Long-term debt /
solvency analysis examines…
- the firms capital structure
- financing sources
- ability to satisfy long-term debt
Profitability
analysis measures…
…the firms income
relative to its
revenues and invested capital
Ratios for long term debt and solvency analysis are…
- Debt Ratios
- Interest coverage ratios
- Capital expenditures and CFO-to-debt ratios
Ratios for profitability analysis: return on sales, are…
- Gross (profit) margin
- Profit Margin
- Operating margin
- Margin before interest & Tax
Ratios for profitability analysis: return on investment, are…
- Return on Assets
- Return on Capital
- Return on Equity
the main four categories of ratio analysis are:
- Activity analysis
- Liquidity analysis
- Long-term debt / solvency analysis
- Profitability analysis
Debt to total Capital
= Total Debt / Total capital (debt & equity)
Debt to equity
= Total Debt / Total Equity
Interest coverage ratio
Times interest earned = EBIT / Interest Expenses
Capital Expenditure Ratio
CFO / CapEx
CFO to Debt
CFO / Total Debt
Gross Profit Margin
= Gross Profit / Sales
Operating Margin
= Operating Income / Sales
Return on assets (Pretax)
ROA = EBIT / Avg. Tot. Assets
Return on Capital (after-tax)
(Net Income + After Tax Interest Cost) / Avg. Tot. Assets
Return on total Capital
ROTC = EBIT / Average (tot. Debt + Stockholders Equity)
ROE (pretax)
= Pretax Income / Avg. Stockholders Equity
Calculation of EBIT
Net sales
- COGS (w/o dep. amor)
=Gross Profit
- Selling, General, administrative
- Research & development
+ - other Income / expenses
=EBITDA - Dep. amor
=EBIT
+ interest and other financial income
- interest and other financial expenses
= EBT
- income taxes
= Net profit
Total debt consists of…
- short term debt
- long term debt
total capital consists of…
- total debt
- total equity
implication of Gross (profit) margin
Relationship between sales and manufacturing costs
implication of operating margin
profitability from operations
implication of margin before interest & tax
independent of finance and tax position
implication of profit margin
net of all expenses
