CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term...
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Transcript of CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term...
![Page 1: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/1.jpg)
CF
473.32
3
Winter 2014
![Page 2: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/2.jpg)
07 Winter 472.42 2
Corporate Finance
1. Capital Budgeting Long-term investments
• which ones?
2. Capital Structure Long-term financing
• where?
3. Working Capital Management Ongoing financial activities
• how?
![Page 3: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/3.jpg)
07 Winter 472.42 2
Comparing
apples to apples size time one-to-many
![Page 4: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/4.jpg)
07 Winter 472.42 2
Comparing
3 basic ways1. common size
2. base year
3. ratios
![Page 5: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/5.jpg)
07 Winter 472.42 2
Comparing
1. common size
3,373
2,880 2,731Net, P & E
3,588Total assets
Fixed assets
708642Total
422393Inventory
188165A/R
98$ 84Cash
Current assets
Change20062005
PrufrockBalance Sheets
![Page 6: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/6.jpg)
07 Winter 472.42 2
Comparing
1. common size
0100.0
.7-80.381.0
100.0%
.719.719.0
.1+11.811.7
.3+5.24.9
.2+2.72.5
Change20062005
PrufrockBalance Sheets
+
Net, P & E
Total assets
Fixed assets
Total
Inventory
A/R
Cash
Current assets
![Page 7: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/7.jpg)
07 Winter 472.42 2
Comparing
2. base year
3,373
1.05 2,731
1.06
1.10642
1.07393
1.14165
1.17$ 84
2005
PrufrockBalance Sheets
2,880
3,588
708
422
188
98
20062005
Net, P & E
Total assets
Fixed assets
Total
Inventory
A/R
Cash
Current assets
![Page 8: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/8.jpg)
07 Winter 472.42 2
Comparing
2. base year
2007
3,373
1.05 2,731
1.06
1.10 642
1.07393
1.14165
1.17$ 84
2008
PrufrockBalance Sheets
20062005
Net, P & E
Total assets
Fixed assets
Total
Inventory
A/R
Cash
Current assets
![Page 9: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/9.jpg)
07 Winter 472.42 2
Comparing
1. common size
2. base year
3. ratios
“crunching the numbers”
![Page 10: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/10.jpg)
07 Winter 472.42 2
Crunching The Numbers
short-term Liquidity ratios
longer-term Solvency ratios Financial leverage
asset use Turnover ratios Activity ratios
Profitability Performance ratios
Market value
![Page 11: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/11.jpg)
07 Winter 472.42 2
Crunching The Numbers
Liquidity1. Current ratio
2. Quick ratio acid test ratio
3. Cash ratio
4. Net working capital
5. Interval measure
![Page 12: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/12.jpg)
07 Winter 472.42 2
Current Ratio
ratios$
540
708
2011
543current liabilities1.311.18
642current assetscurrent ratio =
201120102010
![Page 13: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/13.jpg)
07 Winter 472.42 2
Quick Ratio
ratios$
540
708 - 422
2011
543current liabilities0.530.46
642 - 393current assets - inventoryquick ratio =
201120102010
![Page 14: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/14.jpg)
07 Winter 472.42 2
Interval Measure
days$
=3.68
708
2011
average daily operating costs192
current assetsinterval measure =
2011
365
total costs – (depreciation + interest)average daily operating costs =
COGS
![Page 15: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/15.jpg)
07 Winter 472.42 2
Assignment 1
Mini Case from end of ch 3• pg 84
![Page 16: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/16.jpg)
07 Winter 472.42 2
Crunching The Numbers
short-term liquidity ratios
longer-term solvency ratios financial leverage
asset use turnover ratios activity ratios
profitability performance ratios
market value
![Page 17: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/17.jpg)
07 Winter 472.42 2
Crunching The Numbers
Solvency6. Total debt ratio
7. Debt/equity ratio
8. Equity multiplier
9. Long-term debt ratio
10. Times interest earned ratio
11. Cash coverage
![Page 18: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/18.jpg)
07 Winter 472.42 2
Total Debt Ratio
ratio$
3,588
3,588 – 2,519
2011
total assets.28
total assets – total equitytotal debt ratio =
2011
![Page 19: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/19.jpg)
07 Winter 472.42 2
Debt/Equity Ratio
ratio$
2,591
540 + 457
2011
total equity.38
current liabilities + long-term debtdebt/equity ratio =
2011
![Page 20: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/20.jpg)
07 Winter 472.42 2
Long-term Debt Ratio
ratio$
457 + 2,591
457
2011
long-term debt + total equity.15
long-term debtlong-term debt ratio =
2011
long-term capitalization
![Page 21: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/21.jpg)
07 Winter 472.42 2
Cash Coverage
ratio$
141
691 + 276
2011
interest6.9
EBIT + depreciationcash coverage =
2011
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07 Winter 472.42 2
