1、,Chapter 2,Principles of Corporate FinanceNinth Edition,Financial Analysis,Topics Covered,Financial Statements Executive Paper Corporation Financial ratios,Executive Paper,Executive Paper,Executive Paper,Executive Paper,Executive Paper,Ratio Analysis,Ratios also allow for better comparison through t
2、ime or between companies. As we look at each ratio, ask yourself: How is the ratio computed? What is the ratio trying to measure and why? What is the unit of measurement? What does the value indicate? How can we improve the companys ratio?,Leverage Ratios,Leverage Ratios,Liquidity Ratios,Liquidity R
3、atios,Efficiency Ratios,Efficiency Ratios,Profitability Ratios,Profitability Ratios,Market Value Ratios,Market Value Ratios,Executive Paper Ratios,Executive Paper Ratios (continued),The DuPont System,A breakdown of ROE and ROA into component ratios,The DuPont System,asset turnover,profit margin,The
4、DuPont System,Extended Du Pont Chart,Insert Figure 3.1 (Extended DuPont Chart),3-24,The Du Pont identity tells us that ROE is affected by three things,1. Operating efficiency (as measured by profit margin). 2. Asset use efficiency (as measured by total asset turnover). 3. Financial leverage (as measured by the equity multiplier). Weakness in either operating or asset use efficiency (or both) will show up in a diminished return on assets, which will translate into a lower ROE.,Growth and Retained Earnings,Executive Paper Growth,
