1 / 41

Chapter 5

ENTREPRENEURIAL FINANCE. Chapter 5. EVALUATING FINANCIAL PERFORMANCE. CHAPTER 5: LEARNING OBJECTIVES. Describe how financial ratios are used to monitor a venture’s performance

chapa
Download Presentation

Chapter 5

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. ENTREPRENEURIAL FINANCE Chapter 5 EVALUATING FINANCIAL PERFORMANCE

  2. CHAPTER 5:LEARNING OBJECTIVES • Describe how financial ratios are used to monitor a venture’s performance • Identify specific cash burn rate measures and liquidity ratios and explain how they are calculated and used by an entrepreneur • Identify and describe the use and value of conversion period ratios to the entrepreneur

  3. CHAPTER 5:LEARNING OBJECTIVES • Identify specific leverage ratios and explain their usage by lenders and creditors • Identify and describe measures of profitability and efficiency that are important to the entrepreneur and equity investors • Describe limitations when using financial ratios

  4. FINANCIAL RATIO & ANALYSIS财务比率与分析 • Financial Ratios:财务比率 show the relationship between two or more financial variables • Trend Analysis:趋势分析 used to examine a venture’s performance over time • Cross-sectional Analysis:横向比较（外部比较） used to compare a venture’s performance against another firm at the same point in time • Industry Comparables Analysis:行业比较 used to compare a venture’s performance against the average performance in the same industry

  5. MPC INCOME STATEMENT损益表举例说明

  6. MPC BALANCE SHEET资产负债表举例说明

  7. MPC BALANCE SHEET资产负债表举例说明

  8. CASH BURN现金支出 • Cash Burn:现金支出 cash a venture expends on its operating and financing expenses and its investments in assets • Cash Burn Rate:现金支出比率 cash burn for a fixed period of time, typically a month

  9. CASH BURN / BUILD / BURN RATE现金支出/现金收入/现金支出比率 • Cash Burn = Inventory-related expenses + Admin expenses + Marketing expenses + R& D expense + Interest expenses + Change in prepaid expenses – (Change in accrued liabilities + Change in payables) + Capital investment + Taxes • MPC for 2005: Cash burn = 425,000 + 65,000 + 39,000 + 27,000 + 20,000 + 0 – (1,000 + 27,000) +50,000 + 8,000 = 606,000

  10. CASH BURN / BUILD / BURN RATE现金支出/现金收入/现金支出比率 • Cash Build = Net sales – Change in receivables • MPC for 2005: Cash build = 575,000 - 30,000 = 545,000 • Cash Build Rate: Cash build for a fixed period of time, typically a month • Net Cash Burn = Cash burn – Cash build = 606,000 - 545,000 = 61,000

  11. LIQUIDITY RATIOS流动比率 • Indicate the ability to pay short-term liabilities when they come due • Current Ratio: = Average current assets/Average current liabilities = (250,000+180,000)/2 (204,000+110,000)/2 = 1.37

  12. LIQUIDITY RATIOS流动比率 • 流动资产Liquid assets: sum of a venture’s cash and marketable securities plus its receivables • Quick Ratio = Average current assets – Average inventories Average current liabilities = (250,000 +180,000)/2 – (140,000+95,000)/2 (204,000 + 110,000)/2 = .62

  13. LIQUIDITY RATIOS流动比率 • Net working capital (NWC):营运资金 current assets minus current liabilities 营运资金=流动资产-流动负债 • NWC – to – Total – Assets Ratio: = Ave. current assets – Ave. current liabilities Ave. total assets = (250,000+180,000)/2 – (204,000+110,000)/2 (446,000 + 343,000)/2 =.147 or 14.7%

  14. MPC BURN RATES & LIQUIDITY RATIOS RATIO 20042005% Change Cash burn 417,000 606,000 +45.3% Monthly cash burn 34,750 50,500 +45.3% Cash build 423,000 545,000 +28.8% Monthly cash build 35,250 45,417 +28.8% Net Cash burn -6,000 61,000 N/A Monthly net cash burn -500 5,083 N/A Year-end months of cash N/A .98 N/A Current ratio 1.56 1.37 -12.2% Quick ratio .76 .62 -18.4% NWC-total assets ratio .174 .147 -15.5%

