PROFITS- FLOW CHART SALES – COST OF SALES = EBITDA EBITDA – DEPRECIATION = EBIT or PBIT EBIT – INTEREST PAID = EBT or PBT EBT - TAX = EAT or PAT EAT –

Slides:

Advertisements

Similar presentations

Capital Structure and Leverage Chapter 13

Advertisements

Chapter 3 Working with Financial Statements

Chapter 3 Working With Financial Statements

Business Performance Analysis (Part 2)

FIN 468: Intermediate Corporate Finance

Market-Based Management and Financial Performance Chapter Sixteen M arket-Based Management, 4th edition.

Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows  2005, Pearson Prentice Hall.

1 Financial Statement Analysis Curriculum designed for use with the Iowa Electronic Markets by Cynthia J. Brown Marilyn M. Dutton Thomas A. Rietz.

July 8, Financial Ratio Analysis Financial ratios combine different financial parameters. They are based on the financial data drawn from the balance.

Fin 4201/8001 Topic 4: Valuing Companies The early years….Ratios.

Accounting Mechanics Using Financial Statements to Assess Performance.

Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 1 Chapter 14.

MB 664 UVG-TAMU May Business Business Finance MB-664 DuPont Model.

1 FINANCIAL ANALYSIS 1. Financial Statement Analysis 2. Common Size Statement Analysis 3. Ratio Analysis 4. Sources/ Uses of Funds 5. Statement of Cash.

Financial Statement Analysis

Key Concepts and Skills

LEVERAGE ANALYSIS. Leverage The dictionary meaning of the firm leverages refers to “an increase means of accomplishing purpose ”. In machines, leverages.

12-1 CHAPTER 14 Capital Structure and Leverage Leverage and risk Optimal capital structure Compare profit, return and risk for leverage and un-leveraged.

Valuation Techniques 1.Balance sheet analysis, 2.Income statement multiples, and 3.Discounted cash flows…

Chapter 10 Profitability and Return on Investment.

Chapter 2,3 Financial Statement Analysis. Taxes Always changing Marginal vs. average tax rates –Marginal – the percentage paid on the next dollar earned.

Financial Statements and Cash Flows

Leverage Operating Leverage: Financial Leverage:

Leverage An increased means of accomplishing some purpose

X100©2008 KEAW L15 X100 Introduction to Business Finance Professor Kenneth EA Wendeln Financial Analysis & Ratios Financial Analysis & Ratios.

Financial Statements Ratio Analysis

Financial Statements and Ratio Analysis CHAPTER 2.

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Statement Analysis Chapter 14 McGraw-Hill/Irwin.

FINANCIAL PERFORMANCE ACCOUNTING RATIOS. Accounting Ratio Analysis Information contained in financial statements is of major significant to internal and.

© 2008 by Nelson, a division of Thomson Canada Limited Transparency 8.1 Finance for Non-Financial Managers Fifth Edition Slides prepared by Pierre G. Bergeron.

Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows 09/02/08.

Operating Leverage Uses of Operating Leverage

Intro to Financial Management Understanding Financial Statements and Cash Flows.

Learning area 9 Chapter 12 Lecture Profitability ratios page Return on capital employed (ROCE) 7.2 Profit margin 7.3 Asset utilisation ratio.

Ratio analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative factors CHAPTER 13 Analysis of Financial Statements.

1 Topics in Chapter 15: Capital Structure Business versus financial risk Impact of financial leverage on returns Analyzing alternative capital structures.

Chapter 3 - Evaluating a Firm’s Financial Performance  2005, Pearson Prentice Hall.

Exam 1 Review 09/23/2008. Goal of the Firm Shareholder Wealth Maximization? this is the same as: a) Maximizing Firm Value b) Maximizing Stock Price.

Intro to Financial Management Evaluating a Firm’s Financial Performance.

2-0 Financial Statements, Taxes, and Cash Flow Chapter 2 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

4- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.

Evaluating a Firm’s Financial Performance Evaluating a Firm’s Financial Performance , Prentice Hall, Inc.

Ch. 13: Determining the Financing Mix How do we want to finance our firm’s assets? , Prentice Hall, Inc.

Finance Chapter 3 Analysis of financial statements.

Financial Management Unit – 2 Cost of Capital and Leverages.

1 Topics in Chapter 16: Capital Structure Business risk & financial risk Impact of financial leverage on returns Analyzing alternative capital structures.

