ordnance disposal teams. The system allows training on a variety of scenarios using original control devices for vehicles like the PackBot, tEODor and Telemax in a cost-effective virtual environment. It includes 13 scenarios like airport baggage claims and vehicle checks that involve identifying and accessing suspicious objects. The trainer can customize object locations, weather conditions, and record/replay training sessions. The simulation aims to provide realistic training while avoiding risks of using equipment in the field.
The document appears to be a list of time-coded titles from a film or video production. However, as the document only lists timecodes and no accompanying text, it is impossible to determine the high-level or essential information contained within.
Die szenaris-Broschüre vermittelt einen detaillierten Überblick über die Aktivitäten der szenaris GmbH: das Erstellen und Betreuen von Lernprogrammen und Simulationen für das Lernen am Computer.
The szenaris brochure gives detailed information about szenaris and its activities: e-Learning and simulation for learning at the computer.
Software engineering uploaded by dlkanthLakshmi Kanth
This document discusses the benefits of meditation for reducing stress and anxiety. It states that regular meditation practice can calm the nervous system and regulate stress levels. Meditation allows the body to enter a deep state of relaxation while also providing mental clarity and focus. Overall, meditating daily can improve mood and make people feel happier and healthier over time.
This document discusses the development of a new type of lightweight material called Aerographite. It has a porous, web-like structure that allows it to be extremely light yet very durable. The material was developed by a team of scientists led by Dr. James Tour at Rice University. Aerographite has potential applications in electric vehicles, aircraft, 3D printing materials, and more due to its unique combination of properties. Further testing will be required to verify its capabilities.
This document appears to be a transcript of title cards from the beginning of a film. It lists the production companies, film title, main actors and roles, and production crew in descending order of importance, ending with the director. Minor details are omitted due to the brevity of the information provided.
The document provides an overview, synopsis, and technical details for a short horror film titled "Killing after Death". The film tells the story of a group of college students who go to an abandoned warehouse on Halloween where a young girl was brutally murdered 20 years ago. As one by one the students are killed, it is revealed that the ghost of the murdered girl is seeking revenge on the descendants of those responsible for her death.
The document provides an overview, synopsis, and technical details for a short horror film titled "Killing after Death". The film tells the story of a group of college students who go to an abandoned warehouse on Halloween where a young girl was brutally murdered 20 years ago. As one by one the students are killed, it is revealed that the ghost of the murdered girl is seeking revenge on the descendants of those responsible for her death.
Affinity Works is seeking a Projects Lead to oversee its expanding portfolio of projects for UK local governments and social care clients. The role involves coordinating project activities and resources, monitoring costs and timelines, and resolving issues. Ideal candidates have experience managing technology or local government projects, preferably in social care, as well as skills in areas like Microsoft Office, Project management tools, communication, and multi-tasking.
Cloudinary is a cloud service that provides smart image manipulation and management. It acts as storage, backup, a content delivery network, and image transformer. Cloudinary is useful because image management is difficult without many options, and it provides flexibility and speeds up websites. Developers should integrate Cloudinary as early as possible to move all image assets to the cloud service. It has a simple URL structure and works with common frameworks like Carrierwave. Cloudinary offers private images, sprite generation, face detection, metadata support, and image optimizations for mobile. Developers get one account to use across multiple sites.
Spot IR Thermometer vs Thermal Imaging Cameras Webinarbonnies1
The document compares spot thermometers and thermal imaging cameras for non-contact temperature measurement. It notes that thermal cameras provide images with temperature data from multiple points, allowing for faster, more accurate measurements across an area compared to single-point spot thermometers. Thermal cameras can also document temperature variations and anomalies through infrared images. The presentation promotes replacing spot thermometers with thermal cameras for improved speed, accuracy, and documentation of temperature measurements.
FlipKart Training Design Document.v2.public.081914John M. Hall
This document provides a design overview for an induction training program to prepare Indian youth for employment in e-commerce. The 5.5 day course will cover topics like retail vs e-commerce models, careers, supply chain management, warehouse operations, delivery processes, and customer service. Training will include lectures, activities, site visits and role plays. The goal is to give participants marketable skills for sustainable jobs. Instructors will also receive training to ensure consistent delivery of the program across India.
Timberland experienced its first major financial loss in 1995 when it closed two U.S. manufacturing plants and laid off 540 employees. This case study examines Timberland's communication strategies around its $5 million pledge to City Year amid the layoffs. Timberland struggled to communicate the importance of community involvement to its key publics - employees, shareholders, and City Year. The company did not provide enough information to these groups about how community service would benefit Timberland's future. The document recommends Timberland implement media campaigns and increase internal communications to transparently explain the value of community involvement to each stakeholder.
Slope Stability Evaluation for the New Railway Embankment using Stochastic & ...Dr.Costas Sachpazis
Evaluation of Slope stability is one of the day-to-day practices of geotechnical engineers. Nowadays, different methods are available to evaluate the stability of a particular slope. Despite the advances that have been made in site exploration, evaluating the stability of slopes remains a challenge. Recently, Ethiopia has been trying to construct a newly planned railway routes to connect the country’s development centers and link with ports of neighboring countries. However, this newly planned railway routes will pass in the heart of highly fragile mountainous terrains and earthquake prone regions. Therefore, the prime objective of this paper is to investigate the stability of the railway embankment by using three different stochastic approaches (First Order Reliability Method, Point Estimate Method and Monte Carlo Simulation) with commercially available finite element programs. Moreover, the seismic response of the railway embankment was studied by using a nonlinear analysis (FLAC2D v 7.0) program. The first order reliability method (FORM), Monte Carlo Simulation (MCS) and Point-estimate method (PEM) gave 3.2%, 4.14% and 1.5% of probability of failure respectively. In the mean time, there was no any indication of liquefaction observed due to stiff foundation clay soils and deep groundwater table.
