Financial analysis - Appunti totali

LONG-TERM LIQUIDITY RATIOS

Debt-to-Equity Ratio: The Debt-to-Equity Ratio is a ratio that measures the amount of debt a company has relative to its equity. It is calculated by dividing the company's total liabilities by its total stockholders' equity.

1. How much debt does the company have relative to its equity?
2. Is the company relying more on debt financing or equity financing?
3. How does the company's Debt-to-Equity Ratio compare to other companies in the same industry?

Long-Term-Debt-to-Equity Ratio: The Long-Term-Debt-to-Equity Ratio is a ratio that measures the amount of long-term debt a company has relative to its equity. It is calculated by dividing the company's total long-term debt by its total stockholders' equity.

1. How much long-term debt does the company have relative to its equity?
2. Is the company relying more on long-term debt financing or equity financing?
3. How does the company's Long-Term-Debt-to-Equity Ratio compare to other companies in the same industry?

The Long-Term Debt to Tangible Assets Ratio is a ratio that measures the amount of long-term debt a company has relative to its tangible assets. It is calculated by dividing the company's total long-term debt by its total tangible assets (total assets minus intangible assets).

1. How much long-term debt does the company have relative to its tangible assets?
2. What percentage of the company's tangible assets are financed through long-term debt?
3. How does the company's Long-Term Debt to Tangible Assets Ratio compare to other companies in the same industry?

Esercizio Excel "Case study all students".

Possiamo analizzare i grafici degli indicatori per le 3 imprese:

• Se guardiamo il current ratio vediamo che Specilty Pet retail ha una probabilità di bancarotta maggiore, poiché ha un current ratio minore. Le altre sono simili.
• Se si guarda il quick ratio woof junction avrà minori

Il tuo compito è formattare il testo fornito utilizzando tag html.

ATTENZIONE: non modificare il testo in altro modo, NON aggiungere commenti, NON utilizzare tag h1;

ha un valore molto maggiore.

• Vendiamo anche che i debiti a lungo sono molto bassi (long term debt to equity)

Chapter 5 - Financial Analysis

Key Concepts in Chapter 5

There are two primary tools in financial analysis:

• Ratio analysis – to assess how various line items in financial statements relate to each other and to measure relative performance (in relazione anche con I benchmark)
• Cash flow analysis – to evaluate liquidity and the management of operating, investing, and financing activities as they relate to cash flow.

Misura la differena di liquidità tra il tempo t-1 e il tempo t

Determinants of Firm Value and Ratio Analysis

Profitability and growth drive firm value.

Managers can employ four levers to achieve growth and profit targets:

• Operating management (core business dell’impresa)
• Investment management (riguarda la strategia d’investimento)
• Financing strategy (come l’impresa decide di finanziare le attività)

1. Equity o debito
2. Dividend policy

Ratio analysis seeks to evaluate the firm's effectiveness in these areas.

Evaluating ratios requires comparison against some benchmark. Such benchmarks include:

• Ratios over time from prior periods (time series)
• Ratios of other firms in the industry (cross-sectional)
• Some absolute benchmark

Effective ratio analysis must attempt to relate underlying business factors to the financial numbers.

The text illustrates ratio analysis by applying it to European fashion retailers: Hennes & Mauritz (H&M), Inditex, and other industry peers.

Come va questo settore dove operano le 2 imprese?

Quali strategie utilizzano?

Hanno quindi strategie molto differenti tra loro.

Measuring Overall Profitability

ROE is a

comprehensive measure of and is a good starting point to systematically analyze firm performance.

Profit or loss=ROE Shareholders' Equity

Confronto dei ROE di H&M, Inditex e degli altri competitor.

Decomposing Profitability: Traditional Approach= ROE ROA Equity multiplier

Profit or loss Total assets= Total assets Equity

Equity multiplier = financial leverage

Inditex ha un vantaggio dal punto di vista del ROS; invece, H&M ha un maggiore utilizzo di debito (financial leverage) che gli permette di alzare la redditività.

Approccio alternativo per calcolare il ROE (Return on invested capital (ROIC) + spread* financial leverage).

Il ROE può essere accresciuto con una maggiore leverage, però allo stesso tempo questo fa aumentare gli interessi che quindi fanno aumentare il costo per l'indebitamento.

RNOA (return on net operating assets)= è la parte più importante perché riguarda il core business dell'impresa. È più importante del

asset (dato che oprating workin capital= current asset-current liabilits) 58

Decomposing Profitability: Alternative Approach

The traditional approach has some limitations imposed by the composition of the denominator and numerator

An alternative approach computes ROE as ultimately being equal to: Return on invested capital + Spread * Financial leverage

Detail of Alternative ROE Decomposition

Se una impresa non utilizza capitale a prestito avrà il ritorno solo del capitale investito; se utilizza anche il financial leverage può incrementare il ritorno.

59

H&M versus Industry peers: Comparison of ROE Components

Inditex ha avuto un forte ritorno per il non-operating investment, di conseguenza il ritorno sul capitale investito è diminuito, poiché la maggior parte dei ritorni sono stati da attività non operative.

Discussion of Results from Profitability Analysis

Note the differences between key components of the traditional and alternative FY 2017

ROEdecompositions: 60

Assessing Operating Management: Income Statement Ratios

Common-sized income statements facilitate comparisons of key line items across time and different firms.

Additionally, the following ratios are also helpful:

• Gross profit margin (by function only)
• EBITDA margin
• NOPAT margin
• Recurring NOPAT margin

Gross Profit Margin

Measures the profitability of sales, less direct costs of sales:

The gross profit margin is an indicator of:

• The price premium that a firm's product commands in the market
• The efficiency of a firm's procurement and/or production process

Revenue - cost of sales = premium price (che l'impresa riesce a imporre)

NOPAT and EBITDA Margins

The NOPAT margin provides a comprehensive measure of operations:

The EBITDA margin eliminates the significant non-cash expenses of depreciation and amortization along with interest and taxes: 61

A Comparison of Key Income Statement Ratios for H&M and its industry

Asset turnover is the second driver of a company's return on equity. Since firms invest considerable resources in their assets, using them productively is critical to overall profitability. A detailed analysis of asset turnover allows the analyst to evaluate the effectiveness of a firm's investment management. Asset turnover may be broken into two primary components:

1. Working capital management (short-term investments):

   Operating working capital = (Current assets - Excess cash and cash equivalents) - (Current liabilities - Current debt and current portion of non-current debt)

2. Non-current asset management (long-term investments)

   Net non-current operating asset = Total non-current operating assets - Non-interest bearing non-current liabilities

   Non-interest bearing non-current liabilities = debiti verso fornitori (non si pagano interessi)

   Interest bearing = maturano interessi (non-interest bearing = non maturano)

Working Capital Management

Capital is the difference between current assets and current liabilities. Key ratios useful to analyzing the management of working capital include:

• Operating working capital to sales
• Operating working capital turnover
• Accounts receivable turnover
  • Day's receivables
• Inventory turnover
  • Day's inventory
• Accounts payable turnover
  • Day's payables

Operating working capital turnover indicates how many euros of revenue a firm is able to generate for each euro invested in its operating working capital. Trade receivables turnover, inventories turnover, and trade payables turnover allow the analyst to examine how productively the three principal components of working capital are being used. Days' receivables, days' inventories, and days' payables are another way to evaluate the efficiency of a firm's working capital management.

Non-current