| Question | Answer |
| Net cash flow | Net income - Noncash revenue + Noncash charges
OR
Net income + Depreciation and amortization |
| NOPAT (Net Operating Profit After Taxes) | The amount of profit a company would generate if it had not debt and held no financial assets. Better measure of performance than Net Income.
EBIT(1-tax rate) |
| NOWC (Net Operating Working Capital) | Difference between op current assets and op current liabilities. The working capital acquired with investor-supplied funds.
Operating current assets - Operating current liabilities |
| Total net operating capital | Total amount of cap needed to run business
NOWC + operating long-term assets |
| FCF (Free cash flow) | Amt of cash flow available to investors
NOPAT - Net investment in op cap
OR
(NOPAT + Dep) - (Net inv in op cap + Dep)
OR
Operating cash flow - Gross inv in op cap
OR
Operating cash flow - Gross inv in long-term op assets |
| Gross investment in operating capital | Net investment in operating capital + Depreciation |
| Operating cash flow | NOPAT + Depreciation |
| ROIC (Return on invested capital) | Helps to determine if growth is profitable. If ROIC > rate of return required by investors, then negative FCF is no problem.
NOPAT / Operating capital |
| MVA (Market value added) | Difference between market value of stock and equity capital provided
Mkt value of stock - Equity cap provided by shareholders
OR
(Shares outstanding)(Stock price) - Total common equity |
| EVA (Economic value added) | Estimate of management value addNOPAT - after-tax cost of capital used to support ops
OR
EBIT(1-taxrate) - (Total net op cap)(WACC) |
| Current Ratio | Prime test of liquidity. Creditors generally like it high. Measures extent to which creditors are covered by assets in case of trouble.
Current assets / Current liabilities |
| Quick Ratio, Acid Test | Ability of firm to pay off short-term obligations without having to liquidate inventory, which is the least liquid of current assets.
(Current assets - Inventories) / Current liabilities |
| Inventory turnover ratio | How many times inventory is cleared and restocked per year. High is good.
Sales / Inventory |
| DSO (Days sales outstanding) | Average collection period. Lower the better.
Receivables / (Annual sales/365) |
| Fixed assets turnover ratio | How effectively firm uses PPE. Higher the better.
Sales / Net fixed assets |
| Total assets turnover ratio | Sales / Total assets |
| Debt ratio | Creditors prefer low (bigger cushion). Stockholders may want high (more leverage = more return).
Total liabilities / Total Assets |
| Debt to equity ratio | Version of debt ratio that gives perspective on the non-asset side of the BS.
Total liabilities / (Total assets - Total liabilities) |
| Market debt ratio | Reflects risk to future cash flows
Total liabilities / (Total liabilities + Market value of equity) |
| TIE (Times interest earned) Ratio | Measures how much operating income can decline before firm will be unable to pay annual interest costs. Higher the better.
EBIT / Interest expense |
| EBITDA coverage ratio | Like TIE but accounts for other scheduled payments and full available FCF.
EBITDA + Lease payments / (Interest + Principal payments + Lease payments) |
| Net profit margin | Profit per dollar of sales
Net Income / Sales |
| Operating profit margin | Shows efficiency of operation without consideration for Int or Taxes
EBIT / Sales |
| Gross profit margin | Gross profit per dollar of sales before any expenses are deducted
(Sales - COGS) / Sales |
| BEP (Basic earning power) ratio | Earning power of firm before consideration of tax and leverage. Good tool to compare companies with different tax/leverage situations.
EBIT / Total assets |
| ROA (Return on total assets) | How much a company earns per dollar of assets
Net income available to stockholders / Total assets
OR
Profit margin * Total assets turnover |
| ROE (Return on common equity) | How effectively management uses funds from equity
Net income available to stockholders / Equity
OR
ROA * Equity multiplier |
| P/E (Price to Earnings) Ratio | How much investors are willing to pay per dollar of profits. Higher the better.
Price per share / earnings per share |
| Book value per share | Common equity / Shares outstanding |
| M/B (Market to Book) Ratio | Market price per share / Book value per share |
| Equity multiplier | Helps get ROE from ROA
Total assets / Common equity |
| AFN (Additional funds needed) | Required increase in assets - Increase in spontaneous liabilities - Increase in retained earnings |
| Self-supporting growth rate | M(1-POR)(S)
over
A - L - M(1-POR)(S)
M = last year's profit margin
POR = last year's payout ratio, net income/sales
S = last year's sales
A = required increase in assets
L = last year's spontaneous assets (payables + accruals) |
| CCC (Cash conversion cycle) | Time from which the product materials are bought, product is made and product is sold.
Inventory conversion period + Average collection period - Payables deferral period |
| Inventory conversion period | Time it takes to convert new inventory to cash.
Inventory / COGS per day |
| Payables deferral period | Time given by suppliers to pay back
Payables / COGS per day |
| Nominal cost of trade credit | Cost incurred by firm using supplier credit (forgoing discounts) instead of bank.
Discount % / (100 - discount %)
multiplied by
365/ (Days credit is outstanding - discount period) |
| Approximate annual rate (add on) | A method of calculating interest whereby the interest payable is determined at the beginning of a loan and added onto the principal.
Interest paid / (Amount received / 2) |