  15. CONVERSION PERIOD RATIOS • Conversion Period Ratio: indicates the average time it takes in days to convert certain current assets and current liability accounts into cash • Operating Cycle: time it takes to purchase, produce, and sell the venture’s products plus the time needed to collect receivables if the sales are on credit • Cash Conversion Cycle: sum of the inventory-to-sale conversion period and the sales-to-cash conversion period less the purchase-to-payment conversion period

  16. MEASURING CONVERSION TIMES • Inventory-to-Sale Conversion Period =Ave. Inventories (CGS / 365) = (140,000 + 95,000)/2 = 117,500 380,000/365 1041 = 112.9 days

  17. MEASURING CONVERSION TIMES • Given New I-to-S, Can Solve for New Average Inventories =Inventory-to-Sale Conversion Period x (COGS/365) = 105.7 X $1,041 = $110,000 (rounded)

  18. MEASURING CONVERSION TIMES • Sale-to-Cash Conversion Period: =Ave Receivables (Net Sales/365) = (105,000 + 75,000)/2 575,000/365 = 57.1 days

  19. MEASURING CONVERSION TIMES • Purchase-to-Payment Conversion Period: =Ave Payables + Ave Accrued Liabilities (COGS / 365) = (84,000+57,000)/2 + (10,000+9,000)/2 380,000/365 = 76.8 days

  20. MEASURING CONVERSION TIMES • Cash Conversion Cycle =Inventory-to-Sale Conversion Period + Sale-to-Cash Conversion Period – Purchase-to-Payment Conversion = 112.9 days + 57.1 days – 76.8 days = 93.2 days

  21. MPC CONVERSION PERIOD PERFORMANCE Conversion Ratio Impact on 20042005Conv. Cycle Inventory-to-sale 105.7 days 112.9 days +7.2 days Sale-to cash 56.3 days 57.1 days +0.8 days Purchase-to-payment 77.5 days 76.8 days +0.7 days Cash conversion cycle 84.5 days 93.2 days +8.7 days

  22. LEVERAGE RATIOS • Leverage Ratio: indicates the extent to which the venture is in debt and its ability to repay its debt obligations • Loan Principal Amount: dollar amount borrowed from a lender • Interest: dollar amount paid on the loan to a lender as compensation for making the loan

  23. MEASURING FINANCIAL LEVERAGE • Total-Debt-to-Total-Asset Ratio: = Ave total debt / Ave total assets = (204,000 +110,000)/2 + (80,000 +90,000)/2 (446,000 + 343,000)/2 = .6134 or 61.34%

  24. MEASURING FINANCIAL LEVERAGE • Equity Multiplier: = Ave total assets / Ave owners’ equity = (446,000 + 343,000)/2 (162,000 + 143,000)/2 = 2.587 times

  25. MEASURING FINANCIAL LEVERAGE • Current-Liabilities-to-Total-Debt Ratio: = Ave. current liabilities / Ave. total debt = (204,000 + 110,000)/2 (284,000 + 200,000)/2 = .6488 or 64.88%

  26. MEASURING FINANCIAL LEVERAGE • Interest Coverage Ratio: = EBITDA / Interest = 47,000 + 17,000/2 20,000 = 3.20 times

  27. MEASURING FINANCIAL LEVERAGE • Fixed Charge Coverage: = EBITDA + Lease payments … Interest + Lease payments + [Debt repayments / (1-T)] = 64,000 + 0 _ (20,000 + 0 + [10,000/(1-.30)]) = 1.87 times

  28. MPC LEVERAGE RATIO PERFORMANCE Leverage Ratio Impact on 20042005Leverage risk Total debt/total assets 59.8% 61.3% Increase Equity multiplier 2.491 2.587 Increase Current liab / total debt 52.9% 64.9% Increase Interest coverage 4.6 3.2 Increase Fixed charges coverage 2.13 1.87 Increase