The presentation describes the portfolio and references of szenaris, developer of custom made training and simulation solutions for learning at the computer.
The document discusses high impact leadership and provides advice from leadership expert Rob Parker. It summarizes that leadership is important at all levels of an organization, not just at the top, and that great leaders are made, not born. It identifies five key skills of great leaders: being a strong communicator, coach, catalyst for change, active listener, and relationship builder. The document emphasizes that great leaders invest in developing others and choose their inner circle carefully to support their success.
The document analyzes the financial performance of Timberland Company from 1997-1998 using their financial statements. It discusses key ratios like return on equity (ROE), return on assets (ROA), profit margin, asset turnover, and financial leverage. Timberland's 1998 ROE was 22.2% due to a 6.9% profit margin, 1.8 times asset turnover, and 1.8 times financial leverage. Various control ratios like inventory turnover and collection period are also examined. The limitations of ratio analysis are discussed.
Financial statement analysis involves calculating ratios to evaluate a company's profitability, liquidity, asset use, financial stability, and market performance over time. It is more than just analyzing numbers - it requires understanding a company's industry, strategy, annual reports, economic conditions and more. For the Quorum Group, the investor should calculate relevant ratios such as profit margins, asset turnover, debt-to-equity, and compare trends over time to evaluate the company's financial performance and position for investment purposes.
The document discusses various techniques for analyzing financial statements, including horizontal analysis, vertical analysis, and ratio analysis. It provides examples of applying these techniques to sample financial statement data. Specific topics covered include liquidity ratios, profitability ratios, solvency ratios, earnings power, irregular items, discontinued operations, extraordinary items, and quality of earnings. Objectives are to understand how to perform financial statement analysis and calculate common financial ratios.
The document discusses various approaches to measuring organizational performance, including firm survival, accounting measures, market-based measures, and economic value added (EVA). It provides definitions and formulas for key performance metrics like return on assets, market value added, EVA, and market-based measures. Both the strengths and weaknesses of different performance measurement approaches are outlined.
Ratios and formulas in customer financial analysisNajib Baig
The document provides an overview of various financial ratios used in analyzing customer financial statements. It discusses liquidity ratios, profitability ratios, leverage ratios, and efficiency ratios. For each type of ratio, it provides the calculation formulas and explains what each ratio measures. The ratios can be used to evaluate aspects of a company's operations, such as its ability to meet current obligations, generate profits, utilize debt, and manage assets and expenses.
This document provides an overview of financial statement analysis and various methods used for analysis. It discusses the key users and purposes of analysis, as well as common analysis techniques like horizontal analysis, vertical analysis, trend analysis, and ratio analysis. It then provides an example of calculating ratios for a company called Norton Corporation using information from their financial statements.
This document discusses the concepts of leverage in financial management, including:
- Operating leverage refers to using fixed operating costs to magnify changes in profits relative to sales changes. It establishes the relationship between EBIT and sales.
- Financial leverage refers to using fixed financial charges to magnify the effect of EBIT changes on earnings per share. It establishes the relationship between EBIT and EPS.
- Combined leverage is the product of operating leverage and financial leverage, representing the relationship between contribution and taxable income. It measures the percentage change in EPS resulting from a percentage change in sales.
- Examples are provided to illustrate how to calculate operating, financial, and combined leverage based on information about a company's sales, costs,
This document provides an overview of financial statement analysis techniques including horizontal analysis, vertical analysis, common-size statements, trend percentages, and ratio analysis. It discusses various liquidity, profitability, and market ratios and provides an example of calculating ratios for Norton Corporation using information from their financial statements. Key ratios discussed include the current ratio, acid-test ratio, accounts receivable turnover, inventory turnover, equity ratio, return on sales, and return on equity.
Chapter 05(a) financial analysis-ratio and other analysisAl Sabbir
The document discusses various methods for analyzing the financial performance of a company through its financial statements, including ratio analysis, common size analysis, trend analysis, DuPont analysis, and other types of analyses. It provides examples of different types of ratios that can be used, such as liquidity ratios, activity ratios, leverage ratios, and profitability ratios. It also discusses how to interpret ratios and cautions that ratios must be compared to benchmarks and should account for differences in accounting methods.
Abc co case study 20150320 (Corporate Finance)Andy Woojin Kim
This document is a case study analysis of ABC Co., an American company. It provides financial statements and ratios for the company in the draft year N and actual year N-1. Key figures are presented in a table comparing revenue, margins, earnings, assets, liabilities, and profitability ratios between the two years. The analysis found declines in revenue, gross profit margin, earnings, and profitability from year N-1 to year N. Inventories, receivables, payables, and working capital all increased in year N compared to N-1.
