BSM 600 Chapter Notes - Chapter 8: Debt Ratio, Financial Ratio, Delaware Route 1
3 Mar 2017
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Financial ratio analysis: compare values of key accounts listed on firm"s f/s. Ratios measure ability of biz to convert assets to cash to pay off liabilities due in. Liquid asset: can be quickly converted to cash w/o risk of loss next year. Current ratio: ca/cl: asset mgt ratios. How effectively org is using assets to generate ni. How many times inventory is sold and replaced each year. High is good, but too high means you"re not keeping enough on stock = frustrated customers, lost sales. Average collection period: ar/avg daily credit sales. 45 means customers take 45 days to pay credit purchases: leverage ratios. Fin leverage: use of debt to meet a firm"s financing needs. Higher = heavy reliance on debt = risky. If a from d, from oe, then dr = . 5, d/e = 1: profitability ratios. Measure rate of return firm is earning on diff measures of investment. Roe: ni/oe (ni - preferred dividends)/$ invested by shareholder.
