UGBA 10 Lecture Notes - Lecture 4: Asset Turnover, Current Liability, Net Income
23 May 2018
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Fiacial Stateets January 29
I. Balance sheets (examples)
• Fixed assets: buildings, etc.
o Over time we use up the fixed assets, but through depreciation, they make it
into the income statement (take off a portion of the asset over year).
• Intangible assets: intellectual property.
• Goodwill: amount paid for an existing business above the value of its other assets (ie:
purchasing a firm that has a good location or reputation).
II. Liabilities
• Accounts payable: when a firm owes other people money that they will pay at a later
date.
• Current liabilities must be paid quickly. In order to do so, firms need to liquidate their
current assets.
• Current ratio: current assets divided by current liabilities.
o Rule of thumb: 2:1 ratio is best.
o Google: 4:2; Coke: 1.04; Walmart: 0.76 (can get away with it because they are a
big company so investors still give them credit, and have the confidence of many
suppliers).
• Haig a lot of ash gies the a loe iteest est; does’t use thei esoues
efficiently.
III. Income statement terms
• Revenues
• Operating expenses
• Gross profits: shows how well a company is doing.
• Net income: gross profit – operating expenses and income taxes
IV. HBS Pape does’t oetate o liuidity
• Starting point: Return on Equity (annual et ioe diided y stokholdes’ euity)
• Google has large equity funding (large return on equity)
• Company that has the best return on equity is better
V. DuPont Formula
• Gets at the root causes of good or bad performance.
VI. Analyzing the return on equity
• Asset turnover: productivity of assets in generating sales. It is better to have a high asset
turnover.
o Purchasing too many assets can ruin the asset turnover
find more resources at oneclass.com
find more resources at oneclass.com
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UGBA 10 Full Course Notes
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Fi(cid:374)a(cid:374)cial state(cid:373)e(cid:374)ts january 29: balance sheets (examples, fixed assets: buildings, etc, over time we use up the fixed assets, but through depreciation, they make it into the income statement (take off a portion of the asset over year). Intangible assets: intellectual property: goodwill: amount paid for an existing business above the value of its other assets (ie: purchasing a firm that has a good location or reputation). Liabilities: accounts payable: when a firm owes other people money that they will pay at a later date, current liabilities must be paid quickly. Income statement terms: revenues, operating expenses, gross profits: shows how well a company is doing, net income: gross profit operating expenses and income taxes. Analyzing the return on equity: asset turnover: productivity of assets in generating sales. It is better to have a high asset turnover: purchasing too many assets can ruin the asset turnover, financial leverage: the use of debt financing to increase financial leverage.