Financial Statement Analysis. Common Financial Statements  Balance Sheet  Income Statement  Statement of Retained Earnings  Statement of Cash Flows.

1 Financial Statement Analysis Curriculum designed for XYZ inc. Presented by : OBSAL.

FINANCIAL STATEMENT ANALYSIS. Important Questions Managers, shareholders, creditors and other interested groups seek answers to the following important.

Analyzing Financial Statements

6-1 Financial Statements Analysis and Long- Term Planning.

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19 Financial Statement Analysis.

Current Ratio Profit (after tax and preference dividends) Number of Issued Ordinary Shares.

Topic 7: Analysis & Impact ofLaverage Team BRAcct’s : Naim Amirul.

Questions What are the major categories of financial ratios?

Measuring Corporate Performance

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

3-1 Unit 3 Financial Statements and ratios Key Financial Statements Balance sheet Income statements Statement of cash flows Statement of retained earnings.

 The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 19-1 Financial Statement Analysis Chapter 19.

Financial and Operating Leverage

Financial Statement Analysis

LESSON 5 – SUMMARY – COMPANY’S RETURN ANALYSIS

Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows

Long-Term Financial Planning and Growth

FINANCIAL AND OPERATING LEVERAGE

Lecture 1 Du Pont Identity.

Intro to Financial Management

Financial and Other Leverage

Intro to Financial Management

Presentation transcript:

PROFITS- FLOW CHART SALES – COST OF SALES = EBITDA EBITDA – DEPRECIATION = EBIT or PBIT EBIT – INTEREST PAID = EBT or PBT EBT - TAX = EAT or PAT EAT – DIVIDEND = RETAINED EARNINGS

Profitability- DU PONT ANALYSIS Net Profit X Sales=ROI/ROA Sales Total Assets Observation:- ROI/ROA is the central measure of overall profitability. It shows the interaction between profitability and activity ratios.

Profitability- DU PONT ANALYSIS- ROA It means that performance can be improved either by:- (a) generating more sales volume per rupee of investment. OR (b) increasing the profit margin per rupee of sales.

Profitability - ROE ROE = PAT / Owners Fund x 100 shows what company can deliver Shareholders Value. ROE (before Tax) = ROTA + (Rota-interest paid) x D/E Earnings Yield = EPS/ Price x 100 shows what market demands. ROE / EY = Market to Book-Value ratio

rate Amt in Lacs) equity debt Rota ROE Inter-relation between ROTA and ROE-Effect of Debt:Equiy

LEVERAGES ACTIVITY LEVERAGE STRUCTURAL LEVERAGE OPERATING LEVERAGE FINANCIAL LEVERAGE DEBT- EQUITY FUNDED DEBT -EQUITY

PROFITABILITY- LEVERAGE RATIOS OPERATING LEVERAGE:- CONTRIBUTION OPERATING PROFIT(EBIT) Shows how EBIT changes with changes in quantum of sales Higher Operating Leverage denotes higher fixed costs lading to lesser profitability MEASURE OF BUSINESS RISK

PROFITABILITY- LEVERAGE RATIOS FINANCIAL LEVERAGE:- OPERATING PROFIT(EBIT) EBIT - FIXED FIN. CHARGES SHOWS THE EFFECT ON PROFIT BY EMPLOYMENT OF DEBT Higher the debt, higher the profit but higher the risk. Hence net return to be considered MEASURE OF FINANCIAL RISK

PROFITABILITY- LEVERAGE RATIOS COMBINED LEVERAGE:-( O/L X F/L) CONTRIBUTION PROFIT BEFORE TAX Shows effect of sales volume on the EPS of the firm e.g. If Combined Leverage is 3, percentage increase in sales to increase in taxable income is 1:3 MEASURE OF TOTAL RISK

CALCULATE THE DEGREE OF OPERATING LEVERAGE, FINANCIAL LEVERAGE AND COMBINED LEVERAGE FROM THE FOLLOWING DATA AND INTERPRET FIRM-AFIRM-BFIRM-C OUTPUT( UNITS) FIXED OPTG. COSTS VARIABLE COST P.U INTEREST ON BORROWED CAPITAL NIL SELLING PRICE P.U

SUMMARY OF INTERPRETATION Operating Leverage Financial Leverage Reveal that the business is High Risky HighLowAdvantage of debt is foregone LowHighIdeal Low cautious