Summary: Ratio Analysis - Corporate Finance [EMNF2724]
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Course
EMNF2724 (EMNF2724)
Institution
University Of The Freestate (UFS)
Book
Corporate Finance
Notes of a second year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Financial Management by using this notes. If you are struggling with Financial Management use this no...
Summary: Time Value of Money - Corporate Finance [EMNF2724]
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EMNF2724 (EMNF2724)
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LU/CHAPTER 3: RATIO ANALYSIS
Profitability ratios:
Efficiency with which company utilises its capital to generate turnover
Ratio Formula
𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥
Return on Assets (ROA) % x 100
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥
Return on Equity (ROE) % x 100
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦
Return on shareholders’ 𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥 − 𝑛𝑜𝑛−𝑐𝑜𝑛𝑡𝑟𝑜𝑙𝑙𝑖𝑛𝑔 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑠
x 100
equity (ROSE) % 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝑒𝑞𝑢𝑖𝑡𝑦
Return on ordinary 𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥 − 𝑁𝐶𝐼 − 𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
shareholders’ equity (ROSHE) x 100
% 𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝑒𝑞𝑢𝑖𝑡𝑦
Operating profit margin (OP) 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡
Profit made by turnover
x 100
% 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 (𝑟𝑒𝑣𝑒𝑛𝑢𝑒)
Higher is always better,
Earnings before interest and 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡 + 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
tax margin (EBIT) %
x 100 Lower expenses
𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 (𝑟𝑒𝑣𝑒𝑛𝑢𝑒)
𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥
Net profit margin (NP) % x 100
𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 (𝑟𝑒𝑣𝑒𝑛𝑢𝑒)
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