financial analysis and planning principles of corporate finance brealey and myers sixth edition...
TRANSCRIPT
Financial Analysis and Planning
Principles of Corporate FinanceBrealey and Myers Sixth Edition
Slides by
Matthew Will Chapter 28
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 2
Topics Covered
Executive Paper Corporation Financial Ratios The DuPont System Financial Planning Growth and External Financing
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 3
Executive Paper
Executive Paper Balance Sheet
Dec Dec1998 1999 diff
Assets
Current AssetsCash & Securities 100.0 110.0 10.0Receivables 433.1 440.0 6.9Inventory 339.9 350.0 10.1
Total 873.0 900.0 27.0
Fixed AssetsP, P, E 929.8 100.0 -829.8accum Depr 396.7 450.0 53.3
Net Fixed Assets 533.1 550.0 16.9
Total Assets 1,406.1 1,450.0 43.9
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 4
Executive Paper
Dec Dec1998 1999 diff
Liabilities and Equity
Current LiabilitiesDebt due in 1 year 96.6 100.0 3.4Payable 349.9 360.0 10.1
Total current liabilities 446.5 460.0 13.5
Long term debt 400.0 400.0 0.0
Shareholders equity 559.6 590.0 30.4
Total liabilities and equity 1,406.1 1,450.0 43.9
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 5
Executive Paper
Executive Paper - Other Data 1998 1999
Estimated repalcement cost of assets 1110 1231
Market value of equity 598 708
Average number of shares, millions 14.16 14.16
Share price, dollars 42.25 50
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 6
Executive Paper
Executive Paper Income Statement (1999)
$ millionsRevenues 2,200.00Costs 1,980.00Depreciation 53.30EBIT 166.70Interest 40.00Tax 50.70Net income 76.00
Dividend 45.60Retained earnings 30.40Earnings per share, dollars 5.37Dividend per share, dollars 3.22
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 7
Executive Paper
Executive Paper Sources and Uses of Funds (1999)
Sources: $ millionsNet Income 76.00 Depreciation 53.30 Operating cash flow 129.30 Borrowing - Stock issues - Total sources 129.30
Uses:Increase in net working capital 13.50 Investment 70.20 Dividends 45.60 Total uses 129.30
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 8
Leverage Ratios
L o n g t e r m d e b t r a t io =lo n g t e r m d e b t
lo n g t e r m d e b t + e q u i ty
D e b t e q u i t y r a t i o =l o n g t e r m d e b t + v a l u e o f l e a s e s
e q u i t y
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 9
Leverage Ratios
Total debt ratio =total liabilities
total assets
Times interest earned =EBIT
interest payments
Cash cover age ratio =EBIT + depreciation
interest payments
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 10
Liquidity Ratios
Net working capital
to total assets ratio=
Net working capital
Total assets
Current ratio =current assets
current liabilities
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 11
Liquidity Ratios
Cash ratio =cash + marketable securities
current liabilities
Quick ratio =cash + marketable securities + receivables
current liabilities
Interval measure =cash + marketable securities + receivables
average daily expenditures from operations
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 12
Efficiency Ratios
Asset turnover ratio =Sales
Average total assets
NW Cturnover =sales
average net working capital
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 13
Efficiency Ratios
Days' sales in inventory =average inventory
cost of goods sold / 365
Inventory turnover ratio =cost of goods sold
average inventory
Average collection period =average receivables
average daily sales
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 14
Profitability Ratios
Return on assets =EBIT - tax
average total assets
Net profit margin =EBIT - tax
sales
Return on equity =earnings available for common stock
average equity
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 15
Profitability Ratios
Plowback ratio =earnings - dividends
earnings
= 1 - payout ratio
Payout ratio =dividends
earnings
Growth in equity from plowback =earnings - dividends
earnings
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 16
Market Value Ratios
Forecasted PE ratio =P
aveEPS
1
r - g0
1
=Di vEPS
x1
1
PE Ratio =stock price
earnings per share
Dividend yield =dividend per share
stock price
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 17
Market Value Ratios
Market to book ratio =stock price
book value per share
Price per share = P =Div
r - g01
Tobins Q =market value of assets
estimated replcement cost
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 18
The DuPont System
A breakdown of ROE and ROA into component ratios:
ROA =EBIT - taxes
assets
ROE =earnings available for common stock
equity
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 19
The DuPont System
ROA =sales
assetsx
EBIT - taxes
sales
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 20
The DuPont System
ROA =sales
assetsx
EBIT - taxes
sales
assetturnover
profitmargin
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 21
The DuPont System
ROE =assets
equityx
sales
assetsx
EBIT - taxes
salesx
EBIT - taxes - interest
EBIT - taxes
©The McGraw-Hill Companies, Inc., 2000Irwin/McGraw Hill
28- 22
The DuPont System
ROE =assets
equityx
sales
assetsx
EBIT - taxes
salesx
EBIT - taxes - interest
EBIT - taxes
leverageratio
assetturnover
profitmargin
debtburden