Financial Ratios: Homework Set 1 Assignment – FIN 534, Week 1

Summary

Financial ratios help assess a company's performance. Students learn how to calculate and interpret these ratios to evaluate a firm's financial health.

Financial Ratios and Free Cash Flow

Free cash flow is calculated. Liquidity ratios show how well a company can meet short-term obligations. Current and quick ratios are explained.

Efficiency Ratios

Turnover ratios measure how well a company uses its assets to generate sales. Inventory turnover, days sales outstanding, fixed asset turnover, and total asset turnover are discussed.

Solvency Ratios

Solvency ratios indicate a company's ability to meet long-term debts. Debt ratio, liability to asset ratio, times interest earned, and EBITDA coverage are examined.

Profitability and Market Ratios

Profitability ratios show how well a company generates profit. Market ratios indicate how the market values a company. Profit margin, return on assets, return on equity, price earnings ratio, price/cash flow ratio, and market to book ratio are covered.

Key terms

Free Cash Flow

The cash a company generates after accounting for capital expenditures and working capital.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.

Inventory Turnover

How often a company sells and replaces its inventory within a given period.

Debt Ratio

The proportion of a company's assets that are financed by debt.

Profit Margin

The percentage of revenue that exceeds costs in a given period.

DuPont Analysis

A method to measure a company's return on equity by breaking it down into three parts.

Questions this document helps with

• How do you calculate free cash flow?
• What do liquidity ratios tell you about a company?
• How do turnover ratios indicate a company's efficiency?

Summary written with AI from the document's text.