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IB
Financial Ratios used in Investment Banking
| Question | Answer |
|---|---|
| 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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