This document discusses corporate and functional objectives and strategies. It explains that corporate objectives guide the goals of the whole organization, while functional objectives guide each business area based on corporate objectives. Several financial objectives are then outlined, including cash flow targets and cost minimization. Common financial statements like the balance sheet and income statement are explained. Ratio analysis is introduced as a way to measure business performance through ratios like profitability, liquidity, efficiency, gearing, and shareholder returns. The document concludes with a discussion of investment appraisal techniques like payback period, average rate of return, and net present value.
Financial statement analysis involves analyzing financial documents like income statements, balance sheets, and cash flow statements to evaluate a business's performance and financial position over time and in comparison to industry averages. It provides information on profitability, liquidity, asset management, financial structure, and market value. For Walker Ltd, an investor is considering shares, so the summary evaluates the company's performance, position, and recommends purchasing shares based on acceptable ratios, strong industry prospects, sales growth, cash flows, and favorable return on equity compared to industry averages.
The document provides an overview of analyzing financial statements by examining key financial ratios that act as "vital signs" of an organization. It discusses analyzing short-term liquidity ratios like current ratio and receivables turnover. It also covers profitability ratios, asset turnover, long-term leverage ratios, and Dupont analysis - which breaks down return on equity into its components to guide business strategy. Benchmarks are needed to compare ratios to competitors and industry standards.
This document discusses financial ratio analysis and the types of ratios used to analyze how well a business is performing. It covers liquidity ratios like the current and quick ratios that measure a company's ability to meet current liabilities, profitability ratios like gross profit margin and net profit margin that measure profit levels, and efficiency ratios like debtor and inventory turnover that measure how efficiently a company utilizes its assets. The document provides examples of key financial ratios and what they indicate about a business's financial health. Analyzing ratios over time and against industry standards helps evaluate a company's performance.
The document analyzes the financial statements of a pharmaceutical company from 2007-2009. It finds that while liquidity improved over the period, solvency and profitability ratios declined. Specifically, debt levels increased, interest coverage fell, and returns on assets and equity deteriorated. Additionally, inventory management and credit risk became less efficient. Overall, the analysis concludes the company's financial position was weaker in 2009 compared to previous years.
This document discusses various financial ratios used to analyze customers' financial statements. It provides definitions and formulas for liquidity ratios like current ratio and quick ratio, profitability ratios like net profit margin and return on assets, financial leverage ratios like debt to equity, and efficiency ratios like inventory turnover. These ratios are used to evaluate different aspects of a company's financial health and operations, such as liquidity, profitability, debt usage, and working capital management.
The document analyzes the financial performance of a company from 2007-2009 using various ratios. It finds that while liquidity improved, solvency and profitability declined over this period. Specifically, debt levels increased, credit and inventory management worsened, and returns on assets and equity decreased. Overall, the analysis concludes the company's financial state was better in 2007 than 2009.
Fin 571 week 2 connect problems assignmentstudent ehelp
Sankey, Inc. has current assets of $5,000, net fixed assets of $23,000, current liabilities of $3,500 and long-term debt of $7,900. Shareholders' equity is $16,500 and net working capital is $1,500. Inventory is classified as a current asset on the balance sheet. It is easier to evaluate a firm when it uses the same accounting procedures as other firms in its industry. The operating cash flow results from a firm's ongoing, normal business activities. Depreciation is a non-cash item.
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FIN 370 Week 1 Apply: Finance and Financial Statement Analysis Homework Review the Week 1 “Practice: Finance and Financial Statement Analysis Quiz” in Connect®.
This document provides an overview of analyzing financial statements and key ratios. It discusses understanding the business, industry, and economic factors. It then covers various commonly used ratios to analyze a company's profitability, liquidity, solvency, and market performance including return on equity, return on assets, current ratio, quick ratio, inventory turnover, and price-to-earnings ratio. Sample calculations are shown for analyzing the 2009 financial statements of Home Depot using these different ratios.
1. Evaluating Financial PerformanceEvaluating Financial Performance
FinanceFinance
Jaime F. ZenderJaime F. Zender
Note: Because I have found no better presentation of this material, this closely
follows the discussion in the Higgins book.
2. Financial PerformanceFinancial Performance
• One of the most fundamental facts aboutOne of the most fundamental facts about
businesses is that the operating performance ofbusinesses is that the operating performance of
the firm shapes its financial structure.the firm shapes its financial structure.
• It is also true that the financial situation of theIt is also true that the financial situation of the
firm can also determine its operatingfirm can also determine its operating
performance.performance.
• The financial statements are therefore importantThe financial statements are therefore important
diagnostic tools for the informed manager.diagnostic tools for the informed manager.
– To keep the discussion grounded, we will use theTo keep the discussion grounded, we will use the
1997-98 financial statement for the Timberland1997-98 financial statement for the Timberland
Company as illustrations.Company as illustrations.
