FINANCIAL MANAGEMENT

Capital budgeting:


Payback period --- P= I/AF 
I = Initial Intestment
AF = Cash inflow per period

ARR (Average rate of return )

   Average annual income after tax and Depreciation
                                                                                           
---------------------------------------------------    X 100
    Average investment

Net present value method:
                                            Present value of cash inflows

Profitability index method = ------------------------------------
                                            Present value of cash outflows


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DIVIDEND


Zero growth: Constant, non growing
Constant Growth: Constant rate, less than required rate

Gordon model  ----

Stock Value (P) = D / (k – G)

Where:

D= Expected dividend per share one year from now

k= required rate of return for equity investor

G= Growth rate in dividends. 


Liquidity Ratios:

Current ratio = Current assets/Current liabilities

Acid test/Quick ratio=Quick assets/Current liabilities

Inventory turnover ratio=Cost of goods sold/Average inventory

Debtors turnover ratio=Net credit sales/Average debtors

Creditors turnover ratio=Net credit purchases/Average creditors

Defensive interval ratio=Liquid assets/Projected daily cash requirments

Cash flow form operations ratio= Cash flow from operations/Current liabilities


LEVERAGE/CAPITAL STRUCTURE RATIOS

Debt/equity ratio = Long term debt/Shareholders equity

COVERAGE RATIOS

Interest coverage = EBIT/Interest
Dividend coverage = EAT(Net profit after taxes)/Preference dividend

PROFITABILITY RATIOS

Gross profit margin = ( Gross profit/Sales) X 100

Operating profit ratio = EBIT/Net sales

Pre tax profit ratio = EBT/Net sales

Net profit ratio = Earning after interest and taxes/Net sales

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Cos of goods sold ratio = ( Cost of goods sold/Net sales) X 100

Operating expenses ratio = ( (Administrative expenses+Selling expenses)/Net Sales) X 100

Admin expenses ratio = (Administrative expenses/Net sales) X 100

Selling expenses ratio = ( Selling expenses/Net sales) X 100

Operating ratio = ( (Cost of goods sold + Operating expenses) /Net sales) X 100

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Return on assets = ( Net profit after taxes/Average total assets ) x 100

Earning per share = Net profit available to equity holders/No of ordinary shares outstanding

Earnings yield = ( EPS/Market value per share) X 100

Dividend yield = ( Dividend per share/Market value per share) x 100

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ACTIVITY RATIOS 

Inventory turnover = Cost of goods sold/Average inventory

or     Sales/Closing inventory


Debtors turnover = Credit sales/(Average debtors + Average bills receivable)

or                                 Total sales/(Debtors + Bills receivables)

Total assets turnover ratio = Cost of goods sold/Average total assets


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BEP = Fixed assets/Profit volume ratio

P/V Ratio = Contribution margin per unit/Selling price per unit

Required sales volume = Fixed costs+(Desired income after taxes/(1-tax rate))/PV Ratio

Reference websites:

Ratio analysis website ---- http://accountingexplained.com/financial/ratios/ 

Accounting terms ------http://www.readyratios.com/reference/ 

Coupon rate: Specified interest rate available on a security

CAPITAL ASSET PRICING MODEL REFERENCE: http://en.wikipedia.org/wiki/Capital_asset_pricing_model
 



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