Financial Analysis PDF

lOMoARcPSD|36760513 1. FINANCIAL ANALYSIS – WHAT IS GOING ON? 1. Firms disclosure of nancial information 1.1. Financial statement types: - balance sheet (snapshot of the company’s nancial position)...

lOMoARcPSD|36760513 1. FINANCIAL ANALYSIS – WHAT IS GOING ON? 1. Firms disclosure of nancial information 1.1. Financial statement types: - balance sheet (snapshot of the company’s nancial position) or statement of n position - income statement - statement of cash ows - statement of changes in shareholder’s equity 2. The balance sheet / statement of nancial position Many of the rm’s valuable assets are not captured in the balance sheet. 1.1. Assets = liabilities + shareholders’ equity 1.1.1.1.1. Current assets = inventory, account receivables, bank and cash, other current assets. Short-term investments that typically have high liquidity value are located under current assets. Inventory is not considered as an investment and typically reported under current assets after depreciation. 1.1.1.1.2. Non-current (xed) assets = good will and other intangible assets, net PPE, other non- current assets 1.1.2. Liabilities 1.1.2.1.1. Current liabilities = to be paid within one year (account payables /current maturities of non-current debt /accruals (salaries, taxes)/ important for calculation of NWC) 1.1.2.1.2. Non-current liabilities = long-term debt (mortgage – maturity of more than one year) / capital leases (car lease with regular payment, lease of the building for the corporate headquarter) / diered taxes (taxes that are owed but have not been paid yet) 1.1.3. Shareholder’s equity = book value of equity = assets - liabilities Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 1.1.3.1.1. Book value (can be negative) 1.1.3.1.2. Market value = market capitalization (can’t be negative) 3. The income statements 1.1.1. Net income = total earnings of the rm’s equity holders 1.1.1.1. Earnings per share (EPS) EPS = net income/ shares outstanding 1.1.1.2. Diluted earnings per share (DEPS) = future EPS can be “thinner or weaker” by in-the- money share (stock) options, convertible bonds or warrants – adjusted EPS. 4. The statement of cash ows Net income does not correspond to cash earned: 1) there are non-cash entries in the income statement (depreciation + amortization) 2) certain uses of cash, such as building purchase is not shown in the income statement. 1.1. Shows the cash used (provided) from dierent nancial activities: 1.1.1. Cash ows from operating activities 1.1.2. Cash ows from investing activities 1.1.3. Cash ows from nancing activities 1.2. Financial statement analysis 1.2.1. Financial ratios (compare with itself, compare with others) 1.2.1.1. Key measures: protability, liquidity, valuation, working capital, interest coverage, leverage, operating returns a) Protability ratios = sales = ability to generate prot (on four levels) a.1. Gross margin a.2. Operating margin a.3. EBIT margin Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 a.4. Net prot margin b) Liquidity ratios = liabilities = ability to meet short-term debt obligations b.1. Current ratio (don’t give you investment prot) b.2. Quick ratio b.3. Cash ratio c) Interest coverage ratios = interest = compare earnings with its interest expenses Higher ratio = earnings are much more than necessary to meet the obligations c.1. EBIT / interest coverage c.2. EBITDA / interest coverage d) Valuation ratios = for investors = help to asses the market value of the rm To make an intra-industry comparison of rm valuations d.1. Price-to-earning (P/E) ratio d.2. EV to EBIT d.3. EV to Sales e) Leverage/gearing ratios = for shareholders = help to assess the rm’s reliance on debt as a source of nancing e.1. Debt-to-equity ratio e.2. Debt-to-capital ratio e.3. Debt-to-EV ratio e.4. Equity multiplier = the greater the rm’s reliance on debt nancing – the higher the multiplier. f) Operating returns/ investment returns = comparison of rm’s income to its investment using nancial information from the balance sheet /statement of nancial position f.1. ROE is a book-leverage equation f.2. ROA is less sensitive to leverage than ROE, but sensitive to working capital. Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 f.3. ROIC = is important, since it measure after tax prot, generated by business itself, excluding any interest expenses and cash. The best to measure the performance of the business. f.4. Asset turnover g) The DuPond identity = decomposes return on equity (ROE): - Shows forms overall protability (=net prot margin), - How ecient the assets are used (=asset turnover), - How dependant the company on debt nancing (=equity multiplier) - 2. INTEREST 4.1. Types of interest rates - Credit interest rate/ interest on credit – received for deposits at the bank - Debtor interest rate/ borrowing rate – paid for borrowing capital from the bank - Key interest rates or federal funds rate – interest rates at which banks can borrow cash reserves on an overnight basis and which are determined by the central or federal banks - Bond yields – at capital market midterm and long term nancial instruments are traded 4.2. Which nancial instruments are based on interests? - Current (checking) account – used for payment purposes with no or only very low interest - Saving account – investment with unlimited duraon, no payment purpose - Bond – Interest-bearing security (usually with xed maturity) such as zero bond, coupon bound, government bound, converble, oang rate note - Loan or credit – banks entrust money to the debtor against interest payment 4.3. Compound interest calculaon VS Simple interest Compound interest 4.4. Intra-year interest 4.5. Connuous compounding interest 4.6. What inial amount I should have to reach my goal with xed interest Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 3. INVESTMENT ANALYSIS – HOW TO CHOOSE THE INVESTMENT PROJECT 1. The net present value (NPV) 4.6.1. NPV of a project or investment = PV (benets) – PV (costs) = PV (all project cash ows) 4.6.2. Decision rule: take an alternative with the highest NPV => equivalent to receiving its NPV in cash today. Accept: project with positive NPV Reject: project with negative NPV If you are maximizing wealth – the NPV rule always give the correct answer. 4.6.3. If alternative rules disagree with NPV rule => follow the NPV rule Another rule that leads to the same outcome is EVA and annuity-rule 5. The internal rate of return (IRR) 5.1.1. IRR of a project is the discount rate that makes the NPV equal to zero. You can’t compare investments with IRR unless there is not the same scale, timing and risk. 5.1.2. IRR decision rule: Accept: IRR exceeds the opportunity cost of capital. Reject: IRR is less than the opportunity cost of capital IRR: Measures the average return of the investment = exact measure for average ROIC Measures the sensitivity of NPV to estimation error in the cost of capital IRR rule works for stand alone projects if all negative cashows are before the positive cashows , otherwise it disagrees with NPV. 5.1.3. Pitfalls: a) Delayed investment = when rst are and then (probably negative NPV) Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 b) Multiple IRRs c) Non-existent IRR 5.1.4. Mutually exclusive projects => choose by highest NPV; IRR can make a mistake 5.1.5. Project ranking with:  dierent scales => choose by highest NPV (if project size is doubled => NPV is doubled); IRR can’t compare projects with dierent scales.  the timing of cash ows => IRR can be aected by changing the timing of the cashows even when the scale is the same (for example, it does not account the growth rate)  dierences in risk => attractive IRR for safe projects, not always attractive for risky projects 6. Payback rule 6.1.1. Payback rule = amount of the time it takes to pay back initial investment. Decision rule: if the payment period is less than the pre-specied length of time => take the project; otherwise => reject. The rule is simple and favours short-term investments. However, it is often incorrect. 6.1.1.1. Minuses: - Ignores the projects cost of capital and time value of money - Ignores cash ows after the payback period - Relies on the ad hoc decision criterion 7. Protability index 7.1.1. Protability index (PI) = used to identify the optimal combination of projects to undertake. (Project selection with resource constraints). Decision rule: rank the projects by their PI, pick the set with the highest protability that can be undertaken given the limited resources. 7.1.1.1. Minuses: Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 - Sometimes does not give an accurate answer - Need to enumerate dierent combinations to nd the NPV maximizing combination - With multiple resource constraints, the PI can break down completely 4. ANNUITIES 7.2. Annuies immediate VS annuies due 7.3. Perpetuies 7.4. Diering annuity and interest period 7.5. Non-constant annuity payment 5. CAPITAL BUDGETING – HOW TO ANALYSE ALTERNATIVE INVESTMENTS 1. Determining free cash ow (FCF) and NPV 7.5.1. FCF = rms’ extra cash after its operations and other areas. FCF is an indicator of the nancial health of business and ability to invest in new businesses. Capital budget = lists the projects and investments which company is planning to make. To determine the list, the company makes analysis of alternative investments - capital budgeting. Methods of calculation of the FCF. Direct calculation Calculation from earnings Forecasting earnings Free Cash Flow Incremental earnings = how rm’s earnings can change because of the taken investment decision. +Revenue -Cost estimates -Income tax (marginal tax rate on every incremented dollar) Negative tax = tax credit. Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 Income tax=EBIT × T C Tax credit = typically in a new project EBIT may be negative over the rst year a) Protable company – gets a tax credit (taxes can be calculated negatively), because the company can repay the loss with prot, made by other business segments. b) Non-protable company – in this case should be set up a tax carry forward or if allowed a carry backward. +Project externalities = indirect eects of the project that may aect the prots of other business activities of the rm. 1. Cannibalization = when sales of the new product replace the sales of an old product (new version of iPhone decrease sales of an old version of iPhone). 2. Ination = ination increase -> less purchasing power. On the spreadsheet will change the sales forecast. +Opportunity costs = the value a resource could have provided in its best alternative use. Opportunity costs must be considered, since they may aect the incremental earnings. On the spreadsheet will increase selling, general and administrative. + Depreciation (non-cash charge) - Depreciation (deducted investments in - Actual capital expenditures PPE, not listed as a cash expense) - Increases in NWC NWC=current assets−current liabilities NWC=cash+inventory +recievables− payables Increase in NWC ∆ NWC t=NWC t−NWC t −1 Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 Not included: interest expenses, since FCF=Unlivered Net Inc the project should be judged on its own, but not on how it is going to be nanced. For this reason, we compute the unlevered net income. Unlivered Net Income=EBIT × ( 1−T C ) =( Revenues−C Not included: sunk costs = costs that have been or will be paid regardless of the decision to take. 1. Overhead costs – only include as incremental expenses the additional overhead expenses that arise because of the decision to take about the project. 2. Past R&D expenditures 3. Unavoidable competitive eect – if your sales are likely to decline in any case because of introduction of new product by your competitor – they are sunk costs. 7.5.2. Two types of free cash ow: - FCF to the rm = available to all providers of the rm’s capital (common stockholders, bondholders, and preferred stockholders (in Germany: with voting rights)) - FCF to equity = available to rm’s common stockholders. 8. Choosing among alternatives = compute FCF (only include alternatives that dier) and then NPV of the project. 9. Further adjustment to FCF a) Other non-cash items (amortization) b) Timing of cash-ows For the exam: nothing to know. For potential projects later in real life: it may make a dierence that cash ows are not always at the end of one year and that it may be worth choosing a dierent level than the yearly one. Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 c) Accelerated depreciation (modied acceleration cost recovery system (MACRS) depreciation):  categorize assets according to their recovery period, depreciate.  Straight-line depreciation VS MACRS, MACRS allows larger depreciation deductions earlier in the asset life, which increases the present value of the depreciation tax shield and so will raise the project NPV. d) Liquidation of salvage value (include after-tax) liquidation or salvage value of any assets that are disposed of e) Terminal or conditional value (good for company evaluation) (market value of the free cash ow from the project at all future dates). f) Tax loss carry forwards or tax carry backwards (allow corporations to take losses during its current year and oset them against gains in nearby years). 10. Risk analysis 10.1.1. Break-even analysis = computes the value of each parameter that makes the projects NPV equal to zero (all are constant) 10.1.2. Sensitivity analysis = shows how NPV varies with the change in one of the assumptions, holding the other assumptions constant (good, bad, normal) 10.1.3. Scenario analysis = considers the eect on NPV of simultaneously changing multiple assumptions (if… then) 11. Excursus: German tax system 6. REDEMPTIONS 11.1. Loan redemption by instalment payment 11.2. Yearly and intra-yearly annuity redemption with xed payments 11.3. Diering redemption and interest period *initial loan amount should match the present value Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 7. COST OF CAPITAL - WHATS RETURNS DO I EXPECT? 1. The equity cost of capital for any investment Market portfolio Estimating equity betas 11.3.1. Expected return of available investments with the same beta (sensitivity = riskiness to the investment). 