Financial Performance Measures and Analysis

MARKET VALUE PERFORMANCE MEASURES

MVA

Market Capitalization = (#shares * price per share) - Equity

MTBR

Measures how much value has been added for each dollar that shareholders have invested = MVOEQUITY / BVOEQUITY

MEASURING PROFITABILITY

EVA

Economic Value Add or Residual Income = The profit after deducting all costs including the cost of capital = After-tax operating income (after tax interest + NI) - (cost of capital * total capitalization at the start of the year) = ((1- tax rate)(interest expense) + NI) - (cost of capital)(long term debt + total equity beginning of year)

ROE

NI / Equity start

ROA

(1-tax rate) * interest expense + NI / Total Assets start

ROC

(1- tax rate) * interest expense + NI / LTD start + Equity start

MEASURING EFFICIENCY

How effectively the business is using its assets using refers to liquidity or profitability or performance

Asset turnover R

Sales / Total Assets start

Inventory turnover R

How many times in year was inventory sold completely = COGS / Inventory start

Average days in inventory

How many days does it sit before it's sold = Inventory start / COGS / 365

Receivables turnover

How fast you collect credit and loan out again = Sales / Receivables start

Average Collection Period

On average how many days to collect credit sales = Receivables start / Sales / 365

ANALYZING RETURN ON ASSETS DU PONT SYSTEM

Profit Margin = NI / Sales

Operating Profit Margin = (1- tax rate) * interest paid + NI / Sales = income available to shareholders per dollar of sale

ROA = How efficiently you use assets to make sales = (1-tax rate) * interest expense + NI / Assets ALSO = assets turnover * operating profit margin

MEASURING LEVERAGE

Using debt

LTDR = LTD / LTD + EQUITY

LTDER = LTD / EQUITY

TDR = Total LIA / Total ASS - times interest earned (or interest coverage ratio) EBIT / interest payment

Cash Coverage Ratio = EBIT + Depreciation / Interest Payment

EXTENDED DU PONT SYSTEM

ROE = NI / EQUITY = shareholders investment in company also = LEVERAGE RATIO * ASSETS TURNOVER * OPERATING PROFIT MARGIN * DEBT BURDEN

MEASURING LIQUIDITY

Measure ability to pay obligations like CA and the pool of assets to cover the obligation

Net Work in Capital = CA - CL

NWC to Total Assets Ratio = NWC / Total Assets

Current Ratio = CA / CL

Quick Ratio or Acid Test Ratio = Cash + AR / CL

Cash Ratio = Cash / CL

SUSTAINABLE GROWTH

Payout Ratio = Dividends / NI

Plowback Ratio = NI - Dividends / NI

Sustainable Growth Rate = Plowback Ratio * ROE