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Financial Ratios: An Introduction and Analysis - Prof. Christopher M. Korth, Exams of Corporate Finance

Western Michigan University (WMU)Corporate Finance
Prof. Christopher M. Korth

This chapter by c.m. Korth introduces financial ratios and their significance in evaluating a firm's past and future performance. Various types of financial ratios, including liquidity ratios, asset-management ratios, debt-management ratios, and profitability ratios, as well as market-value ratios. Students will learn how to calculate and interpret these ratios to assess a company's financial health.

Typology: Exams

Pre 2010

Uploaded on 07/23/2009

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koofers-user-jae 🇺🇸

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C. M. Korth
Ch. 4: ANALYSIS OF FINANCIAL STATEMENTS
I. Purpose of Chapter 4
A. Present an introduction to financial ratios
B. Examine how financial ratios are used by corporate managers,
investors and creditors in evaluating the firms past performance
C. Show how financial ratios are used to guide and predict the firms
future performance
II. Financial Ratios
A. Liquidity ratios
B. Asset-management ratios
C. Debt-management ratios
D. Profitability ratios
E. Market-value ratios
03Analysis.01-06
pf3
pf4

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Ch. 4: ANALYSIS OF FINANCIAL STATEMENTS I. Purpose of Chapter 4 A. Present an introduction to financial ratios B. Examine how financial ratios are used by corporate managers, investors and creditors in evaluating the firms past performance C. Show how financial ratios are used to guide and predict the firms future performance II. Financial Ratios A. Liquidity ratios B. Asset-management ratios C. Debt-management ratios D. Profitability ratios E. Market-value ratios

ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ Liquidity ratios : A measure of the firm’s ability to meet its maturing obligations

  1. Current ratio : CA / CL
  2. Quick ratio : (CA - Invy) / CL a. = acid test ratio A. Asset-management ratios : How effectively is the firm using its assets?
  3. Days sales outstanding (DSO) DSO = R / (S / 360)
  4. Inventory-turnover ratio = S / Invy
  5. Fixed-asset turnover ratio = S / FA (net) 4. Total-asset turnover ratio = S / TA

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA Market-value ratios : How well is the firm’s stock doing in the market?

  1. Price/earnings (P/E) ratio = (P / share) / (EAT / share)
  2. Market/book (M/B) ratio = (P / share) / (BkV / share) a. Book value BkV = Net worth - pfd stock