Finance
a field of study that deals with the management of money
Corporate finance
the application of finance in the context of a corporation, where its main areas of concern are geared towards the fulfillment of its primary objective: to maximize shareholder wealth
Working capital
Capital budgeting
Capital structure,
3 main areas of corporate finance
Working capital,
which focuses on a company's day-to-day operating decisions and the utilization of its current assets and liabilities
Financial management
deals with the planning, organizing, directing, and controlling of financial resources within a company
chief financial officer (CFO)
the executive responsible for overseeing and managing the accounting and financial activities of the company
treasurer
the manager responsible for overseeing financial activities such as financial planning, fund-raising, etc.
controller
the manager responsible for overseeing accounting activities, such as financial accounting, tax accounting, cost accounting, etc.
financial statement analysis (FSA)
is the analysis of a company's financial statements in order to assess and interpret certain areas of the company's financial health and performance
Vertical analysis (a.k.a. common-size analysis)
Horizontal analysis (a.k.a. trend analysis)
Financial ratio analysis
FSA can be categorized into three sub-techniques:
Vertical (or common-size) analysis
is an FSA technique wherein the relationship among financial statement items within the same financial statement (i.e., balance sheet or income statement) and same reporting period is expressed in percentage terms relative to a base figure, with the selec
Horizontal (or trend) analysis
-is an FSA technique wherein the year-on-year increase/decrease of financial statement items over several reporting periods is expressed in percentage terms:
-highlights the periodic growth of a company's assets, liabilities, equity, revenues, expenses, a
Liquidity ratios
measure a company's ability to satisfy its short-term obligations
Leverage (or solvency/debt) ratios,
measure the extent to which a company utilizes debt
Coverage ratios
measure a company's ability to service its fixed, periodic payments for its long-term obligations
Efficiency (or activity) ratios
measures the level at which a company utilizes its working capital and assets in order to generate sales and cash inflows/outflows
Profitability ratios
measure a company's proficiency at generating earnings
current ratio
measures the ability of a company to satisfy its short-term obligations using its short-term assets
quick (or acid-test) ratio
measures the ability of a company to satisfy its short-term obligations using only its highly liquid short-term assets
cash ratio
measures the ability of a company to satisfy its shortterm obligations using only its extremely liquid, "good-as-cash" short-term assets
debt ratio
measures how much of a company's assets are funded by liabilities - whether trade or financing in nature
debt-to-equity ratio (D/E ratio),
measures the composition of a company's capital base
financial leverage (or equity) multiplier (FLM)
measures how much of a company's asset base is financed with equity
interest coverage (or times-interest-earned) ratio (ICR)
measures the company's ability to meet periodic interest payments
debt service coverage ratio (DSCR),
measures the company's ability to meet periodic interest and principal payments
accounts receivable turnover (ARTO)
measures the company's ability to collect cash from its receivables generated from sales
average collection period (or days sales outstanding) (ACP)
measures the company's ability to collect cash from its receivables generated from sales in terms of number of days
inventory turnover (ITO)
measures the company's ability to sell its inventory
average inventory days (or days sales in inventory) (AID)
measures the company's ability to sell its inventory in terms of number of days
accounts payable (APTO)
measures the company's ability to settle its accounts payable arising from inventory purchases
average payment period (or days payables outstanding) (APP),
measures the company's ability to settle its accounts payable arising from inventory purchases in terms of number of days
operating cycle
measures the length of time for a company to obtain and sell inventory, and collect on the related AR (i.e., complete an operating cycle) in terms of number of days
cash conversion cycle
measures the net length of time for a company to obtain and sell inventory, collect on the related AR, and release cash for inventory purchases in terms of number of days
asset turnover (ATO)
measures the company's ability to utilize its assets to generate sales
fixed asset turnover (FATO)
measures the company's ability to utilize its fixed assets to generate sales
working capital turnover (WCTO),
measures the company's ability to utilize its net working capital (i.e., current assets less current liabilities) to generate sales
gross profit margin (GPM)
measures the company's profitability after subtracting cost of goods sold,stated in % terms
EBITDA margin
measures the company's profitability after subtracting cost of goods sold and operating expenses (except depreciation and amortization), stated in % terms
EBIT (or operating) margin
measures the company's profitability after subtracting cost of goods sold and operating expenses,stated in % terms
EBT (or pre-tax) margin
measures the company's profitability after accounting for all operating and non-operating expenses and income (except income taxes),stated in % terms
net profit margin (NPM),
measures the company's profitability after accounting for all operating and non-operating expenses and income (including income taxes),stated in % terms
return on assets (ROA)
measures the company's ability to generate profits for each dollar of assets owned by the company, stated in % terms
return on invested capital (ROIC)
measures the company's ability to generate profits for each dollar borrowed by and invested in the company, stated in % terms
return on equity (ROE)
measures the company's ability to generate profits for each dollar invested in the company, stated in % terms
basic earnings per share (EPS)
measures the amount of profit attributable (after dividends to preferred equity) to each common share of the company