Business Ratios and Formulas phần 10 ppsx

Asset Utilization Measurements Sales to working capital ratio Annualized net sales —————————————Accounts receivable + Inventory – Accounts payable —————————Total fixed assetsAnnualized n

Calculate the accrued interest on a security that pays periodic interest This

formula is used to accrue the amount of interest earned from a stream of lar interest payments from an investment For this calculation, use the AC-CRINT formula The details of the formula are ACCRINT(Issue Date, FirstInterest Date, Settlement Date, Annual Coupon Rate, Par Value, No of Pay-ments per Year) For example, if the issue date is 3/31/01, the first interest date

regu-is 4/15/01, the settlement date regu-is 4/10/01, the annual coupon rate regu-is 11%, the parvalue is $1,000, and there are four payments per year, then the formula will beACCRINT(“3/31/01”,“4/15/01”,“4/10/01”,11%,1000,4)

Calculate the annual yield for a discounted security If a company purchases a

security at a discounted rate (usually because the stated interest rate is lowerthan the prevailing market rate), one should use the YIELDDISC formula todetermine its annual yield The details of the formula are YIELDDISC(Settle-ment Date, Maturity Date, Price per $100 Face Value, Redemption Value) Forexample, if the settlement date is 9/9/05, the maturity date is 12/31/15, theprice is $101, and the redemption value is $100, then the formula will beYIELDDISC(“9/9/05”,“12/31/15”,101,100)

Calculate the yield for a Treasury bill To calculate this yield, use the

TBIL-LYIELD formula The details of the formula are TBILTBIL-LYIELD(SettlementDate, Maturity Date, Price Per $100 Face Value) For example, if the settle-ment date is April 13, 2005, the maturity date is June 15, 2012, and the priceper $100 face value is $94.30, then the formula will be TBILLYIELD(“4/14/05”,“6/15/12”,94.3)

Calculate the yield on a security that has a short or long first period A

secu-rity that was purchased in between its coupon payment dates will still earn theowner the full amount of the next coupon, even though the security was notheld for the full period, which results in a higher than normal interest rateearned for the first period To calculate the full-term yield with the odd-lengthfirst period, use the ODDFYIELD formula The details of the formula areODDFYIELD (Settlement Date, Maturity Date, Issue Date, First Coupon Date,Annual Coupon Rate, Price per $100 Face Value, Redemption Value, No ofPayments per Year) For example, if the settlement date is May 2, 2003, thematurity date is November 11, 2008, the issue date is June 6, 2001, the firstcoupon date is July 7, 2003, the interest rate is 8.5%, the price is $98.25, the re-demption value is $100, and four coupon payments are made per year, then theformula will be ODDFYIELD(“5/2/03”,“11/11/08”,“6/6/01”,“7/7/03”,8.5%,98.25,100,4)

Calculate the yield on a security that has a short or long last period This is the

same type of situation as just described in the preceding scenario, except that

we are now selling a security prior to the next scheduled coupon date Theformula now changes to ODDLYIELD, for which the formula detail is ODD-LYIELD(Settlement Date, Maturity Date, Last Coupon Date, Annual CouponRate, Price per $100 Face Value, Redemption Value, No of Payments perYear) To use part of the preceding example, if the settlement date is May 2,

2003, the maturity date is November 11, 2008, the last coupon date is August

11, 2008, the interest rate is 8.5%, the price is $98.25, the redemption value is

$100, and four coupon payments are made per year, then the formula will beODDFYIELD(“5/2/03”,“11/11/08”,“8/11/08”,8.5%,98.25,100,4)

Calculate the yield on a security that pays interest at maturity Some securities

pay all interest at the redemption date, rather than as regular coupon payments

To calculate the yield on these types of securities, use the YIELDMAT mula The detail for this formula is YIELDMAT(Settlement Date, MaturityDate, Issue Date, Annual Coupon Rate, Price per $100 Face Value) For ex-ample, if the settlement date is February 15, 2002, the maturity date is April 15,

for-2011, the issue date is October 5, 2001, the interest rate is 8.2%, and the price

is $101.125, then the formula will be YIELDMAT(“2/15/02”,“4/15/11”,

“10/5/01”,8.2%,101.125)

Calculate the yield on a security that pays periodic interest This is the standard

formula for a basic bond purchase that has no unusual variations in terms ofpurchase or sale dates, and for which coupon payments are made in standardamounts and on regularly scheduled dates For this situation, use the YIELDformula The detail of the formula is YIELD(Settlement Date, Maturity Date,Annual Coupon Rate, Price per $100 Face Value, Redemption Value, No ofPayments per Year) For example, if the settlement date is January 8, 2001, thematurity date is May 15, 2007, the annual coupon rate is 7.5%, the price is

$100.50, the redemption value is $100, and there are two coupon payments peryear, then the formula will be YIELD(“1/8/01”,“5/15/07”,7.5%,100.50,100,2)

Most of the components of the above formulas are identical To keep from peating the definitions of each component for every formula listed above, they aresummarized below:

re-Annual coupon rate The listed coupon rate on a security.