  29. PROFITABILITY & EFFICIENCY RATIOS • Profitability Ratios: indicate how efficiently a venture controls its expenses • Efficiency Ratios: indicate how efficiently a venture uses its assets in producing sales

  30. MEASURING PROFITABILITY & EFFICIENCY • Gross Profit Margin: = Net Sales – COGS Net Sales = 195,000/575,000 = .3391 or 33.91%

  31. MEASURING PROFITABILITY & EFFICIENCY • Operating Profit Margin: = EBIT . Net Sales = 47,000/575,000 = .0817 or 8.17%

  32. MEASURING PROFITABILITY & EFFICIENCY • Net Profit Margin: = Net Profit Net Sales = 19,000/575,000 = .0330 or 3.30%

  33. MEASURING PROFITABILITY & EFFICIENCY • Interest Tax Shield: proportion of a venture’s interest payment paid by the government because interest is deductible before taxes are paid • NOPAT Margin: = EBIT (1 – tax rate) Net Sales = 47,000 (1 - .30) 575,000 = .0572 or 5.72%

  34. MEASURING PROFITABILITY & EFFICIENCY • Sales-to-Total-Assets Ratio: = Net Sales . Ave total assets = 575,000 . (446,000 + 343,000)/2 = 1.458 times

  35. MEASURING PROFITABILITY & EFFICIENCY • Return on Total Assets (ROA): = Net profit . Ave total assets = 19,000 _ (446,000 + 343,000)/2 = .048 or 4.8%

  36. MEASURING PROFITABILITY & EFFICIENCY • ROA Model: the decomposition of ROA into the product of the net profit margin and the sales-to-total-assets ratio ROA = (Net profit / sales) x (Net sales / Ave. total assets) = (19,000/575,000) x (575,000/ (446,000 + 343,000)/2) =.0330 x 1.458 = .048 or 4.8%

  37. MEASURING PROFITABILITY & EFFICIENCY • Return on Equity (ROE): = Net profit . Ave owners’ equity = 19,000 . (162,000 + 143,000)/2 = .1246 or 12.46% (or 12.5% rounded)

  38. MEASURING PROFITABILITY & EFFICIENCY • ROE Model: the decomposition of ROE into the product of the net profit margin, sales-to-total-assets ratio, and equity multiplier ROE = (Net profit / sales) x (Net sales / Ave. total assets) x (Ave. total assets / Ave. equity) = 3.3% x 1.46% x 2.59% = 12.5%

  39. MPC PROFITABILITY & EFFICIENCY PERFORMANCE Impact on Profitability Ratio 20042005or Efficiency Gross profit margin 34.93% 33.91% lower Operating profit margin 9.59% 8.17% lower Net profit margin 4.79% 3.30% lower Unlever. profit margin 6.71% 5.72% lower Sales to total assets 1.327 1.458 higher ROA 6.36% 4.82% lower ROE 15.85% 12.46% lower

  40. MPC INDUSTRY COMPARABLES ANALYSIS 2005 Comparison 2005Industry Ave.with industry Liquidity Ratios Current ratio 1.37 1.80 lower Quick ratio .62 .80 lower Conversion Period Ratios Inventory-to-sale 112.9 days 100 days higher Sale-to-cash 57.1 days 55.0 days higher Purchase-to-payment 76.8 days 74.1 days higher Cash conversion cycle 93.2 days 80.9 days higher

  41. MPC INDUSTRY COMPARABLES ANALYSIS 2005 Comparison Leverage Ratios2005Industry Ave.with industry Tot. debt-to-tot. assets 61.3% 60.0% higher Interest coverage 3.20 4.00 lower Profitability/Efficiency Ratios Gross profit margin 33.91% 35.0% lower Operating profit margin 8.17% 10.0% lower Net profit margin 3.30% 4.5% lower NOPAT margin 5.72% 6.00% lower Sales-to-total assets 1.458 1.5 lower Return on total assets 4.82% 6.3% lower Return on equity 12.46% 15.00% lower

More Related