Introduction to Business Finance

Group: Members: Shahzaib Malik BB-2116

Abdul Ahad BB-2077

Hafeez Allah Sangru BB-2084

Talha Hassan BB-2131

Maaz Uddin BB-25227

Quick Ratio

• Recognizing that inventories may be less liquid than other current assets, and in some cases, when liquidated quickly result in cash flows that are less than book value,

sLiabilitieCurrent

sInventorieAssetsCurrent RatioQuick

Quick Ratio

• The quick ratio gives a clearer indication of the firm’s ability to meet its maturing financial obligations out of current, liquid assets.

•  Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values.

• Quick ratio is viewed as a sign of a company's financial strength or weakness; it gives information about a company’s short term liquidity.

• The ratio tells creditors how much of the company's short term debt can be met by selling all the company's liquid assets at very short notice.

Debt Ratio

• Is a stock ratio indicating the proportion of total assets financed by debt at a particular point in time .

Assets Total

sLiabilitie Total ratioDebt

Debt Ratio

• The debt ratio gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets.

• The higher the ratio, the greater the risk associated with the firm's operation.

• A low debt ratio indicates conservative financing with an opportunity to borrow in the future at no significant risk. 

Total Assets Turnover

Turnover Assets Total sTotalAsset

Sales

•The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales by assets .

Total Assets Turnover

• There is no set number that represents a good total asset turnover value because every industry has varying business models.

• It also depends on the proportion of labour costs in relation to the capital required, i.e. whether the process is labour intensive or capital intensive.

• The higher the number, the better. If there is a low turnover, it may be an indication that the business should either utilize its assets in a more efficient manner or sell them.

• But it also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. 

Days Sales Outstanding

• A measure of the average number of days that a company takes to collect revenue after a sale has been made

days 365 / sales annual

receivable accounts = ratio DSO

• A low DSO number means that it takes a company fewer days to collect its accounts receivable.

• A high DSO number shows that a company is selling its product to customers on credit and taking longer to collect money.

• Days Sales Outstanding is an average collection period in days for the accounts receivable (accounts payable outstanding in days).

Days Sales Outstanding

Earning Per Share

• The portion of a company's profit allocated to each outstanding share of common stock.

• Earnings per share serves as an indicator of a company's profitability.

• Growth in EPS is an important measure of management performance because it shows how much money the company is making for it’s shareholders

• Not only due to changes in profit, but also after all the effects of issuance of new shares (this is especially important when the growth comes as a result of acquisition).

gOutstandin SharesCommon

IncomeNet SharePer Earning OR

gOutstandin Shares Average

Stock Preferredon Dividend - IncomeNet (EPS) SharePer Earnings

Earning Per Share

• Earnings per share is generally considered to be the single most important variable in determining a share's price.

• It is also a major component used to calculate the price-to-earnings valuation ratio.

Shareper Earning

Shareper ValueMaket Ratio P/Eor Ratio Earning-Price

2012 2011 2010 2009 2008

Chevron Corp 1.25 1.25 1.3 1.01 0.79

Exxon Mobil Corp. 0.7 0.67 0.65 0.74 1.14

Oil & Gas Industrial Average 0.81 0.77 0.77 0.72 0.7

0.25

0.75

1.25

1.75

2.25

2.75

Quick OR Acid Test Ratio

2012 2011 2010 2009 2008

Exxon Mobil Corp. 1.28 1.31 1.14 1.2 1.93

Chevron Corp. 0.99 1.17 1.07 1.02 1.64

0.25

0.75

1.25

1.75

2.25

2.75

3.25

3.75

Total Asset Turnover

2012 2011 2010 2009 2008

Exxon Mobil Corp. NaN 9.7 8.42 6.22 3.98 8.69

Chevron Corp. NaN 13.32 13.44 9.48 5.24 11.67

1

3

5

7

9

11

13

Exxon Mobil Corp.

Chevron Corp.

Earning Per Share

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