Earnings performance efficiency analysis and calculating financial strength
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Earnings Performance, Efficiency Analysis, and Calculating Financial Strength. Calculations and Definitions. Earnings Performance Analysis. Calculation: (January 1 total Assets + December 31 Total Assets) / 2 = Average Total Assets.

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Earnings performance efficiency analysis and calculating financial strength

Earnings Performance, Efficiency Analysis, and Calculating Financial Strength

Calculations and Definitions


Earnings performance analysis

Earnings Performance Analysis Calculating Financial Strength


Rate earned on average total assets

Calculation: Calculating Financial Strength

(January 1 total Assets + December 31 Total Assets) / 2 = Average Total Assets

Calculation: NetIncome after Federal Income tax / Average total assets = Rate Earned on total Average Assets

Rate earned on average total assets


Rate earned on average total assets1
Rate earned on average total assets Calculating Financial Strength

  • Definition:

    This total shows how well a business is using it’s assets to earn net income.


Rate earned on average stockholders equity

Calculation: Calculating Financial Strength

(January 1 Stockholder’s Equity + Dec 31 Stockholder’s Equity) / 2 =Average Stockholder’s Equity

Calculation:

Net Income After Federal Income Tax / Average Stockholder’s Equity = Rate Earned on Average Stockholder’s Equity

Rate earned on average stockholders equity


Rate earned on average stockholders equity1
Rate earned on average stockholders equity Calculating Financial Strength

  • Definition:

    Investor’s use this for several businesses to determine the best investment.


Rate earned on net sales

Calculation: Calculating Financial Strength

Net Income After Federal Income Tax / Net Sales = Rate Earned on Net Sales

Definition:

It is used when a business that carefully controls costs should earn a consistent rate on net sales form year to year.

Rate earned on net sales


Earnings per share

Calculation: Calculating Financial Strength

Net Income After Federal Income Tax / Shares of Capital Stock Outstanding = Earnings Per Share

Definition:

Stockholder’s and management often use this as a measure of success.

Earnings per share


Price earnings ratio

Calculation: Calculating Financial Strength

Market Price Per Share / Earnings Per Share = Price Earnings Per Ratio

Definition:

This relates the profitability to the amount that investor’s currently pay for the stock.

Price-earnings ratio


Efficiency analysis

Efficiency Analysis Calculating Financial Strength


Accounts receivable turnover ratio

Calculation: Calculating Financial Strength

(Beginning Book Value of Accounts Receivable + Ending Book Value) / 2 = Average Book Value of Accounts Receivable

Calculation:

Net Sales on Account / Average Book Value = Accts Receivable Turnover Ratio

Accounts Receivable Turnover Ratio


Accounts receivable turnover ratio1
Accounts Receivable Turnover Ratio Calculating Financial Strength

  • Definition:

    this ratio monitors a business’ accounts receivable collection efficiency.


Average number of days for payment

Calculation: Days In Year / Accounts Receivable Turnover Ratio = Average Number of Days For Payment

Definition:

The average number of days for the customers to pay their accounts.

Average Number of Days for Payment


Merchandise inventory turnover ratio

Calculation: Turnover Ratio = Average Number of Days For Payment

(January 1 Mdse Inventory + Dec 31 Mdse Inventory) / 2 = Avg Merchandise Inventory

Calculation:

Cost of Merchandise Sold / Avg Mdse Inventory = Merchandise Inventory Turnover Ratio

Merchandise Inventory Turnover Ratio


Merchandise inventory turnover ratio1
Merchandise Inventory Turnover Ratio Turnover Ratio = Average Number of Days For Payment

  • Definition:

    This ratio can be used to monitor merchandise inventory efficiency.


Financial strength

Financial Strength Turnover Ratio = Average Number of Days For Payment


Working capital

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Current Assets – Total Current Liabilities = Working Capital.

Use for both Current year and prior year.

Definition:

this is the amount

(stated in dollars) is the amt of current assets available to the business after the current liabilities are paid.

Working Capital


Current ratio

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Current Assets / Total Current Liabilities = Current Ratio

Definition:

a ration that shows the numeric relationship of current assets to current liabilities.

Current Ratio


Acid test ratio

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Quick Assets(Cash +Accounts Receivable) / Total current Liabilities = Acid-Test Ratio

Definition:

those current assets that are cash or can quickly be turned into cash.

Acid-Test Ratio


Debt ratio

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Liabilities / Total Assets = Debt Ratio

Definition:

this ratio shows the percentage of assets that are financed with borrowed capital(liabilities).

Debt Ratio


Equity ratio

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Stockholder’s Equity / Total Assets = Equity Ratio

Definition:

This ratio shows the percentage of assets that are provided by Stockholder’s equity.

Equity Ratio


Equity per share

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Stockholder’s Equity / Shares of Capital Stock Outstanding = Equity per share

Definition:

this tells stockholder’s how much ownership of the company each share represents.

Equity Per Share


The end

THE END Turnover Ratio = Average Number of Days For Payment


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