FIN 305 Lecture Notes - Lecture 5: Compound Annual Growth Rate, Profit Margin, Earnings Before Interest And Taxes
1 Oct 2016
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5 basic types of analysis (combining them is best: horizontal, vertical, combined, graph, ratio. Remember that data is useless until organized into information, w/c needs to be interpreted to become actionable knowledge. Assumption that a and b are related. Example: gross profit margin = gross profit / sales = 40% If your sales forecast is 1. 2m, gross profit is 40% of 1. 2m. How can we use ratios: predicting future performance (for investing, lending, evaluating past performance (for troubleshooting, identifying good/bad practice) Growth ratios: year over year % change. [ (new-old) / old ] x 100 categories to see if something is increasing faster than another. Comparing it to a budget/planned amount: aagr. Problem: in horizontal analysis, we see % change is not linear. If sales is not linear, aagr is not the best evaluation: cagr. Example: you have a 10k investment at 5%. With simple: 10k + (40 x 500) = 30k.
