đź“… Thursday, May 2nd, 2024
Friendship often ends in love, but love in friendship - never.
— Albert Camus
MGT011A Lecture:
How to evaluate a company’s performance during an accounting period? We can use return on asset (ROA): net income / total assets
- problem: we can’t tell if this is a good year or bad year
- solution: ratio analysis
ratio analysis
- trend analysis: compare the company’s results in terms of ratios ()
- benchmarking: compare to competitors
balance sheet shows how assets are funded (debt or equity?)
- liquidity: current ratio = current assets / current liabilities
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1 means company has enough assets to pay off current liabilities
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- solvency: debt-to-asset ratio = total liabilities / total assets
- measures ability to pay long-term liabilities
- the higher the ratio, the higher the risk of insolvency
income statement allows profitability analysis — the ability of the company to generate income from operations
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return on sales ratio = net income / net sales
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free cash flow (FCF) = net operating profit after taxes - investment