3. The Timberland Company, Balance Sheets ($ millions)
12/31/1997 12/31/1998 Change
Assets
Cash and marketable securities 98.8 151.9 53.1
Accounts receivable 75.8 79.0 3.2
Inventories 142.6 131.2 (11.4)
Prepaid expenses and other current assets 24.9 25.4 0.5
Total current assets 342.1 387.5
Property, plant, and equipment 116.5 131.2 14.7
Less accumulated depreciation and amortization (63.6) (74.3) (10.7)
Net property, plant, and equipment 52.9 56.9 4.0
Intangible assets 20.9 19.2 (1.7)
Other assets 4.2 5.8 1.6
Total assets $420.1 $469.4
Liabilities and Shareholders' Equity
Accounts Payable 20.4 25.9 5.5
Wages payable 28.2 22.1 (6.1)
Income taxes payable 17.7 18.2 0.5
Other accrued expenses 32.8 29.5 (3.3)
Total current liabilities 99.1 95.7
Long-term debt 100.0 100.0 --
Deferred income taxes 6.0 7.5 1.5
Total liabilities 205.1 203.2
Common stock 0.1 0.1
Additional paid-in capital 68.6 74.7
Retained earnings 146.3 207.7
Less treasury stock (0.1) (16.3)
Total shareholders' equity 214.9 266.2 51.3
Total liabilities and shareholders' equity $420.1 469.4
4. The Timberland Company, Income Statements ($ millions)
12/31/1997 12/31/1998
Net sales 796.5 862.2
Cost of sales 464.2 501.1
Gross profit 332.3 361.1
Selling expenses 174.7 195.7
General and administrative expenses 51.7 50.9
Depreciation and amortization 20.3 18.2
Amortization of goodwill 1.7 1.7
Total operating expenses 248.4 266.5
Operating income 83.9 94.6
Interest expense 14.8 9.5
Other expense (income) 1.4 (1.9)
Total nonoperating expenses 16.2 7.6
Income before income taxes 67.7 87.0
Provision for income taxes 20.3 27.8
Net income $47.4 $59.2
5. The Timberland Company, Statement of Cash Flow, 1998 ($ millions)
Cash Flows from Operating Activities
Net income 59.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 18.2
Loss on disposal of property, plant, and equipment 1.3
Changes in current assets and liabilities
Increase in accounts receivable -2.8
Decrease in inventories 11.6
Decrease in prepaid expenses 1.1
Increase in accounts payable 5.1
Increase in accrued expenses -10
Increase in accrued income taxes 0.5
Net cash provided by operating activities 84.2
Cash Flows from Investing Activities
Proceeds from sale of property, plant, and equipment 0.1
Additions to property, plant, and equipment -20.7
Other -1.2
Net cash provided by investing activities -21.8
Cash Flows from Financing Activities
Common stock repurchases -16.2
Issuance of common stock, including tax benefit 6.1
Net cash provided by financing activities -10.1
Effect of exchange rate changes on cash 0.9
Net increase in cash 53.2
Cash at beginning of year 98.8
Cash at end of year $152.0
6. Return On EquityReturn On Equity
• The most popular measure of financialThe most popular measure of financial
performance (for many audiences) is ROE.performance (for many audiences) is ROE.
• ROE measures accounting earnings for a periodROE measures accounting earnings for a period
per dollar of shareholders’ equity invested.per dollar of shareholders’ equity invested.
• For Timberland 1998 ROE was:For Timberland 1998 ROE was:
EquityrsShareholde
IncomeNet
ROE
'
=
%2.22
2.266$
2.59$
==ROE
7. Dissecting ROEDissecting ROE
• ROE is so popular because it is, in a sense, aROE is so popular because it is, in a sense, a
summary of the information on the incomesummary of the information on the income
statement and both sides of the balance sheet.statement and both sides of the balance sheet.
It provides an “accounting” measure of theIt provides an “accounting” measure of the
“returns” to shareholders’ investment.“returns” to shareholders’ investment.
• The three determinants of ROE:The three determinants of ROE:
– Profit Margin = Net Income/SalesProfit Margin = Net Income/Sales
– Asset Turnover = Sales/AssetsAsset Turnover = Sales/Assets
– Financial Leverage = Assets/Shareholders’ equityFinancial Leverage = Assets/Shareholders’ equity
• ROE comes from the joint inputs of these threeROE comes from the joint inputs of these three
pieces. 22.2% = 6.9% × 1.8 × 1.8pieces. 22.2% = 6.9% × 1.8 × 1.8
8. Return on Assets (ROA)Return on Assets (ROA)
• When we multiply the profit margin times theWhen we multiply the profit margin times the
asset turnover we arrive at return on assets.asset turnover we arrive at return on assets.
• ROA doesn’t distinguish between capital raisedROA doesn’t distinguish between capital raised
from shareholders and that raised from creditors.from shareholders and that raised from creditors.
(ROE considers only equity capital.)(ROE considers only equity capital.)
• As such ROA measures the “return” on eachAs such ROA measures the “return” on each
dollar invested in assets.dollar invested in assets.
%6.12
4.469$
2.59$
Assets
incomeNet
AssetsonReturn ===
9. ROEs and "Levers" of Performance for 10 Diverse Companies, 1998
Return on
Equity
(%) =
Profit
Margin
(%) ×
Asset
Turnover
(times) ×
Financial
Leverage
(times)
BankAmerica Corp 14.6 10.8 0.1 13.5
Carolina Power and Light 14.3 12.8 0.4 2.8
Exxon Corporation 14.6 6.3 1.1 2.1
Food Lion, Inc. 17 2.7 2.8 2.3
Harley-Davidson, Inc. 20.7 9.9 1.1 1.9
Intel Corporation 24 23.1 0.8 1.3
Nike, Inc. 12.9 4.2 1.8 1.7
Southwest Airlines Co. 18.1 10.4 0.9 2
Tiffany & Company 16.9 7.7 1.1 2
The Timberland Company 22.2 6.9 1.8 1.8
10. ROE Across CompaniesROE Across Companies
• Generally speaking ROE is reasonably similarGenerally speaking ROE is reasonably similar
across companies. Why?across companies. Why?
