SUMMARY INVESTMENT DECISIONS
Business Strategies Y2Q1
Simone Snepvangers
,Table of content
Reminder............................................................................................................................................3
Chapter 3 Financial statement and rato analysis...................................................................................3
3.1 The stockholders’ report...............................................................................................................3
The four key fnancial statements..................................................................................................4
3.2 Using Financial Ratos...................................................................................................................5
Types of Rato Comparisons...........................................................................................................5
Cautons about using rato analysis................................................................................................5
3.3 Liquidity Ratos.............................................................................................................................5
3.4 Actvity Ratos...............................................................................................................................5
Inventory turnover.........................................................................................................................6
Average collecton period...............................................................................................................6
Average payment period................................................................................................................6
Total asset turnover........................................................................................................................6
3.5 Debt Ratos...................................................................................................................................6
Debt rato........................................................................................................................................7
Debt-to-equity rato........................................................................................................................7
Times interest earned rato............................................................................................................7
Fixed-payment coverage rato........................................................................................................7
3.6 Proftability Ratos........................................................................................................................7
Gross proft margin.........................................................................................................................7
Operatng proft margin..................................................................................................................8
Net proft margin............................................................................................................................8
Earnings per share (EPS).................................................................................................................8
Return on total assets (ROA)..........................................................................................................8
Return on Equity (ROE)...................................................................................................................8
3.7 Market Ratos...............................................................................................................................8
Price/Earnings (P/E) rato...............................................................................................................8
Market/Book (M/B) rato................................................................................................................8
3.8 A complete rato analysis..............................................................................................................9
Chapter 4 Cash foo and fnancial planning............................................................................................9
4.1 Analysing the frm’s cash foo......................................................................................................9
4.2 The fnancial planning process....................................................................................................11
4.3 cash planning: Cash budgets.......................................................................................................11
4.4 Proft planning: Pro forma statements.......................................................................................12
1
, 4.5 Preparing the Pro Forma income statement..............................................................................12
4.6 Preparing the Pro Forma balance sheet......................................................................................12
Chapter 6 Interest rates and bond valuaton........................................................................................12
6.1 interest rate fundamentals.........................................................................................................12
Term structure of interest rates.......................................................................................................13
Theories of term structure...............................................................................................................13
6.2 Corporate bonds.........................................................................................................................14
Standard provisions......................................................................................................................14
Restrictve provisions....................................................................................................................14
Sinking-fund requirements...........................................................................................................14
Security interest............................................................................................................................14
Trustee..........................................................................................................................................15
Common types of bonds...............................................................................................................15
Internatonal bond issues.............................................................................................................15
6.3 Valuaton fundamentals.............................................................................................................16
Basic valuaton model...................................................................................................................16
6.4 Bond valuaton............................................................................................................................16
Basic bond valuaton.....................................................................................................................16
Chapter 7 Stock valuaton.....................................................................................................................16
7.1 Diferences betoeen debt and equity........................................................................................16
7.2 Common and preferred stock.....................................................................................................17
Common stock..............................................................................................................................17
Preferred stock.............................................................................................................................18
Venture capital.............................................................................................................................18
Going public..................................................................................................................................18
The investment banker’s role.......................................................................................................19
7.3 Common stock valuaton............................................................................................................19
Other approaches to common stock valuaton.............................................................................20
Chapter 9 The cost of capital................................................................................................................20
9.1 Overvieo of the cost of capital...................................................................................................20
9.2 Cost of long-term debt................................................................................................................21
Net proceeds................................................................................................................................21
Before-tax cost of debt.................................................................................................................21
Using market quotatons..............................................................................................................21
Calculatng the cost......................................................................................................................21
Approximatng the cost................................................................................................................21
2
Business Strategies Y2Q1
Simone Snepvangers
,Table of content
Reminder............................................................................................................................................3
Chapter 3 Financial statement and rato analysis...................................................................................3
3.1 The stockholders’ report...............................................................................................................3
The four key fnancial statements..................................................................................................4
3.2 Using Financial Ratos...................................................................................................................5
Types of Rato Comparisons...........................................................................................................5
Cautons about using rato analysis................................................................................................5
3.3 Liquidity Ratos.............................................................................................................................5
3.4 Actvity Ratos...............................................................................................................................5
Inventory turnover.........................................................................................................................6
Average collecton period...............................................................................................................6
Average payment period................................................................................................................6
Total asset turnover........................................................................................................................6
3.5 Debt Ratos...................................................................................................................................6
Debt rato........................................................................................................................................7
Debt-to-equity rato........................................................................................................................7
Times interest earned rato............................................................................................................7
Fixed-payment coverage rato........................................................................................................7
3.6 Proftability Ratos........................................................................................................................7
Gross proft margin.........................................................................................................................7
Operatng proft margin..................................................................................................................8
Net proft margin............................................................................................................................8
Earnings per share (EPS).................................................................................................................8
Return on total assets (ROA)..........................................................................................................8
Return on Equity (ROE)...................................................................................................................8
3.7 Market Ratos...............................................................................................................................8
Price/Earnings (P/E) rato...............................................................................................................8
Market/Book (M/B) rato................................................................................................................8
3.8 A complete rato analysis..............................................................................................................9
Chapter 4 Cash foo and fnancial planning............................................................................................9
4.1 Analysing the frm’s cash foo......................................................................................................9
4.2 The fnancial planning process....................................................................................................11
4.3 cash planning: Cash budgets.......................................................................................................11
4.4 Proft planning: Pro forma statements.......................................................................................12
1
, 4.5 Preparing the Pro Forma income statement..............................................................................12
4.6 Preparing the Pro Forma balance sheet......................................................................................12
Chapter 6 Interest rates and bond valuaton........................................................................................12
6.1 interest rate fundamentals.........................................................................................................12
Term structure of interest rates.......................................................................................................13
Theories of term structure...............................................................................................................13
6.2 Corporate bonds.........................................................................................................................14
Standard provisions......................................................................................................................14
Restrictve provisions....................................................................................................................14
Sinking-fund requirements...........................................................................................................14
Security interest............................................................................................................................14
Trustee..........................................................................................................................................15
Common types of bonds...............................................................................................................15
Internatonal bond issues.............................................................................................................15
6.3 Valuaton fundamentals.............................................................................................................16
Basic valuaton model...................................................................................................................16
6.4 Bond valuaton............................................................................................................................16
Basic bond valuaton.....................................................................................................................16
Chapter 7 Stock valuaton.....................................................................................................................16
7.1 Diferences betoeen debt and equity........................................................................................16
7.2 Common and preferred stock.....................................................................................................17
Common stock..............................................................................................................................17
Preferred stock.............................................................................................................................18
Venture capital.............................................................................................................................18
Going public..................................................................................................................................18
The investment banker’s role.......................................................................................................19
7.3 Common stock valuaton............................................................................................................19
Other approaches to common stock valuaton.............................................................................20
Chapter 9 The cost of capital................................................................................................................20
9.1 Overvieo of the cost of capital...................................................................................................20
9.2 Cost of long-term debt................................................................................................................21
Net proceeds................................................................................................................................21
Before-tax cost of debt.................................................................................................................21
Using market quotatons..............................................................................................................21
Calculatng the cost......................................................................................................................21
Approximatng the cost................................................................................................................21
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