11.3.2. Methods of estimating the equity cost of capital a) CAPM = capital asset pricing model (the most important) IN THIS CASE: COSTS OF CAPITAL = COSTS OF EQUITY Assumptions about the investor: likes high returns, likes low risk Risk: a) systematic (undiversiable = earthquake) – you can get compensation only for this risk. CAPM only assumes it. b) unsystematic (diversiable = thief) – you can’t get compensation for this risk Why CAPM model is good? 1) It if not critical in terms of capital budgeting and corporate nance, where is more important to estimate the cash ows (which have a greater impact), than costs of capital. 2) Practical, straightforward and robust – errors are rather small. 3) Impose disciplined process on managers to identify the cost of capital, make the process less subjective. 4) It gets managers to think about risk in a correct way – they should not be worry about diversiable risk but be prepared to compensate investors for the market risk in the decisions they make. b) Dividend discount model ∞ Dt Price of the stock at a time0=P0=∑ t t =1 ( 1+r e ) Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 c) Bond yield plus risk premium 12. The debt cost of capital for any investment = what expected return require rm creditors. Useful to estimate the cost of capital for the project. Based either on its yields or on its beta 12.1.1. Reect current (debt) market rate the company is paying 12.1.2. Methods of estimating the debt cost of capital a) Yield-to-maturity approach = the IRR investor will earn from holding the bond to maturity and receiving its promised payment The accuracy of the estimate depends on the risk of rm default Low risk of rm default = YTM is reasonable estimate High risk of rm default = YTM will overestimate the investors expected return. The importance of the adjustment depends on the riskiness of the bond. b) Beta-CAPM approach c) Debt-rating approach – relying on historical returns 13. A project’s cost of capital 13.1.1. Find comparable company and estimate the cost of capital assets as proxi for the project’s cost of capital: 13.1.2. All-equity rm comparable (all-equity nanced rm = form with no debt) r ∗E r D∗D rU = E + , sums up ¿ 1. E+ D E + D 13.1.3. Levered rms comparable. β ∗E β D∗D βU= E + E+D E+ D 13.1.4. Cash and net debt Cash = risk-free asset that reduces the average risk of the rm’s assets. Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 D = Net Debt = Debt – Excess cash and short-term investments For rms, holding only cash, beta = 0. 13.1.5. Industry asset beta The asset betas (betas of unlevered companies) can be combined for multiple rms in the same industry => this reduce the estimation error in the estimated beta for the project. 14. Project risk characteristics and nancing o Individual projects can be sensitive to market risk o Degree of operating leverage of the project can aect market risk of a project => operating leverage = relative proportion of xed VS variable costs. Higher proportion of xed costs increase the sensitivity of project cash ows to market risks 14.1.1. The weighted average cost of capital (WACC) WACC – tool for evaluating levered projects and investments a) In perfect capital markets = choice of nancing does not aect cost of capital or NPV. b) Taxes – a big imperfection = when interest payments on debt are tax deductible, the net cost to the rm is given by Eective after-tax interest rate = r * (1-Tc) WACC r E∗E r D∗D r WACC = + ( 1−T C ). E+D E+D WACC with taxes (reduction due to the interest tax shield) r E∗E r D∗D r D T C∗D r WACC = + − E+D E+D E+ D Target leverage ratio Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 (leverage increase the risk of equity): D r WACC =r U − T r. E+D C C 8. BONDS *you become creditor (less risky than stocks, when company in default – rst pay bonds) 8.1. Valuaon of zero bonds and coupon bonds and coupon bonds with annual maturity 8.2. Concept of eecve interest rate (bond become more aracve when the interest drops) 8.3. Duraon and convexity of bond *Long-term contracts with issuers *Debt instrument, usually its cash ows can be easily predicted 9. CAPITAL STRUCTURE – WHERE DO I GET MONEY FROM? 1. Equity VS debt nancing 14.1.2. Capital structure = collection of securities the rm issues to raise capital from investors – equity and debt. The owner should choose the structure that maximises the total value of the securities. Main types of capital structure: 1. Financing the rm with equity 2. Financing the rm with equity + debt 15. Modigliani-Miller 1: Leverage and arbitrage (кредитование и арбитраж) 15.1.1. General assumptions - Homogeneous expectations - Homogeneous business risk classes - Innite (perpetual) cash ows - Perfect capital markets = competitive market prices equal to present value of future cash ows; there are no taxes, transaction costs, issuance costs or agency costs, associated with security trading; rm’s nancing decisions do not change the cash ows, generated by investments and do not reveal new information about them. Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 15.1.2. MM 1: In the perfect market: Perfect market: 1) Present value of securities = future value of their cash ows 2) There are no taxes, no transaction costs 3) Firm’s nancing decision do not change the cash ow generated by its investments, not do they reveal additional information about them total value of the firm=market value of the total cash , generated by its assets ( not affecred by the capital structure ) E+D=U = A Market value of equity in levered rm + Market value of debt in levered rm = = Market value of equity in unlevered rm = Market value of the rm’s assets Reasons: - Market value of the rm is independent of its capital structure. - Changing the debt to equity will only change the way net operating income is distributed between lenders and shareholders, but not the value of the company. Proof: a) Law of one price (no arbitrage) = the rm’s securities and assets must have the same total market value. b) Homemade leverage = investors use the leverage in their own portfolios to adjust the leverage made by the rm. in a MM world, investors can borrow debt privately at the same price (cost of capital) to invest this money in a company as if the company itself would borrow the amount. 15.1.3. How do rms adjust their capital structure? Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 Debt has lower cost of capital. The increase in cost of equity due to the rm’s leverage will oset the benet -> so the overall costs will remain unchanged. 16. Modigliani Miller 2: Leverage and cost of capital (кредитование и стоимость капитала) The return on unlevered equity ( r U ¿ is related to the returns of levered equity (r E ) and debt (r D ) : E∗r E D∗r D rU = + =WACC (without taxes) D+E D+ E The cost of capital of levered equity (r E ) = the cost of capital of unlevered equity + premium that is proportional to the market value of the debt to equity ratio. D r E=r U + (r U −r D ) E With the perfect capital markets, a rms WACC is independent of its capital structure and = to its equity cost of capital if its is unlevered, which matches the cost of capital of its assets. 16.1.1. WACC with multiple securities If there are multiple securities => WACC is calculated by computing the weighted average cost of all the securities. 16.1.2. Unlevered and levered rms Unlevered rm => D = 0 Levered rm r U =r A r WACC =r U =r A E∗β E D∗β D D βU= + β E =β U + (β U −β D ) D+ E D+ E E Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 *correlation between debt provider and market return is zero 17. Capital structure fallacies 17.1.1. Leverage and earnings per share 17.1.2. MM and earnings per share 17.1.3. Equity insurances and dilution 17.1.3.1. Dilution = increase in the total of shares that will divide a xed amount of earnings 17.1.3.2. Dilution VS equity issuance (like scaling) - If rm sales the new shares of equity at a fair price, there will be no gain or loss to shareholders. If there is a change it can be explained by the change of the risk. - Any gain or loss associated with transaction will result from NPV of the investments the rm makes with the funds raised (investor perspective: why company is raising money? => market can get a negative feeling and lower the share prices. Not technical, but market inuence + behaviour). 10. STOCKS (you get a share of a company) 10.1. Share prices and returns 10.2. Dividend discount model 10.3. Relaonship between the dividend policy and the enterprise value *Stocks index – shows the state of the economy DAX Germany MSCI World S&P Global 100 NASDAQ 11. CAPITAL STRUCTURE AND TAXES – WHY TO USE DEBT? 1. The interest tax deduction Why to choose debt? Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 1) encourages company’s participation in market 2) privileges banks 3) reduces the amount of money, on which taxes should be paid EBIT – Interest expenses = Income before tax Income before tax – tax = Net income  Taxable amount is reduced because of using debt instead of equity! 17.1.4. Interest tax shield = reduction in taxes paid due to the tax deductibility of interest Interest tax schield=corporate tax rate× interest payments 18. Valuing the tax shield The cash ows a rm with debt pays to investor will be higher than they would be without debt by the amount of the interest tax shield. cash flows¿ investor with leverage=cash flows ¿ investor without leverage+interest tax schield 18.1.1. MM proposition 1 (with taxes): V L =V U + PV ( present value of the interest tax schield ) 18.1.2. The interest tax shield without risk payment∗1 1 PV ( Interest Tax Shield )=marginal tax rate∗interest ∗(1− ) rf ( 1+r f ) years 18.1.3. The interest tax shield with permanent debt Usually future interest payments are uncertain due to: marginal tax rate, amount of debt outstanding, interest rate on the debt, risk of the rm. We assume, that they are constant. Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 T C∗Interest T C ∗( r f∗D ) PV ( Interest Tax Shield )= = =T C ∗D rf rf CF CF PV = , if we have growth , then PV = r r−g 18.1.4. The WACC with taxes Lower as pre-tax WACC, which is the average return paid to the investors. For WACC with taxes I should pay less to my investors. The higher the rms leverage – the lower WACC and the more it exploits the tax advantage of debt. 18.1.5. The interest rate shield with a target debt-to-equity ratio 18.1.6. Recapitalizing to capture the tax shield In the presence of corporate taxes, the tax shield should be stated as rms asset. 19. Optimal capital structure 19.1.1. Optimal level of leverage Interest = EBIT Limitations: - It’s unlikely to predict future EBIT of rm (and optimal level of debt) precisely. - If there is uncertainty about EBIT => risk that interest > EBIT => tax savings for high levels of interest falls, possibly reducing the optimal level of the interest payment. 12. ABBREVIATIONS NWC net working capital PPE Property, plant and equipment EV Enterprise value TEV Total enterprise value EPS Earnings per share p Dividend ratio Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 (1-p) Investment ratio w Growth ratio Represents the growth of the earnings per share and the dividents per share (if there is an assumption that p remains constant). COGS Costs of goods sold SGA Selling, general and administrative expenses D&A Depreciation and amortization expenses EBIT Earnings before taxes //and interest P/E Price-to-earning ROE Returns on equity =for every dollar you invest you get a return, which is new earnings ROA Returns on assets ROIC Return on invested capital Liquidity How much capital is bonded in the project drain Ad hoc Ad hoc is a Latin phrase meaning "for this". In English, it generally signies a solution designed for a specic problem or task, non-generalizable, and not intended to be able to be adapted to other purposes (compare with a priori). PI Protability index Tc Corporate tax rate CapEx Capital expenditures CAPM Capital asset pricing model WACC Weighted average cost of capital 13. FORMULAS Assets ' Assets=Liabilities+ Shareholde r sequity Net debt Net debt=Total debt−Cash∧Short−term investments Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 Total equity Net income Net income=EPS∗number of shares Net income=total earnings of the equity shareholders market value of equity Market−¿−book ration( M / B)ratio= book value of equity Book value of equity =book value of assets−book value of liabilities Market value if equity ( market capitalization )=market price per share∗number of shares EV =Market value of equity + Debt −Cash=Market value of equity + Net debt Net income EPS= Number of shares Gross profit Gross margin= Sales Operating income Operating margin= Sales Sales ¿ EBIT EBIT margin= ¿ Net income Net profit margin= Sales *used in ROE Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 current assets( cash+short−term investments) Current ratio= current liabilities cash Cashratio= current liabilities scheduled cash +short investments+ account recievables (¿recieve money) Quick ratio= current liabilities EBIT EBIT = Interest coverage interest expense EBITDA EBITDA = Interest coverage interest expense Price−¿−earning ( PE ) ratio= MarketNetcapitalization income = Market price per share EPS Market value of equity+ Debt−Cash EV ¿ EBIT = EBIT Market value of equity + Debt−Cash EV ¿ Sales= Sales Total debt Debt−equity ratio= Total equity Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 Total debt Debt−¿ capital ratio= Total equity +total debt Net debt Debt−¿−EV ratio= Market value+ Net debt Total assets Equity multiplier= Book value of equity *used in ROE ROE Net income Sales Total assets ROE= × × Sales Total assests Book value of equity Net income ROE= Book value of equity w=ROE∗( 1− p ) ROA Net income+ Interest expense ROE= Total assets ROIC EBIT ×(1−Tax rate) ROIC= Book value of entity+Net debt Asset Sales Asset turnover= turnover Total assests NPV T CF t NPV =∑ t =0 (1+r )t Heruntergeladen durch Junya Yano ([email protected])  lOMoARcPSD|36760513 NPV of FCF 1 1 PV ( FCF t )=FCF t × t , where is a discount factor ( 1+r ) ( 1+r )t IRR T CF t NPV =∑ =0 (1+ IRR)t t =0 PI Valuecreated Net present value PI = = Resources consumed Resources consumed Direct FCF=( Revenue−Costs−Depreciation ) × ( 1−T C ) + Depreciation−CapEx−∆ NWC calculation FCF=( Revenue−Costs ) × ( 1−T C )−CapEx−∆ NWC+T C × Depreciation of the free cash ow Income tax Income tax=EBIT +T C CAPM, by r i=r f + β i∗( E [ r Mkt ]−r f ) , SML where βi∗( E [ r Mkt ] −r f ) is arisk premium for security i( RP Mkt ) equation ( E [ r Mkt ]−r f ) = equity risk premium E [ r Mkt ] = expected return on the market rf = risk-free rate P/E share price P0 price−earning ration= = expected earnings per share EPS 1 Heruntergeladen durch Junya Yano ([email protected])