• One would like to have a company with a highOne would like to have a company with a high
profit margin and a high asset turnover.profit margin and a high asset turnover.
Typically one of these will be relatively high andTypically one of these will be relatively high and
one relatively low. Why?one relatively low. Why?
• What determines the firm’s choice of financialWhat determines the firm’s choice of financial
leverage?leverage?
• Now let’s look at each component in isolation.Now let’s look at each component in isolation.
11. Profit MarginProfit Margin
• This ratio measures the fraction of each dollar ofThis ratio measures the fraction of each dollar of
sales that makes it through to net income.sales that makes it through to net income.
– It is of primary importance to an operating officer as itIt is of primary importance to an operating officer as it
reflects the company’s pricing strategy and its abilityreflects the company’s pricing strategy and its ability
to control costs.to control costs.
– Timberland’s profit margin = Net Income/Sales =Timberland’s profit margin = Net Income/Sales =
$59.2/862.2 = 6.9%$59.2/862.2 = 6.9%
• The “gross margin” measures profitabilityThe “gross margin” measures profitability
relative to variable costs = Gross Profits/Salesrelative to variable costs = Gross Profits/Sales
– Gross profit is sales less cost of goods sold.Gross profit is sales less cost of goods sold.
Timberland’s gross margin is = $361.1/$862.2 =Timberland’s gross margin is = $361.1/$862.2 =
41.9% indicating that about 42% of each dollar in41.9% indicating that about 42% of each dollar in
sales is available to cover fixed costs and profits.sales is available to cover fixed costs and profits.
12. Asset TurnoverAsset Turnover
• This ratio measures the sales generated per dollar ofThis ratio measures the sales generated per dollar of
assets employed.assets employed.
– Measures capital intensity with a low asset turnover indicating aMeasures capital intensity with a low asset turnover indicating a
capital intensive business.capital intensive business.
– Nice illustration that more assets is not always better.Nice illustration that more assets is not always better.
– Control of a company’s assets is critical and control of currentControl of a company’s assets is critical and control of current
assets is especially critical to success.assets is especially critical to success.
– Asset turnover = sales/assets = $862.2/$469.4 = 1.8 timesAsset turnover = sales/assets = $862.2/$469.4 = 1.8 times
• Analyzing the turnover of each type of asset on aAnalyzing the turnover of each type of asset on a
company’s balance sheet gives rise to what are knowncompany’s balance sheet gives rise to what are known
as control ratios.as control ratios.
13. Control Ratios – Fixed-Asset TurnoverControl Ratios – Fixed-Asset Turnover
• Fixed-Asset Turnover is perhaps a “purer”Fixed-Asset Turnover is perhaps a “purer”
reflection of the capital intensity of a firm.reflection of the capital intensity of a firm.
• Fixed-Asset Turnover = Sales/Net PP&EFixed-Asset Turnover = Sales/Net PP&E
= $862.2/$56.9 = 15.2 times= $862.2/$56.9 = 15.2 times
• Timberland generates $15.20 in sales for eachTimberland generates $15.20 in sales for each
dollar of plant, property, and equipment theydollar of plant, property, and equipment they
invest in.invest in.
14. Control Ratios – Inventory TurnoverControl Ratios – Inventory Turnover
• Inventory turnover = COGS/Ending Inventory =Inventory turnover = COGS/Ending Inventory =
$501.1/$131.2 = 3.8 times$501.1/$131.2 = 3.8 times
– One might also use average inventory rather thanOne might also use average inventory rather than
ending inventory.ending inventory.
• This indicates that items in Timberland’sThis indicates that items in Timberland’s
inventory turn over 3.8 times per year oninventory turn over 3.8 times per year on
average.average.
• Alternatively, 12 months/3.8 times=3.15 monthsAlternatively, 12 months/3.8 times=3.15 months
indicating that the typical item sits in inventoryindicating that the typical item sits in inventory
for just over 3 months.for just over 3 months.
15. Control Ratios – Collection PeriodControl Ratios – Collection Period
• Collection period highlights a company’sCollection period highlights a company’s
management of its accounts receivable.management of its accounts receivable.
• Note that what is desired here is credit sales.Note that what is desired here is credit sales.
Outsiders rarely know this so commonly all salesOutsiders rarely know this so commonly all sales
are assumed to be for credit.are assumed to be for credit.
• Timberland’s customers are taking just over aTimberland’s customers are taking just over a
month to pay their bills. Good or bad?month to pay their bills. Good or bad?
days4.33
days365/2.862$
0.79$
daypersalesCredit
ReceivableAccounts
===PeriodCollection
16. Control Ratios – Days’ Sales in CashControl Ratios – Days’ Sales in Cash
• Timberland currently has 64.3 days’ worth ofTimberland currently has 64.3 days’ worth of
sales in cash and securities.sales in cash and securities.
• Too much or too little?Too much or too little?
