Corporate performance
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Corporate Performance. Corporate Performance Measured. Market Value Added. What is it?. Why is it useful?. Defined:. MVA: Discussion. Consider AT&T and Home Depot Similar MVA, Different Market-to-Book Ratio Why?. TABLE 4.3. Economic Value Added. What is it?. Why is it important?.

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Corporate Performance

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Corporate performance

Corporate Performance


Corporate performance measured

Corporate Performance Measured


Market value added

Market Value Added

What is it?

Why is it useful?

Defined:


Mva discussion

MVA: Discussion

Consider AT&T and Home Depot

Similar MVA, Different Market-to-Book Ratio

Why?

TABLE 4.3


Economic value added

Economic Value Added

What is it?

Why is it important?

Why is it called residual income?

Defined:


Eva discussion

EVA: Discussion

TABLE 4.4

Consider Coca-Cola and Google

Similar EVA, Different Return on Capital

Why?

* Operating Income = Net Income + After-tax Interest; ROC = Return on Capital


Book rates of return

Book Rates of Return*

What do they measure?

Return on Capital:

Return on Assets:

Return on Equity:

*Book Rates of Return are also referred to as Accounting rates of Return


Calculating return on capital

Calculating Return on Capital

Lowe’s Return on Capital

Lowe’s Balance Sheet (in $m)


Calculating return on assets

Calculating Return on Assets

Lowe’s Return on Assets

Lowe’s Balance Sheet (in $m)


Calculating return on equity

Calculating Return on Equity

Lowe’s Balance Sheet (in $m)

Lowe’s Return on Equity


Financial ratios and shareholder value

Financial Ratios and Shareholder Value

Shareholder value depends on good investment and financing decisions.

Financial Ratios help measure the success and soundness of these decisions.


Efficiency ratios

Efficiency Ratios

OR*

How does this ratio measure efficiency?

How does this ratio measure efficiency?

* Either equation is a legitimate way to calculate the asset turnover ratio


Efficiency ratios1

Efficiency Ratios

How does this ratio measure efficiency?

How does this ratio measure efficiency?

How does this ratio measure efficiency?


Calculating an efficiency ratio

Calculating an Efficiency Ratio

Lowe’s Balance Sheet (in $m)

Lowe’s Asset Turnover Ratio


Profitability ratios

Profitability Ratios

How does this ratio measure the firm’s profitability?

When is this ratio potentially more useful than just profit margin?

Note: ROC, ROA, ROE and EVA are also typically considered profitability ratios.


Calculating a profitability ratio

Calculating a Profitability Ratio

Lowe’s Balance Sheet (in $m)

Lowe’s Operating Profit Margin


Leverage ratios

Leverage Ratios

How does this ratio measure leverage?

How does this ratio measure leverage?


Measuring leverage

Measuring Leverage

How does this ratio measure leverage?

How does this ratio measure leverage?

How does this ratio measure leverage?


Calculating a leverage ratio

Calculating a Leverage Ratio

Lowe’s Balance Sheet (in $m)

Lowe’s Times Interest Earned Ratio


Measuring liquidity

Measuring Liquidity

How does this ratio measure liquidity?

How does this ratio measure liquidity?


Liquidity ratios

Liquidity Ratios

How does this ratio differ form the current ratio? Why might a financial manager prefer it?

How does this ratio differ from the current ratio? Why might a financial manager prefer it?


Calculating a liquidity ratio

Calculating a Liquidity Ratio

Lowe’s Balance Sheet (in $m)

Lowe’s NWC to Total Assets Ratio


The dupont system

The DuPont System

What is it, and what is it used for?


The dupont system roa

The DuPont System: ROA

Asset

Turnover

Operating Profit

Margin


Roa decomposition by industry

ROA Decomposition by Industry


The dupont system roe

The DuPont System: ROE

Leverage

Ratio

Debt

Burden

Operating

Profit

Margin

Asset

Turnover


Sustainable growth

Sustainable Growth


The role of financial ratios

The Role of Financial Ratios

Table 4.8

Comparability


The role of financial ratios1

The Role of Financial Ratios

TRANSPARENCY


Appendix a average ratios by industry

Appendix A: Average Ratios, by Industry

Table 4.7


Appendix b financial ratios and default risk

Appendix B: Financial Ratios and Default Risk

Table 4.9


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