8. Liquidity Ratios :
The liquidity of the firm measured by it’s ability to
satisfy it’s short term obligation and it represent
financial position in other word can Company pay it’s
bills
Current Ratio: (%)
C/R = Current assets
Current Liabilities
The higher C/R , The more liquid the firm
( Higher – Better )
9. Cont. Liquidity Ratio in Personal Finance
Individuals like Corporation can use financial
Ratio to analysis
Example :
Ahmed el Hosiny s’ total liquid assets 2225 L.E
and he has total current debts 21539 L.E ( Loan
– Mortgage payment – Car loan )
C/R = 2225 = 0.1033 * 100% = 10.3%
21539
10. Cont. Liquidity Ratios :
Quick Ratio :
Quick Ratio like similar to current
Ratio except it’s excludes Inventory
( It low liquidity – can’t sold easily –
Inventory in common sold in Credit )
Quick Ratio = Current assets – Inv.
Current liabilities
Which Better C/R - Quick Ratio ?
11. Activity Ratio
1) Inventory Turnover :
Measures activity , liquidity of firm’s inventory which
means Measures the speed of converting
inventory into sales.
Inventory Turnover =
Cost of Goods sold ( COGS )
Inventory
If inventory turnover=2, this means that the firm
changes inventory 2 times a year
12. Average payment period :
It means average age of accounts payable
APP= AP
Average purchase per day
= AP
annual purchase/360
If APP is 50, it takes the firm 50 days to pay an
AP.
13. 2) Average Collection Period :
Is useful in evaluating credit and collection Policies
Average Collection period =
Account Receivable
Annual Sales / 360 days
15. It indicates the efficiency with which the firm
uses its assets to generate sales.
Total assets turnover=
sales
total assets
If total assets turnover is 0.5, the firm turns over
its assets 0.5 times a year or (every $1 invested in
assets generate $0.5)
The higher this ratio ,the more efficient the firm’
s assets have been used .
16. The higher the portion of borrowed
funds to owner-contributed funds,
the greater the assumed risk to
lenders.
17. Debt equity ratio:
Indicates how well the shareholders’ investment in the
company provides cushion for assets shrinkage.
Measures how much the shareholders have a risk
(capital structure).
Debt to equity ratio =
total liabilities
total assets
18. Times Interest Earned Ratio:
sometimes called the interest coverage ratio,
Measures the firm’s ability to make contractual
interest payments. The higher its value, the better
able the firm is to fulfill its interest obligations.
Times Interest Earned Ratio=
Earnings before interest and taxes
Interest expense
19. Measures the company’s ability
to sell its products or provide a
service at a price that exceeds
its expenses.
20. Gross Profit Margin (%)
It measures the percentage of each sales dollar
remaining after the firm has paid for its goods.
GPM = Sales – cost of goods sold
sales.
= Gross Profit
sales.
A higher GPM , better
21. Operating Profit Margin (%)
It measures the percentage of each sales dollar
remaining after all costs and expenses other than
interest, taxes, and preferred stock dividends are
deducted.
OPM=Operating Profits (EBIT)
sales
A higher OPM , better
22. Net Profit Margin
It measures the percentage of each sales dollar
remaining after all costs and expenses including
interest, taxes, and PS dividends are deducted.
NPM= earnings available to CS
sales
A higher NPM , better
23. Earning per share
It represents the number of dollars earned during
the period on behalf outstanding shares of CS.
EPS=
earnings available to CS
number of shares of CS outstanding.
A high EPS , better
24. Return on total assets (ROA)
It measures the overall effectiveness of the firm in
generating profits from available assets.
It’s called return on investment.
ROA=
earnings available to CS
total assets
If ROA is 7% this means that the firm earns 7 cents
on each dollar invested in total assets during the
past years.
25. Return on common equity (ROE)
It measures the return earned on the common
stockholder’s investment in the firm.
ROE=earnings available to CS
common stock equity.
If ROE is 12% this means that the firm earns 12
cents on each dollar in common stock equity during
the past year.
A high ROE , better.
26.
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29.
30. Objective:
Game Cont.
Getting into the vault without your faces being detected by any security
camera
What you have:
5 Socks A Spoon A DODGE RAM vehicle
Electric Shocker 3 Suits A mobile phone
What they have:
Guards with guns (the blue dots)
Metal Detector on front entrance
Vault that only opens with the eye scan of the manager