Crunching The Numbers
short-term liquidity ratios
longer-term solvency ratios financial leverage
asset use turnover ratios activity ratios
profitability performance ratios
market value
![Page 23: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/23.jpg)
07 Winter 472.42 2
Crunching The Numbers
Turnover12. Inventory turnover
13. Day’s sales in inventory
14. Receivables turnover
15. Days’ sales in receivables
16. NWC turnover
17. Fixed asset turnover
18. Total asset turnover
![Page 24: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/24.jpg)
07 Winter 472.42 2
Inventory Turnover
times$
422
1,344
2011
inventory3.2
COGSinventory turnover =
2011
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07 Winter 472.42 2
Days Sales in Receivables
days$
2,311
188 x 365
2011
sales30
A/R x 365days sales in receivables =
2011
“collection ratio”
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07 Winter 472.42 2
net working capital
NWC Turnover
times$
708 - 540
2,311
2011
current assets – current liabilities13.8
salesNWC turnover =
2011
![Page 27: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/27.jpg)
07 Winter 472.42 2
Crunching The Numbers
short-term liquidity ratios
longer-term solvency ratios financial leverage
asset use turnover ratios activity ratios
profitability performance ratios
market value
![Page 28: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/28.jpg)
07 Winter 472.42 2
Crunching The Numbers
Profitability19. Cash flow to total assets
20. Profit margin
21. Gross profit margin
22. Operating profit margin
23. ROA
24. ROE
25. Du Pont Identity
![Page 29: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/29.jpg)
07 Winter 472.42 2
Profit Margin
rate$
2,311
363
2011
sales16%
net incomeprofit margin =
2011
![Page 30: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/30.jpg)
07 Winter 472.42 2
Return On Assets
rate$
3,588
363
2011
total assets10%
net incomeROA =
2011
Return on InvestmentROI
![Page 31: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/31.jpg)
07 Winter 472.42 2
Return on Equity
rate$
2,591
363
2011
total equity14%
net incomeROE =
2011
Return on shareholders’ investmentReturn on net worth
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07 Winter 472.42 2
Du Pont Identity
du pont identity: ROE = profit margin x asset turnover x equity multiplier
![Page 33: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/33.jpg)
07 Winter 472.42 2
Du Pont Identity
profit margin x asset turnover x equity multiplierdu pont identity: ROE =
operatingefficiency
asset use
efficiency
financial leverag
e
![Page 34: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/34.jpg)
07 Winter 472.42 2
Du Pont Identity
du pont identity: ROE =net income
•sales
•assets
sales assets equity
operatingefficiency
asset use
efficiency
financial leverag
e
![Page 35: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/35.jpg)
07 Winter 472.42 2
Du Pont Identity
-6%
1.39
1.47
equity
assets
35%
= 14.0%
= 10.4%
+6%+35%change:
x.64x15.7%2011:
x.61x11.6%2010:
xsales
net incomex
assets
salesdu pont identity: ROE =
operatingefficiency
asset use
efficiency
financial leverag
e
![Page 36: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/36.jpg)
07 Winter 472.42 2
Crunching The Numbers
short-term liquidity ratios
longer-term solvency ratios financial leverage
asset use turnover ratios activity ratios
profitability performance ratios
market value
![Page 37: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/37.jpg)
07 Winter 472.42 2
Crunching The Numbers
Market value measures26. Price/Earnings ratio
27. Market-to-book ratio
28. Earnings Per Share
![Page 38: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/38.jpg)
07 Winter 472.42 2
Price/Earnings Ratio
P/E ratio =share price x shares outstanding
net income
P/Eshares sell for ____ times earningsshares carry a P/E multiple of ____
ratio$
363
157 x 33
2011
14.27
2011
![Page 39: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/39.jpg)
07 Winter 472.42 2
Market-to-Book Ratio
$ ratio
2011 2011
market-to-book ratio =share price x shares outstanding 157 x 33
2total equity 2,591
Book value per shareMarket capitalization to balance sheet equity
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07 Winter 472.42 2
Uses
Internal Performance
• compensation
• comparison
Planning • future cash flows
External Creditors Stockholders
![Page 41: CF 473.32 3 Winter 2014. 07 Winter472.422 Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.](https://reader038.fdocuments.net/reader038/viewer/2022110322/56649d235503460f949f9ea4/html5/thumbnails/41.jpg)
07 Winter 472.42 2
Problems
apples to apples? diversified firms different accounting methods different fiscal years extraordinary events
no underlying theory (except duPont)
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07 Winter 472.42 2
Smolira Golf Corp.
pg 82-83 q 26 - 30
Performance Plus
http://www.ic.gc.ca/eic/site/pp-pp.nsf/eng/h_pm00000.html