• Question really is how much liquidity does theQuestion really is how much liquidity does the
firm require for efficient operations. While morefirm require for efficient operations. While more
might always seem better, think about the returnmight always seem better, think about the return
the asset “cash” generates for you.the asset “cash” generates for you.
days3.64
days365/2.862$
9.151$
dayperSales
securitiesandCash
' ===CashinSalesDays
17. Control Ratios – PayablesControl Ratios – Payables
PeriodPeriod
• This is a control ratio for a liability.This is a control ratio for a liability.
• The proper calculation uses credit purchases which,The proper calculation uses credit purchases which,
again, an outsider rarely knows. Usually COGS is usedagain, an outsider rarely knows. Usually COGS is used
as a substitute. COGS differs from credit sales because:as a substitute. COGS differs from credit sales because:
– Firm may be adding or depleting inventory; purchasing at aFirm may be adding or depleting inventory; purchasing at a
different rate than it is selling.different rate than it is selling.
– COGS includes a mark-up for depreciation and labor makingCOGS includes a mark-up for depreciation and labor making
COGS larger than credit purchases so this ratio is, on average,COGS larger than credit purchases so this ratio is, on average,
artificially small.artificially small.
– Thus it is difficult to compare the 18.9 days to its credit terms. ItThus it is difficult to compare the 18.9 days to its credit terms. It
is, however, reasonable to compare this to last year’s ratio.is, however, reasonable to compare this to last year’s ratio.
days9.18
days365/1.501$
9.25$
dayperpurchasesCredit
payableAccounts
===PeriodPayables
18. Financial LeverageFinancial Leverage
• Timberland has $1.80 in assets for every dollarTimberland has $1.80 in assets for every dollar
that shareholders have invested.that shareholders have invested.
• This is a relatively modest amount of leverageThis is a relatively modest amount of leverage
for a manufacturing company.for a manufacturing company.
• Other leverage ratios tell us the same thing:Other leverage ratios tell us the same thing:
– Debt to assets – 43.3%Debt to assets – 43.3%
– Debt to equity – 76.3%Debt to equity – 76.3%
8.1
2.266$
4.469$
equityrs'Shareholde
Assets
===LeverageFinancial
19. Coverage RatiosCoverage Ratios
• Often more informative than the leverage ratiosOften more informative than the leverage ratios
are “coverage ratios.”are “coverage ratios.”
• These ratios tell us what the firm is earning eachThese ratios tell us what the firm is earning each
year relative to the burden the debt imposes.year relative to the burden the debt imposes.
times2.10
5.9$
5.96$
ExpenseInterest
EBIT
earnedinterestTimes ===
times2.10
)0.87/8.271/(0.0$5.9$
5.96$
rateTax1
repaymentPrincial
Interest
EBIT
coveredburdenTimes =
−+
=
−
+
=
20. Liquidity RatiosLiquidity Ratios
• A further determinant of a firm’s debt capacity isA further determinant of a firm’s debt capacity is
the liquidity of its assets relative to its liabilities.the liquidity of its assets relative to its liabilities.
• The two common ratios used to measureThe two common ratios used to measure
liquidity are the current ratio and the quick ratioliquidity are the current ratio and the quick ratio
(also called the “acid test”).(also called the “acid test”).
times0.4
7.95$
5.387$
sliabilitieCurrent
assetsCurrent
ratioCurrent ===
times7.2
7.95$
2.131$5.387$
sliabilitieCurrent
Inventory-assetsCurrent
ratioQuick =
−
==
21. Limitations of Ratio AnalysisLimitations of Ratio Analysis
• We have been talking as if management alwaysWe have been talking as if management always
wants to increase ROE or as if a high ROE iswants to increase ROE or as if a high ROE is
always better.always better.
– If company A has a higher ROE than company B isIf company A has a higher ROE than company B is
company A necessarily better?company A necessarily better?
– If a company increases its ROE is it necessarilyIf a company increases its ROE is it necessarily
evidence of improved performance?evidence of improved performance?
• There are three critical problems with ROE.There are three critical problems with ROE.
– Often called the timing problem, the value problem,Often called the timing problem, the value problem,
and the risk problem.and the risk problem.
22. The Timing ProblemThe Timing Problem
• As a decision-maker in a business environmentAs a decision-maker in a business environment
you are often encouraged to focus your attentionyou are often encouraged to focus your attention
on the past and particularly on one period in theon the past and particularly on one period in the
past – correct?past – correct?
• Sounds silly, but this is exactly what ROE does.Sounds silly, but this is exactly what ROE does.
• Clearly last year’s ROE must be taken inClearly last year’s ROE must be taken in
context.context.
– If not it is virtually meaningless.If not it is virtually meaningless.
– If company ROE was lower last year than it was twoIf company ROE was lower last year than it was two
years ago the companyyears ago the company mustmust be doing worse –be doing worse –
correct?correct?
23. The Risk ProblemThe Risk Problem
• We talked a lot about how risk and return goWe talked a lot about how risk and return go
together. ROE is a “return” like measure sotogether. ROE is a “return” like measure so
where is the risk dimension?where is the risk dimension?
• This problem alone makes ROE an inaccurateThis problem alone makes ROE an inaccurate
and possibly misleading indicator of financialand possibly misleading indicator of financial
performance.performance.
• One has to realize that the risk dimension isOne has to realize that the risk dimension is
missing and so be particularly wary of makingmissing and so be particularly wary of making
comparisons across companies using ROEcomparisons across companies using ROE
alone.alone.
