Principles of Corporate Finance

Chapter 29

Eighth Edition

Financial Analysis and Planning

Slides by Matthew Will

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Topics Covered
Financial Statements ACC
The DuPont System

Financial Planning Growth and External Financing

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ACC
Figures in Rs. Crores

Assets Current Assets Cash and Bank Receivables Inventory Total current assets Investments Fixed Assets: Gross Fixed Assets Less accumulated depreciation Net Fixed Assets Other assets Total assets

Mar-2004 64.97 576.18 378.01 1019.16 375.74

Mar-2005 57.32 577.54 542.38 1177.24 326.69

Change -7.65 + 1.36 + 164.37 + 158.08 -49.05

3899.58 1406.93 2492.65 77.04 3964.59

4477.68 1569.46 2908.22 66.23 4478.38

+ 578.1 + 162.53 + 415.57 -10.81 + 513.79

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ACC
Figures in Rs. Crores
Liabilities and Shareholders' Equity Current liabilities Debt due within 1 year Payables and provisions Total current liabilities Long-term debt Other liabilities Shareholders' equity Total liabilities & shareholders' equity Mar-04 17.24 851.71 868.95 1425.48 316.97 1353.19 3964.59 Mar-05 200 1022.84 1222.84 1309.07 349.28 1597.19 4478.38 Change + 182.76 + 171.13 + 353.89 -116.41 + 32.31 + 244 + 513.79

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ACC

Figures (excepting per-share figures) in Rs. Crores

Other financial information: Market value of equity Average number of shares (crores) Share price (Rs.)

4510.63 17.72 254.55

6434.03 17.85 360.45

1923.407 0.13 105.9

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ACC
Sales Other Income Total revenue Costs Depreciation EBIT Interest Tax Net Income (PAT) Dividends Retained Earnings Earnings per share, rupees Dividend per share, rupees Rs. Crores 4548.92 89.35 4638.27 3908.31 188.82 541.14 96.32 66.43 378.39 142.95 235.44 21.20 8.0

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ACC
Rs. Crores Sources: Profit after tax Depreciation Operating cash flow Issues of Other liabilities Issues of equity Decrease in Working Capital Sale of Investments Decrease in other assets Total Sources Uses:

Sources and Uses of Funds:

378.39 188.82 567.21 32.31 8.56 195.81 49.05 10.81 863.75

(Figures in Rs. Crores)

Investment in fixed assets Redemption of long-term debt Dividends Total uses

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604.39 116.41 142.95 863.75

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Leverage Ratios
long term debt Long term debt ratio = long term debt + equity

long term debt + value of leases Debt equity ratio = equity

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Leverage Ratios
total liabilities Total debt ratio = total assets
EBIT Times interest earned = interest payments

EBIT + depreciation Cash coverage ratio = interest payments

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Liquidity Ratios
Net working capital to total assets ratio Net working capital = Total assets

current assets Current ratio = current liabilities

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Liquidity Ratios
cash + marketable securities + receivables Quick ratio = current liabilities

cash + marketable securities Cash ratio = current liabilities

cash + marketable securities + receivables Interval measure = average daily expenditures from operations

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Efficiency Ratios
Sales Asset turnover ratio = Average total assets

sales NWCturnover = average net working capital

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Efficiency Ratios
Inventory turnover ratio = cost of goods sold average inventory

average inventory Days' sales in inventory = cost of goods sold / 365

average receivables Average collection period = average daily sales

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Profitability Ratios
EBIT - tax Net profit margin = sales

EBIT - tax Return on assets = average total assets

earnings available for common stock Return on equity = average equity

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Profitability Ratios
Payout ratio = dividends earnings

earnings - dividends Plowback ratio = earnings = 1 - payout ratio

earnings - dividends Growth in equity from plowback = earnings

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Market Value Ratios

stock price PE Ratio = earnings per share

P0 Div 1 1 x Forecasted PE ratio = = aveEPS1 EPS1 r - g

dividend per share Dividend yield = stock price

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Market Value Ratios

Price per share = P0 Div 1 = r - g

stock price Market to book ratio = book value per share

market value of assets Tobins Q = estimated replcement cost

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ACC Ratios
ACC Leverage Ratios: Debt ratio
a

Cement Industryb

Debt ratio (including short-term debt) Debt-equity ratio Times-interest-earned Liquidity Ratios: Net-working-capital-to-total assets Current ratio Quick ratio Cash ratio
a a

Long-term debt/(long-term debt + equity) (Long-term debt + short-term debt)/(long-term debt + short-term debt + equity) Long-term debt/equity (EBIT + depreciation)/interest

0.45

0.68

0.49 0.82 7.58

0.69 2.13 3.63

Interval measure

(Current asset - current liabilities)/total assets Current assets/current liabilities (Cash + receivables + marketable securities)/current liabilities (Cash + marketable securities)/current liabilities (Cash+marketable securities+receivables)/(costs from operations/365)

-0.01 0.96 0.52 0.05

0.04 1.16 0.81 0.18

56.56

150.55

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ACC Ratios (continued)

ACC Efficiency Ratios: Sales-to-assets ratio a Sales-to-net-working-capital Days in inventory a Inventory turnover Average collection period (days) Receivables turnovera Profitability Ratios: Net profit margin Return on assets (ROA) Return on equity (ROE) Payout ratio Market-Value Ratios: Price-earnings ratio (P/E) Dividend yield Market-to-book ratio Sales/average total assets Sales/average net working capital Average inventory/(cost of goods sold/365) Cost of goods sold/average inventory Average receivables/(sales/365) Sales/average receivables 1.08 86.97 55.70 6.55 46.29 7.89 Cement Industryb 0.93 22.16 71.74 5.09 64.35 5.67

(EBIT-taxes)/sales (EBIT-taxes)/average total assets Earnings available for common stockholders/average equity Dividend per share/earnings per share

0.10 0.11 0.26 0.38

0.10 0.09 0.19 0.37

Stock price/earnings per share Dividend per share/stock price Stock price/book value per share

17.00 0.02 4.03

31.84 0.01 3.86

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The DuPont System

A breakdown of ROE and ROA into component ratios
EBIT - taxes ROA = assets EBIT - tax - interest ROE = equity

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The DuPont System

sales EBIT - taxes ROA = x assets sales

asset turnover

profit margin

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The DuPont System

assets sales EBIT - taxes EBIT - taxes - interest ROE = x x x equity assets sales EBIT - taxes

leverage asset ratio turnover

profit margin

debt burden

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ACC
Financial Planning 1. Best case 2. Normal growth 3. Retrenchment

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ACC
Financial Planning Models

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ACC
Financial Planning Models

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ACC
Financial Planning Models

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Growth and Retained Earnings

ACC Growth

retained earnings Internal growth rate = ! 9.85% net assets

Internal growth rate =

retained earnings profit after tax equity v v profit after tax equity net assets equity ! plowback ratio v return on equity v net assets
=9.85%

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Web Resources
Click to access web sites Internet connection required

www.ibm.com/investor/financialguide www.jaxworks.com edgarscan.pwcglobal.com www.reportgallery.com www.prars.com

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