FIN-3403 Lecture Notes - Lecture 3: Valuation Using Multiples, Reserve Requirement, Current Liability
Document Summary
Financial management of the firm - chapter 3 notes. Computation of measures to help make better decisions. Internal uses - evaluate performance, look for trouble spots, generate projections. External uses - make credit decisions, evaluate competitors, assess acquisitions. No underlying nancial theory; numbers are meaningless without benchmark or comparison. What to do with conglomerates, multidivisional rms. Short-term solvency, or liquidity, measures ability to pay bills in the short-run. Current ratio = current assets / current liabilities. Quick ratio = (current assets - inventory) / current liabilities. Long-term solvency measures ability to meet long-term obligations/measures of leverage measure either level of indebtedness or the ability to service debt of great interest to deb holders and therefore ratings agencies. Total debt ratio = (total assets-totals equity)/total assets. Long-term debt ratio = long-term debt / (long-term debt + total equity) Cash coverage ratio = (ebit + depreciation) / interest = ebitda / interest (also known as times interest earned)
