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Measuring Corporate Performance

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Presentation on theme: "Measuring Corporate Performance"— Presentation transcript:

1 Measuring Corporate Performance
Chapter 4 Measuring Corporate Performance Topics Covered Value and Value Added Measuring Profitability Measuring Efficiency Analyzing the Return on Assets : The Du Pont System Measuring Leverage Measuring Liquidity Calculating Sustainable Growth Interpreting Financial Ratios The Role of Financial Ratios–and a Final Note on Transparency

2 Value and Value Added Market Capitalization Market Value Added
Total market value of equity, equal to share price times number of shares outstanding. Market Value Added Market capitalization minus book value of equity.

3 Value and Value Added PepsiCo Balance Sheet (December 31, 2006) $Millions

4 Pepsico Income Statement (year end 2006)
Value and Value Added Pepsico Income Statement (year end 2006) Net Sales ,753 COGS ,762 Selling, G&A expenses ,530 Depreciation expense ,406 EBIT ,055 Net interest expense Taxable Income 6,989 Income Taxes 1,347 Net Income 5,642 13

5 Value and Value Added Market-to-Book Ratio
Ratio of market value of equity to book value of equity.

6 Measuring Profitability
Economic Value Added (EVA) Net income minus a charge for the cost of capital employed. Also called residual income. Residual Income Net Dollar return after deducting the cost of capital

7 Measuring Profitability
Economic Value Added (EVA) of PepsiCo Ex: Book Value of Equity = $14,251 million Cost of Equity = 9.5% Net Income = $5,642 million

8 Measuring Profitability
Accounting measures of company performance, Companies are ranked by return on equity.

9 Measuring Profitability
Return on Equity (ROE) Net income as a percentage of shareholders’ equity Return on Capital (ROC) Net income plus Interest as a percentage of long-term capital. Return on Assets (ROA) Net income plus interest as a percentage of total assets

10 Measuring Profitability
PepsiCo Profitability Measurements

11 Measuring Efficiency OR For PepsiCo OR 7

12 Measuring Efficiency 8

13 The DuPont System A breakdown of ROE and ROA into component ratios 13

14 The DuPont System asset turnover Operating profit margin 15

15 Measuring Leverage 3

16 Measuring Leverage 4

17 Measuring Leverage leverage ratio asset turnover Operating profit
margin debt burden 17

18 Measuring Liquidity 5

19 Liquidity Ratios 6

20 Interpreting Financial Ratios
PepsiCo Ratios

21 Interpreting Financial Ratios
Selected 2006 financial ratios for industry groups in Standard & Poor’s Composite Index

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