24. The Value ProblemThe Value Problem
• ROE measures a “return” figure but it is basedROE measures a “return” figure but it is based
on two accounting figures.on two accounting figures.
• The numerator is net income and this is not freeThe numerator is net income and this is not free
cash flow (the cash flow that the company couldcash flow (the cash flow that the company could
payout to its investors).payout to its investors).
• Secondly, even if net income is close to freeSecondly, even if net income is close to free
cash flow, ROE is measured relative to bookcash flow, ROE is measured relative to book
value of equity not the market value of equity.value of equity not the market value of equity.
• It is the market value investors must pay toIt is the market value investors must pay to
purchase a share of the firm’s equity and this ispurchase a share of the firm’s equity and this is
generally higher than the book value.generally higher than the book value.
25. Ratio Analysis For TimberlandRatio Analysis For Timberland
• Given the limitations of ratio analysis the mostGiven the limitations of ratio analysis the most
useful way to evaluate financial ratios is byuseful way to evaluate financial ratios is by
examining their changes over time.examining their changes over time.
• Comparing the ratios to industry averagesComparing the ratios to industry averages
provides an interesting benchmark butprovides an interesting benchmark but
differences between companies in a givendifferences between companies in a given
industry can make the exercise misleading.industry can make the exercise misleading.
• A systematic approach will also help alleviateA systematic approach will also help alleviate
the information overload that results from thethe information overload that results from the
random calculation of countless ratios.random calculation of countless ratios.
26. A Systematic ApproachA Systematic Approach
• At the top tier of ratios lie ROE and ROA.At the top tier of ratios lie ROE and ROA.
• The major levers of performance are in the nextThe major levers of performance are in the next
tier, followed by more narrowly focused ratios:tier, followed by more narrowly focused ratios:
– Profit margin:Profit margin:
• Gross margin, tax rate, normalized income statementGross margin, tax rate, normalized income statement
– Asset turnover:Asset turnover:
• Control ratios (inventory turnover, fixed asset turnover,Control ratios (inventory turnover, fixed asset turnover,
collection period, days sales in cash, payables period),collection period, days sales in cash, payables period),
normalized balance sheetnormalized balance sheet
– Financial leverage:Financial leverage:
• Leverage ratios, coverage ratios, liquidity ratiosLeverage ratios, coverage ratios, liquidity ratios
27. Ratio Analysis of Timberland Company 1994 - 1998
1994 1995 1996 1997 1998
Industry
Median
Major Ratios
ROE 11.9 (8.2) 12.3 22.1 22.2 12.3
ROA 3.8 (2.8) 4.5 11.3 12.6 7.4
ROIC 7.1 0.7 9.6 18.3 17.9 9.7
Profitability Ratios
Profit Margin 2.8 (1.8) 3.0 5.9 6.9 4.2
Gross Margin 35.0 33.7 39.4 41.7 41.9 38.4
Price to earnings ratio 13.5 NA 20.7 13.9 8.5 15.0
Turnover and Control Ratios
Asset Turnover 1.3 1.6 1.5 1.9 1.8 1.8
Fixed-asset Turnover 9.3 12.5 14.1 15.1 15.2 9.2
Inventory Turnover 1.9 2.4 2.6 3.3 3.8 2.7
Collection Period 73.5 53.4 53.2 34.7 33.4 39.1
Days' Sales in Cash 3.7 21.4 49.4 45.3 64.3 10.8
Payables Period 32.6 21.2 18.6 16.0 18.9 36.3
Leverage and Liquidity Ratios
Assets to Equity 3.2 3.0 2.7 2.0 1.8 1.7
Debt to Assets 68.5 66.2 63.2 48.8 43.3 39.6
Debt to Equity 217.4 196.3 171.9 95.4 76.3 65.5
Times Interest Earned 2.9 0.2 2.5 5.6 10.2 9.1
Times Burden Covered 1.6 0.1 1.1 5.6 10.2 7.4
Current Ratio 3.5 4.8 3.7 3.5 4.0 3.0
Acid Test 1.5 2.3 2.1 2.0 2.7 1.5
28. Ratio Analysis of TimberlandRatio Analysis of Timberland
• ROE:ROE:
– After a loss in ’95 the ROE is up to a strong 22.2% inAfter a loss in ’95 the ROE is up to a strong 22.2% in
’98. This is strong relative to its industry and to the’98. This is strong relative to its industry and to the
median firm in the S&P500 that year which had anmedian firm in the S&P500 that year which had an
ROE of 14.8%.ROE of 14.8%.
– The other major ratios show similar patterns.The other major ratios show similar patterns.
• The rise in ROE is coming from the increase inThe rise in ROE is coming from the increase in
its profit margin and asset turnover and isits profit margin and asset turnover and is
somewhat offset by the reduction in its financialsomewhat offset by the reduction in its financial
leverage.leverage.
29. Ratio Analysis of TimberlandRatio Analysis of Timberland
• The increased profit margin is coming primarilyThe increased profit margin is coming primarily
from a rising gross margin indicating that it isfrom a rising gross margin indicating that it is
some combination of more aggressive pricingsome combination of more aggressive pricing
and cost control that has driven the increase.and cost control that has driven the increase.
• Improved asset turnover reflects overallImproved asset turnover reflects overall
improved asset management.improved asset management.
– Inventory turnover and fixed asset turnover areInventory turnover and fixed asset turnover are
strongly higher.strongly higher.
