Cash Flows and Financial Analysis Chapter 3 Our main coverage for this chapter is financial ratios Financial Information—Where Does It Come From, etc . Financial information is the responsibility of management Created by within-firm accountants
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Our main coverage for this chapter is financial ratios
In this class we usually cheat and
just use the ending balance sheet.
Often it is the only one given.
Sometimes you are given the debt-equity ratio (TL/E) or you may find it in a source for industry ratios. In AGEC 424, I normally want you to use TL/TA. So you need to convert the debt-equity ratio into the TL/TA ratio. The conversion is according to the equation:
Steps in derivation:
First use TA = TL+E, to replace TA in the denominator.
Second divide numerator and denominator by TL.
Third multiply numerator and denominator by TL/E.
1EBITDA or “earnings before interest taxes depreciation and
amortization” is a commonly used measure of cash flow.
States that to run a business well, a firm must manage costs and expenses as well as generate lots of sales per dollar of assets.