Level 1 Assessment Financial Analysis Prodegree

Level 1 Assessment
Financial Analysis Prodegree
NAME:_________________________________________________________________________________ DATE:__________________
Note: In the exam, if there is not sufficient data to calculate averages for the purposes of ratios, you
can use the closing ratios. Instructions to this effect as regards specific questions have been specified
in the exam paper
A/c Payable Days = Avg. Payables / Purchases * 365

Inventory Days = Avg. Inventory / COGS * 365
Average Receivable Days = Avg. Receivables / Sales * 365
WC Cycle (Days) = Rec. Days + Inv. Days – Payable Days
Fundamental Measure of
RoE Organization’s Return to
Shareholders
[RoE = Profit after Tax / Average
Shareholders’ Equity]
Asset Turnover
Net Profit Margin x Ratio x Leverage
Profitability Measure Efficiency Measure Leverage Measure

[NP Margin = Profit after Tax / [Asset T/O = Sales / Avg. [Leverage = Avg. Total Assets
Sales] Total Assets] / Avg. Shareholders’ Equity]
Confidential and restricted. Do not distribute. © Imarticus Learning 1

Level 1 Assessment
Ratio Formula Significance
Current Ratio Current Assets /  Calculates the cover that current assets have
Current Liabilities on current liabilities. Higher the better
Quick Ratio [Cash + Cash  Calculates the cover that easily liquefying
Equivalents + assets have on current liabilities. Higher the
Receivables + S-T better
Investments] /
Current Liabilities
OR [Current Assets
– Inventory] /
Current Liabilities
Debt : Equity Total Interest –  Debt as % of Equity

Bearing Debt /  Lower ratio signifies lower leverage
Total Equity
Total Debt : Total Debt /  Used to estimate level of bank borrowings
EBITDA or Net EBITDA and [Total possible
Debt : EBITDA Debt – Cash] /  Frequently used in acquisition scenarios to
EBITDA estimate the debt that can be raised based on
post-acquisition financials
Interest EBIT / Total  Higher the better
Coverage Interest Expense
Debt Service EBITDA / [Debt  Frequently used as a covenant in loan

Coverage Ratio Repayment + documents to companies
Interest]

Level 1 Assessment
Basic EPS PAT / Weighted No.  Profts attributable to each share

of Equity Shares
O/S
Diluted EPS PAT / Weighted No.  Profts attributable to each share assuming an
of Equity Shares increased equity share base due to conversion
O/S assuming of convertible instruments (pref sh, debt,
conversion of bonds, etc.)
convertible
instruments
Dividend Per Total Dividends  Dividends available to each share
Share Declared / Equity  Dividends are always calculated as % of Face
Shares Value of Equity Shares (eg: 100% Dividend on
Outstanding or % FV of Rs. 10, means Dividend per Share of Rs.
of Face Value of 10)
Share
Enterprise Value Market Cap + Net  Total value of the enterprise from a “claims”
Debt + Minority point of view
Interest + Pref  Reflects the market value of claims that equity
Share holders, pref holders and debt holders have
on the Company
EV / EBITDA Enterprise Value /  Valuation multiple – how much is a company’s
EBITDA TOTAL VALUE as a multiple of its EBITDA
 Note that since Enterprise Value denotes
claims of both debt holders and equity
holders, we have to take an appropriate
measure in denominator
 Since EBITDA (or even EBIT) is profit available
to both Debt and Equity holders, we use it in
the denominator instead of PAT which is
profits only for equity holders

Level 1 Assessment
Dividend Yield DPS / Price at  How much return a shareholder has earned /
which Share was can earn through dividends
Purchased OR
DPS / Current
Share Price
Total (P1 – P0 + Div. in  Earnings of a shareholder over a period
Shareholder the Year) / P0  P0 = Initial Stock Price (or Purchase Price)
Return  P1 = Stock Price on the day of calculation of
return
 Dividends = Dividends received between the
days of P1 and P0
 This measure of returns accounts for both
Capital Appreciation in Share Price as well as
Dividends
Return on Equity PAT / Avg. Net  Calculates %age return on BOOK

(RoE) Worth INVESTMENT of Equity Shareholders
Return on EBIT / Avg. [Total  Calculates %age return on BOOK VALUE OF

Capital Assets (-) Current TOTAL CAPITAL INVESTED [Debt + Equity]
Employed Liabilities] OR
(RoCE) / Return EBIT * (1 – t) / Avg.
on Invested [Debt + Net Worth]
Capital (RoIC)
Return on Assets Net Income / Avg.  %age return on Assets invested in the
(RoA) Total Assets OR business
EBIT / Avg. Total
Assets OR EBIT*(1-
t) / Avg. Total
Assets

Level 1 Assessment Financial Analysis Prodegree

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Level 1 Assessment

Financial Analysis Prodegree

A/c Payable Days = Avg. Payables / Purchases * 365

Profitability Measure Efficiency Measure Leverage Measure

Confidential and restricted. Do not distribute. © Imarticus Learning 1

Ratio Formula Significance

Ratio Formula Significance

Debt : Equity Total Interest –  Debt as % of Equity

Debt Service EBITDA / [Debt  Frequently used as a covenant in loan

Confidential and restricted. Do not distribute. © Imarticus Learning 2

Ratio Formula Significance

Basic EPS PAT / Weighted No.  Profts attributable to each share

Ratio Formula Significance

Confidential and restricted. Do not distribute. © Imarticus Learning 3

Ratio Formula Significance

Ratio Formula Significance

Return on Equity PAT / Avg. Net  Calculates %age return on BOOK

Return on EBIT / Avg. [Total  Calculates %age return on BOOK VALUE OF

Confidential and restricted. Do not distribute. © Imarticus Learning 4

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