First interest date The first date on which interest is earned on a security Issue date The date on which a security is issued.

Last coupon date The last coupon date for a security prior to its redemption

date

Maturity date The date on which a security expires.

No of payments per year The number of coupon payments per year.

Par value The listed price on a security.

Price per $100 face value The actual price paid for a security can be higher or

lower than the face value, depending on the discount or premium paid to quire the stated interest to be paid on the security

ac-Redemption value The amount paid at the termination date of the security per

$100 of face value

Settlement date The date when the security is issued to the buyer.

The formulas described here should be sufficient for calculating the interest rates

or accrued interest for the majority of investment situations for which one willneed to calculate interest earnings

RISK ANALYSIS

When constructing a financial analysis of the likely results of a set of projected

cash flows, one must always remember that these cash flows are projected—they

are not facts, and may vary considerably from reality Given the level of tainty involved, it may be useful to determine the spread of possible outcomes Bydoing so, one can see if all expected outcomes are grouped tightly about a singleestimate, which relates to a low level of risk, or if there is a significant spread ofpossible outcomes, which greatly increases the risk of meeting the targeted out-come Excel provides a wide array of statistical tools for determining the level ofrisk, of which this section describes six that are easy to understand and use.The first step when using the following statistical tools is to generate a list ofpossible outcomes for whatever the analysis may be For example, if there is a cap-ital project under discussion, try to obtain a number of possible outcomes, either

uncer-by polling several experts in the company or industry, or uncer-by personal knowledge

of previous actual outcomes for similar types of projects Then, the first step in therisk analysis work is to determine the highest, lowest, and median values in the list

of possible outcomes These are shown in Exhibit 15.11, where we have itemized

a dozen possible annual cash inflows from a project All possible variations arenoted at the top of the worksheet Below them are the Excel formulas to find theminimum, maximum, and median values from amongst the list, alongside a list-ing of the formulas used However, these are not very precise measures, and do notgive a sufficiently accurate view of the level of risk

To provide us with a more detailed idea of the spread of possible outcomes, wecan use the Excel QUARTILE formula to generate the average outcome for thefirst, second, third, and fourth quartiles of all possible outcomes, which we havealso converted into a graph with the Excel Chart Wizard icon Yet another formulathat tells us if there is a “lean” in the data toward the lower or higher end of thespectrum of possible results is the SKEW formula This formula determines thepresence of skew toward the higher end of the possible outcomes (which is posi-tive skew) or a skew toward the lower end of the outcomes (which is a negativeskew) A skew of zero indicates no skew in either direction Finally, the standarddeviation is an extremely useful tool for determining the dispersion of possibleoutcomes about the median of all outcomes The larger the standard deviation ofthe sample, the larger the dispersion about the median, and the greater the degree

of risk that the average outcome will not be attained

The detail of the formulas shown in Exhibit 15.11 are very simple All of theformulas reference the range of projected cash inflows, which are noted in cells C5through C16 The only variation from this pattern is for the quartile formulas,which also require the addition of the quartile number at the end of the formula

The analysis shown in Exhibit 15.11 tells us that the project has an extremelywide range of possible outcomes, with a maximum value that is more than fourtimes higher than the minimum value The range of possible outcomes has a pos-itive skew of 0.24, which tells us that those people providing the estimates havegenerally guessed that the actual outcome should be higher than the projected av-erage Finally, the standard deviation from the mean is $1,808, which is slightlymore than a 40% variation from the median With such a large dispersion of pos-sible outcomes, the underlying data requires a great deal more validation beforethe project can be approved Also, given the higher degree of risk, the cost of cap-ital used to discount the cash flows from the project may be set higher, therebymaking it more difficult to obtain approval for the project.

