Analyzing Historical Financial Performance
11 important questions on Analyzing Historical Financial Performance
What is a type of benchmarking in which a company's performance in a given period is compared to its performance in previous periods?
How can someone obtain a clearer picture of the overall financial performance of a company?
Name four different ratio classification that analyse the financial performance of a company.
- Activity ratios
- Liquidity ratios
- Solvency ratios
- Profitability ratios
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Name the 8 activity ratios in financial ratio analysis.
- Days sales outstanding (DSO) = 365 / receivable turnover (revenue / accounts receivable)
- Days of inventory on hand = 365 / inventory turnover (COGS / inventory)
- Days payable outstanding (DPO) = 365 / payable turnover (COGS / accounts payable)
- Total asset turnover = revenue / total assets
- Fixed asset turnover = revenue / fixed assets
With what kind of profit margin should a company have a high inventory turnover?
What does inventory turnover tell you?
In certain times, inventory might not be a liquid. When does this happen?
Name the 5 solvency ratios in the financial ratio analysis.
- Interest coverage (times interest earned) = operating income / interest expense
- Debt-to-equity ratio = total debt / total shareholders' equity
- Debt-to-assets ratio (debt ratio) = total debt / total assets
- Debt-to-capital = total debt / total debt + total shareholders' equity
- Equity multiplier (financial leverage) = total assets / total shareholders' equity
What are the profitability ratios in the financial ratio analysis?
Name the 8 profitability ratios in the financial ratio analysis.
- Gross profit margin = gross profit / revenue
- Operating profit margin = operating profit / revenue
- Pretax profit margin = EBT / revenue
- Net profit margin = net profit / revenue
- Operating return on assets = operating income / total assets
- Return on assets = net income / total assets
- Return on invested (total) capital = operating income (1-T) / total debt + shareholders' equity
- Return on equity = net income / shareholders' equity
Why is ROIC preferred over ROE?
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