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Financial statement analysis Formulas
Liquidity RatiosCurrent Ratio | Current Assets:Current Liabilities | Company's ability to meet its short term obligations | Quick Ratio | Liquid Assets:Current Liabilities | Liquid assets not only excludes inventory |
Is the level of operating capital management to aggressive? Could lead to a loss in business. Also take into account level of operating risk and costs associated with short-term finance. Debt Management RatiosDebt ratio | Total Debt / Total Assets | Indicates extent to which company uses external financing to finance assets | Interest Cover or Times interest earned | EBIT / Interest | Ability to meet interest obligation. EBITDA also used. | Debt/Equity ratio | Total Debt/Total Equity | Gearing ratio of the company |
May need to restate balance sheet interest earning debt - Preference shares (redeemable=debt), deferred tax (do you have obligation to pay?), minority interest (equity), non-interest bearing debt (treat as debt or deduct) Measures of ProfitabilityProfit Margin | Profit / Turnover | Calculated at different levels. Non-trade income should not be included | Organisational profitability / Return on total assets | EBIAT / Total Assets | Return on enterprise as a whole | Return on Equity | Equity Earnings / Total Equity | Difference between ROA and ROE is financial leverage | Financial leverage | ROA vs ROE |
| | Asset Management / effectivenessInventory turnover | Cost of sales / Average inventory (times) | Effectively manage and control inventory. Poor turnover may indicate obsolete stock. (if you don't have COS use SALES) | Inventory turnover rate | Average inventory / COS x 365 (days) | Length of time that inventory is on average held before it is sold. | Days' sales in closing inventory | Closing Inventory / COS x 365 (days) | Days sales left from current closing inventory | Debtor's turnover | Credit Sales / Average Debtor (times) | Evaluate application of Co's credit policy. Too short (sales will be lost) & too long (bad debts) & opp cost | Debtors Collection period | Average debtors / Credit sales x 365 (days) | Reciprocal relationship with debtors turnover | Days Sales in closing debtors | Closing debtors / Credit sales x 365 (days) | Sales represented by closing debtors | Creditors payment period | Average creditors / Credit purchases x 365 (days) | Use COS if credit purchases not available. Too short (not utilising free credit) & too long (Bad reputation) | Asset Turnover | Net Sales / Assets | Management ability to utilise assets effectively to generate sales. Can use different categories of assets |
| | Investor's ratios / Market value ratiosEarnings per share | Earnings / WANOS | Dividend per share | Dividend / No of shares in issue | Earnings Yield | EPS / Share price | Dividend Yield | DPS / Share Price | Dividend cover | EPS / DPS | Price - Earnings Ratio | Share Price / EPS | High PE ratio can indicate investor's confidence and growth prospects. Repayment period in years of share investment. How much investors will pay per R1 of co's earnings. | PEG | PE / Expected sustainable growth | 2 companies taht are in different growth stages (eliminating growth impact) | Nest Asset Value per Share | NAV / WANOS | Compare share price to NAV ps = trading at a discount? | Shareholder return | (Share price(end) - Share price(beg) + Dividend) / Share price(beg) | Compare to ALSI return | Dividend Payout ratio | DPS / EPS | Use to calculate sustainable growth | Sustainable growth | 1 - Dividend Payout Ratio |
Cash Flow StatementCash flow to total debt | CF from Operations / Total Debt | Indicator of financial distress | Cash ability to cover finance charges | CF from Operations / Interest Paid | Ability to pay interest from cash available | Cash generating ability of co | CF from Operations / Turnover |
Remember CASH IS KING! so any Cash Flow Ratio will be more reliable as to the true performance and going concern ability of the company |
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