Risk Analysis for a Capital Project

Projected

Outcome

1 2 3 4 5 6 7 8 9 10

11

12

Projected Cash Inflow

$1,808 = STDEV($C$5:$C$16)

Minimum value of all Outcomes Maximum value of all Outcomes Median value of all Outcomes Minimum value

Value of 25th percentile Value of 50th percentile Value of 75th percentile Maximum value Degree of skew Standard deviation

A P P E N D I X

Measurement Summary

This appendix contains all the measurements described in Chapters 2 through

14 It is intended to be a quick reference for the reader who needs to find a mula as soon as possible However, refer back to the related discussion in the mainbody of the book, since there may be comments on alternative formula derivations

for-or cautions on their use that may be pertinent

The following measurements are listed in the same order as they are foundwithin each chapter, and the name of each measurement and its derivation areshown In some cases, multiple variations on the same measurement are shown

Asset Utilization Measurements

Sales to working capital ratio Annualized net sales

—————————————(Accounts receivable + Inventory – Accounts payable)

—————————Total fixed assetsAnnualized net sales

———————————Total fixed assets prior to accumulated depreciationSales to administrative expenses ratio Annualized net sales

——————————Total general and administrative expenses

———————Total equity

———————————Total full-time equivalents

Sales backlog ratio Backlog of orders received

———————————

SalesTotal backlog

——————————Annual sales / 360 DaysSales returns to gross sales ratio Total sales returns

————————Gross salesRepairs and maintenance expense to Total repairs and

——————————Total fixed assets before depreciationAccumulated depreciation to fixed assets ratio Accumulated depreciation

———————————Total fixed assetsFringe benefits to wages and salaries expense Life insurance + Medical

insurance + Pension funding expense + Other benefits

————————————Wages + Salaries + Payroll taxesSales expenses to sales ratio Sales salaries + Commissions +

Sales travel expenses + Other sales expenses

—————————————

Sales

————————Sales

————————(Short-term debt) + (Long-term debt)

and losses

——————————Net incomeForeign currency gains and losses

——————————Total sales

Overhead rate Total overhead expense

——————————Direct laborTotal overhead expense

——————————Total machine hours

——————————Total assetsOverhead to cost of sales ratio Total overhead expenses

——————————Cost of goods soldTotal overhead expenses

——————————————Direct materials + Direct laborTotal overhead expense

——————————Direct materials

——————————Stockholders’ equity + Long-term liabilities

——————————Average gross margin percentageTotal operating expenses – (Depreciation + Amortization + Other noncash expenses)

—————————————Average gross margin percentage

Break-even point

—————————Current sales level

————————Before-tax incomeIncome tax expense

—————————Before-tax income

Operating Performance Measurements

—————————————

Gross sales

Direct materials + Direct labor)

—————————————

RevenueRevenue – Direct materials

————————————

Revenue

———————————Sales in period two -Gross profit in period one

———————————Sales in period one

Interest income

—————————————Carrying value of investmentsOperating profit percentage Sales – (Cost of goods sold +

Sales, general, and administrative expenses)

————————————

Sales

———————————Operating income

—————–—————

Revenue

Core operating earnings + Employee stock option expenses

+ Restructuring charges from ongoing operations

+ Pension fund costs+ Purchased R&D expenses+ Asset write-downs– Goodwill impairment charges– Gains/losses from the sale of assets– Pension gains

– Merger and acquisition-related expenses– Litigation and insurance settlement costsand proceeds

– Unrealized gains from hedging activities

—————————Total customer visits

———————————Total full-time equivalents

Core growth rate ((Current annual revenue – Annual

revenue 5 years ago – Acquired revenue – Revenue recognition changes)) / (Annual revenue five

years ago

————–———————––––– – Average

price increase

operations

——————————(Beginning assets) + (Ending assets) / 2

Cash Flow Measurements

Noncash expenses – Noncash sales

———————————Income from operations

Cash flow from operations Net income + Noncash

———————————Net income

expenses – Noncash sales

———————————Total sales

Fixed payments

———————————Cash flow from operations

marketable securities + Accounts receivable

—————————————Annual cash expenditures / 360

Dividend payments + Capital expenditures

———————————Net income + Noncash expenses – Noncash salesCash receipts to billed sales and Cash receipts

progress payments —————————Billed sales + Billed

progress payments

marketable securities

—————————Current assetsCash flow to fixed asset requirements Net income + Noncash

expenses – Noncash sales

—————————————Budgeted fixed asset purchasesNet income + Noncash expenses – Noncash sales – Dividends – Principal payments

