Evaluating a Firm's Financial Performances PDF
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Uploaded by StableFarce
2024
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Summary
This document provides an overview of financial performance evaluation. It uses financial ratios for liquidity, capital structure, asset management efficiency, and profitability, illustrated with examples. The document explains how to use ratios in financial analysis and limitations. The DuPont model is also explained which ties profitability, efficiency and leverage analysis together.
Full Transcript
Evaluating a Firm’s Financial Performances Team Teaching Financial Management, Odd Semester 2024/2025 01 Calculate financial ratios to Learning evaluate the financial health of a 02 company. Objectives Explain the...
Evaluating a Firm’s Financial Performances Team Teaching Financial Management, Odd Semester 2024/2025 01 Calculate financial ratios to Learning evaluate the financial health of a 02 company. Objectives Explain the limitations of ratio analysis. 03 Apply DuPont analysis in evaluating a firm’s financial performance. 04 05 How to use Financial Ratios? Compare across time for an individual firm → Trend Analysis. Compare to an industry average→ Industry Analysis. Compare to a dominant competitor in the same industry →Comparison Analysis. 4 Key Questions to Answer with Ratio Analysis How liquid is the firm? → Liquidity Ratio How has the firm financing its assets ? → Capital Structure Ratio How efficient has the firms management been in utilizing its assets to generate sales? → Asset Management Efficiency Ratio Has the firms earned adequate returns on its investments ? → Profitability Ratio Orange’s Balance Sheet ($ 000) Orange’s Income Statement ($ 000) 01 How liquid is the firm? (Liquidity Ratios) Liquidity Ratios Liquidity Ratios Liquidity Ratios 02 How is the firm financing its asset ? (Capital Structure Ratios) Capital Structure Ratios 03 How efficient has the firms management been in utilizing its assets to generate sales? (Asset Management Efficiency Ratios) Asset Management Efficiency Ratios 04 Has the firms earned adequate returns on its investments? (Profitability Ratios) Profitability Ratios Profitability Ratios Profitability Ratios Orange’s Other Information Limitations of Ratio Analysis 1. Different Accounting Practices. 2. Sometimes hard to pick an industry for comparison. 3. Seasonality in Operations. The DuPont Model Brings together: ❖ Profitability ❖ Efficiency ❖ Leverage The DuPont Model DuPont System Thanks CREDITS: This presentation template was Slidesgo created by Slidesgo, including icons by Flaticon Freepik Flaticon, and infographics & images by Freepik.