– The only asset rising relative to sales is cash. Is thisThe only asset rising relative to sales is cash. Is this
good or bad?good or bad?
• Leverage and liquidity ratios all show increasingLeverage and liquidity ratios all show increasing
financial conservatism.financial conservatism.
30. Normalized FinancialNormalized Financial
StatementsStatements
• Note on the normalized balance sheet that 80%Note on the normalized balance sheet that 80%
of the firm’s assets are current assets.of the firm’s assets are current assets.
– This highlights the importance of working capitalThis highlights the importance of working capital
management.management.
– Note the reduction in inventories and accountsNote the reduction in inventories and accounts
receivable noted above.receivable noted above.
• The normalized income statement is pleasantThe normalized income statement is pleasant
reading.reading.
– Profit margin and gross margin are up since ’95.Profit margin and gross margin are up since ’95.
– Results would have been better except for the rise inResults would have been better except for the rise in
SG&A expenses.SG&A expenses.
31. Common-Sized Balance Sheet for Timberland and Industry
1994 1995 1996 1997 1998
Industry
Average
Assets
Cash and marketable securities 1.3% 9.1% 20.8% 23.5% 32.4% 7.4%
Accounts receivable 27.1 22.7 22.4 18.0 16.8 22.7
Inventories 46.1 42.9 35.4 34.0 28.0 37.1
Prepaid expenses and other current assets 4.4 5.5 4.1 5.9 5.4 5.5
Total current assets 79.0 80.2 82.6 81.4 82.6 72.0
Property, plant, and equipment 23.4 22.8 23.1 27.7 28.0 31.5
Less accumulated depreciation and amortization 9.0 10.3 12.2 15.1 15.8 13.6
Net property, plant, and equipment 14.4 12.4 10.9 12.6 12.1 17.9
Intangible assets 5.5 5.8 5.0 5.0 4.1 3.2
Other assets 1.1 1.6 1.5 1.0 1.2 6.9
Total assets 100% 100% 100% 100% 100% 100%
Liabilities and Shareholders' Equity
Accounts payable 7.8% 6.0% 4.7% 4.9% 5.5% 11.2%
Notes payable 4.8 -- -- -- -- 2.0
Current portion of long-term debt 1.7 1.8 4.0 -- -- 1.0
Wages payable 1.9 0.2 2.6 4.2 3.9 --
Accrued expenses 6.4 8.5 11.3 14.5 11.0 10.0
Total current liabilities 22.6 16.5 22.7 23.6 20.4 24.2
Long-term debt 43.7 47.3 38.2 23.8 21.3 14.8
Deferred income taxes 2.2 2.4 2.4 1.4 1.6 1.0
Total liabilities 68.5 66.3 63.2 48.8 43.3 39.9
Common stock 0.0 0.0 0.0 0.0 0.0 4.6
Additional paid-in capital 12.2 14.2 13.7 16.3 15.9 10.8
Retained earnings 19.3 19.6 23.0 34.8 44.2 54.8
Less treasury stock 0.0 0.0 0.0 0.0 3.5 10.2
Total shareholders' equity 31.5 33.7 36.8 51.2 56.7 60.1
Total liabilities and shareholders' equity 100% 100% 100% 100% 100% 100%
32. Normalized Income Statement for Timberland and Industry
1994 1995 1996 1997 1998
Industry
Average
Net sales 100% 100% 100% 100% 100% 100%
Cost of sales 65.0 66.3 60.6 58.5 58.3 60.8
Gross profit 35.0 33.7 39.4 41.5 41.7 39.2
S,G,& A expenses 25.8 29.4 28.9 28.4 28.6 29.3
Depreciation and amortization 2.4 2.9 3.1 2.5 2.1 1.8
Total operating expenses 28.2 32.3 32.0 31.0 30.7 31.0
Operating income 6.8 1.4 7.4 10.5 11.0 8.2
Interest expense 2.4 3.5 3.0 1.9 1.1 0.7
Other expense (income) -- 0.2 (0.1) 0.2 (0.2) (0.2)
Extraordinary expense (income) -- 0.6 -- -- -- 0.4
Total nonoperating expenses 2.3 4.2 2.9 2.0 0.9 0.9
Income before income taxes 4.4 (2.9) 4.5 8.5 10.1 7.3
Provision for income taxes 1.6 (1.1) 1.5 2.5 3.2 2.7
Net income 2.8 (1.8) 3.0 5.9 6.9 4.6
33. SummarySummary
• What is being reflected here is a robust recoveryWhat is being reflected here is a robust recovery
from a difficult period in the firm’s history.from a difficult period in the firm’s history.
– In ’94 the firm experienced a 50% increase in salesIn ’94 the firm experienced a 50% increase in sales
driven by “fad” demand for its product.driven by “fad” demand for its product.
– In response Timberland over-expanded and lostIn response Timberland over-expanded and lost
control of assets, particularly inventory and accountscontrol of assets, particularly inventory and accounts
receivable.receivable.
– The bubble burst in ’95.The bubble burst in ’95.
– Since then they have aggressively managed assetsSince then they have aggressively managed assets
and reduced debt.and reduced debt.
– Challenge ahead is what to do with all the excessChallenge ahead is what to do with all the excess
cash being generated and a question of whether theycash being generated and a question of whether they
can rekindle growth.can rekindle growth.