—————————————Budgeted fixed asset purchases

expenses – Noncash sales

———————————Total assets

Cash to working capital ratio Cash + Short-term

marketable securities

—————————Current assets – Current liabilitiesCash reinvestment ratio Increase in fixed assets +

Increase in working capital

———————————Net income + Noncash expenses – Noncash sales – DividendsCash to current liabilities ratio Cash + Short-term

marketable securities

—————————Current liabilities

expenses – Noncash sales

———————————Debt + Lease obligationsNet income + Noncash expenses – Noncash sales

—————————————Total long-term debt payments

for the periodStock price to cash flow ratio (Stock price) ×(Number

of shares outstanding)

—————————————Earnings before interest, taxes, depreciation and amortization

———————————Net income + Noncash expenses – Noncash sales

Liquidity Measurements

Accounts receivable turnover Annualized credit sales

———————————Average accounts receivable + Notes payable

by customersAverage receivable collection period Average accounts receivable

————————————Annual sales/365

Days delinquent sales outstanding 365/Annualized credit sales

from delinquent accounts

————————————Average delinquent accounts receivableDays sales in receivables index Accounts receivable in

period two

——————————Sales in period two -Accounts receivable inperiod one

——————————Sales in period oneAccounts receivable investment Average days to payment

360 DaysAnnual credit sales ×

(1 – Gross margin %) ×

(Cost of capital)Ending receivable balance Average receivable collection

period ×

Sales forecast for period

——————————Days in period

————

Inventory

————————Inventoryor,Cost of goods sold

365 / ————————

Inventoryor,Direct materials

——————————Raw materials inventory

—————————————Accounts receivable + Inventory – Accounts payable

Liquidity index (Accounts receivable ×

Days to liquidate) + (Inventory ×Days to Liquidate)

——————————Accounts receivable + Inventory

————————Purchases / 365

———————————Ending accounts payable

balance

———————Current liabilities

+ Accounts receivable

————————————Current liabilities

marketable securities

—————————Current liabilities

——————

Current assets

———————Working capital

Inventory – Accounts payable)

—————————————Net Sales / 365Defensive interval ratio Cash + Marketable securities +

Accounts receivable

—————————————Expected daily operating expenses

———————Total liabilities

Required current liabilities to total current Current liabilities with

——————————Total current liabilitiesWorking capital to debt ratio Cash + Accounts receivable +

Inventory – Accounts payable

—————————————

DebtRisky asset conversion ratio Cost of assets with minimal

cash conversion value

————————————Total assetsNoncurrent assets to noncurrent liabilities ratio Noncurrent assets

—————————Noncurrent liabilitiesShort-term debt to long-term debt ratio Total short-term debt

—————————Total long-term debtAltman’s Z-score bankruptcy prediction formula (Operating income/Total

assets) ×3.3+(Sales/Total assets) ×0.999

+(Market value of common stock + Preferred stock)/(Total liabilities) ×0.6+(Working capital/Total assets) ×1.2+(Retained earnings/Total assets) ×1.4

Capital Structure and Solvency Measurements

———————————Average interest expense

Debt coverage ratio Earnings before

interest and taxes

—————————————

Scheduled principal paymentsInterest + ————————

(1 – Tax rate)

two + Net fixed assets in period two

1 – ————————————Total assets in period two

——————————————Current assets in period one + Net fixed assets in period one

1 – ————————————Total assets in period oneAccruals to assets ratio Change in working capital –

Change in cash – Change in depreciation

————————————Change in total assets

————————Preferred dividend

———————————Total stockholders’ equityPreferred stock to total stockholders’ equity Preferred stock

—————————Stockholders’ equityIssued shares to authorized shares Issued shares + Stock

options + Stock warrants + Convertible securities

———————————Total authorized shares

Return on Investment Measurements

Preferred stock dividends

—————————————Total outstanding common shares

liquidate preferred stock

———————————Total number of common shares outstanding

Other intangibles)

—————

Total assetsReturn on infrastructure employed Before-tax earnings

——————————Information technology operating expenses

————————————Assets used to create revenue

—————

Total equityReturn on common equity Net income – Preferred stock

dividends

—————————————Common stockholders’ equity

———————Return on assets

dividends – Preferred stock

dividends

————————————Beginning common stockholders’ equity

Earnings per share Net income – Dividends on

preferred stock

————————————Number of outstanding common shares + Common stock equivalentsPercentage change in earnings per share Incremental change in earnings

per share

—————————————Earnings per share from previous period

return on investment – Percentage cost of capital)

