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IB

Financial Ratios used in Investment Banking

QuestionAnswer
What are the types of financial ratios typically analyzed in Investment Banking? Liquidity, Leverage, Activity, Profitability,, Growth
What does liquidity ratio measure? Ability of company to meet current obligations
What is the liquidity ratio used for? Credit analysis. Lower the ratio the higher the risk.
What are the types of liquidity ratios? Current ratio, Quick ratio.
What is the current ratio? Current ratio = current assets/ current liabitlies
What is the Quick ratio? Quick ratio = (Current assets- inventory)/ Current liabilities
What does the leverage ratios measure? Assesses the financial risk from debt and interest rate levels. Used for credit analysis and industry specific gauges.
What is the Debt to EBITDA Multiple? Debt Multiple = Total Debt/EBITDA
What is the Interest Coverage Ratio? (EBITDA + other income)/interst
What is the Cost of Debt Estimate? Estimates the company's cost of debt (blended interest rate) Cost of Debt Estimate = Interest Expense/Total Debt
What is an Activity Ratio? Activity ratios measure utilization of assets.
What is inventory turnover? the number of times inventory is replaced
What is the Inventory Turnover Ratio? Inventory Turnover = COGS/Inventory
What is Asset Turnover? Revenue generated for every $ worth of assets.
What is the Asset Turnover Ratio? Asset Turnover = Revenue/Assets
What is AR Days? The number of days it takes to collect revenue.
What is AR Days Ratio? AR Days = (AR * 360)/Revenues
What is AP Days? The number of days it takes it takes to pay your accounts apayable.
What is AP Days ratio? AP Days = (AP * 360)/COGS
What do profitability ratios measure? Measures the company's profitability. It is an indicator or performance relative to competition.
What is the Gross Profit Margin ratio? Gross Profit Margin = Gross Profit/ Sales = (Sales - Cogs)/Sales
What is the EBIT % ratio? EBIT % = EBIT/Sales = (Sales - COGS - SG&A)/Sales
What is the EBITDA % ratio? EBITA % ratio = EBITDA/Sales = (Sales - COGS -SG&A + D&A)/Sales
What is the Net Income % ratio? Net Income % = Net Income/Sales
What the growth % ratios measure? Measures change from the previous period.
How do you calculate growth rates? Growth % = (Period 1 -Period 0)/Period 0 = Period 1/Period 0) -1
What is CAGR? Compounded growth rate.
How is CAGR calculated? CAGR = (Ending Value/Beginning Value)^(1/# of years) - 1
What is LTM? LTM = Last Twelve Monthes
How is LTM calculated? LTM = Current YTD + Last FYE - Previous YTD
Created by: jsolo51
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