——————————(Weighted average cost ofcapital) – (Investors’ growthexpectations) – (1%)

————————————(Current revenue) ×1%

×(1 – Tax rate %)

————————————(Weighted average cost of capital) – (Investor’s growthexpectations)

————————Earnings per share

——————————Market price per share

Market Performance Measurements

transactions by insiders

———————————Number of stock purchase transactions by insiders

Market value added (Number of common shares

outstanding ×Share price) + (Number of preferred shares outstanding ×Share price) – (Book value of invested capital)

Enterprise value/earnings ration (Total shares ×Stock price) +

Debt – Cash – Marketable

securities

——————————————Net income – Interest expenseStock options to common shares ratio Total stock options

—————————Total common shares outstandingTotal vested stock options

———————————Total common shares outstandingTotal vested options in the money

——————————Total common shares outstanding

(1 – Tax rate)

——————————————Amount of debt – Debt acquisition fees + Premium

on debt – Discount on debt

+Interest expense

———————————Amount of preferred stock

+Risk-free return + (Beta ×

(Average stock return – Risk-free return))

————————————Average common stock price

—————————————Net income per share

Capitalization Rate Earnings per share

——————————Market price per share

Measurements for the Accounting/Finance Department

Purchase discounts taken to total discounts Total purchase discounts taken

—————————————Total purchasesPercentage of payment discounts missed Number of payment

discounts missed

————————————Total number of payment discounts availableTransactions processed per person Total number of

transactions processed

——————————Number of full-time equivalents required to complete transactions

——————————Total number of transactions processedAverage time to issue invoices (Sum of invoice dates) –

(Sum of shipment dates)

———————————Number of invoices issuedAverage employee expense report (Date of payment to

report receipt)Payroll transaction fees per employee Total payroll outsourcing

fee per payroll

————————————Total number of employees itemized in payrollTime to produce financial statements Financial statement issue

date – First day of the month

Percentage of tax filing dates missed Total number of tax returns

filed late

————————————Total number of tax returns filedProportion of products costed prior to release Number of products costed

prior to release

———————————Total number of products releasedInternal audit savings to cost percentage Internal audit recommended

savings

————————————Internal audit expenseInternal audit efficiency Number of internal audits

completed

———————————Number of internal audits planned

recognized

————————————Total outstanding accounts receivable

Total bad debt dollars recognized

—————————Total credit salesPercent of receivables over XX days old Dollar amount of

outstanding receivables >

XX days old

————————————Total dollars of outstanding receivables

Percentage collected of dollar volume assigned Cash received from collection

agency

—————————————Total accounts receivable assigned to collection agencyCollection effectiveness index Beginning receivables +

Credit sales – Ending total receivables

Beginning receivables +Credit sales – Endingcurrent receivables

Percent of cash applied on day of receipt Dollars of cash receipts

applied on day of receipt

—————————————Total dollars of incoming cash

on day of receiptUnmatched receipts exposure Total balance in unmatched

receipts suspense account

————————————Total accounts receivable

balance

×(360/(Full allowed payment days – Discount days))Earnings rate on invested funds Interest earned + Increase in

market value of securities

————————————Total funds invested

fees charged

——————————Total funds investedBank/broker transaction fees charged

——————————Number of bank/broker transactions processedBorrowing base usage percentage Amount of debt outstanding

————————————(Accounts receivable ×

Allowable percentage) + (Inventory ×Allowable percentage)

Measurements for the Engineering Department

Bill of material accuracy Number of accurate parts listed

in bill of materials

—————————————Total number of parts listed

in bill of materials

Labor routing accuracy Number of correct machine

times or machine codes

————————————Total number of routing line itemsPercentage of new products introduced Number of new products

introduced in the period

—————————————Number of products available

at the beginning of the periodPercentage of sales from new products Sales from new products

——————————Total salesPercentage of new parts used in new products Number of new parts in bill

of materials

————————————Total number of parts in bill of materialsPercentage of existing parts reused Number of approved parts in

————————————Total number of parts in bill of materialsAverage number of distinct products Total number of distinct

——————————Total number of design platformsPercentage of products reaching market Number of products

————————————Total number of products releasedNumber of products released on schedule

—————————Total number of products released

development expense

——————————––—–Total annual capital spendingScience linkage index Total research paper references

in issued patents

——————————––—––Number of patents issued