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- 1types of indirect transferindirect transfer through investment bank
indirect transfer through financial intermediary - 2the issuing company seeks the aid of the financial institution to easily issue their securities to the investors, thus there is mediation between the issuer and investorindirect transfer
- 3the investor may acquire securities from the intermediary that are different from what have been issued by the corporationindirect transfer
- 4the securities of a company are bought by the investment bank or the so called underwriter with the intention of reselling them to a prospective investorindirect transfer through investment bank
- 5the securities of the issuing company will be in the hands of the investors. thus, no new form of capital is createdindirect transfer through investment bank
- 6the securities of the company are bought by these financial intermediaries without the intention of reselling the said securities; rather they will sell their own securities to the new investorsindirect transfer through financial intermediary
- 7the securities of the issuing company are in the possession of the financial intermediaries while the new investors will get the securities issued by the financial intermediaries. investors will receive the insurance policies issued by the Insurance Companies. thus, new form of capital is createdindirect transfer through financial intermediary
- 8are markets where shares of stocks of corporation are sold to the new investors and or existing stockholdersstock markets
- 9the 2 stock markets in the philippinesmanila stock exchange
makati stock exchange - 108 constituent indices of the philippine stock exchange marketpse composite index
pse all shares index
pse holding firms index
pse industrial index
pse financial index
pse mining and oil index
pse property index
pse services index - 11shows the current stock prceLAST column
- 12the peso value increase or decrease in the said price of these stocksDIFF column
- 13Displays the number of outstanding stocks that the willing buyers want to buyBID VOLUME column
- 14the number of outstanding stocks that willing sellers want to sellASK VOLUME column
- 15illustrate the stock prices that buyers are willing to payBID PRICE column
- 16the stock prices that sellers are willing to acceptASK PRICE column
- 17stock market transactionsinitial public offering (IPO) markets
seasoned offering
primary markets
secondary markets - 18are markets where the stocks of a closely held corporation, going public, are offered to the public for the first time.initial public offering (IPO) markets
- 19companies undergo ___ in order to raise additional capital to finance their operating and investing activitiesIPO
- 20is the issuance of additional shares of stocks of the company after its first time offering in order to finance the capital budget or to improve its capital structure.seasoned offering
- 21are involved in the issuance or selling of new share of stocks to the investors through the aid of the investment bankers. The cash proceed from primary market transaction goes to the corporationprimary markets
- 22This kind offering may be done by family corporations or publicly listed corporationsseasoned offering
- 23the transactions in this market change the size of the capital structure of the companyprimary markets
- 24are involved with the sale of the outstanding shares of stocks to the existing shareholders or to new investorssecondary market
- 25the cash proceed from secondary market transaction goes to the selling shareholders, not the corporation. thus, the capital structure of the company is not affected by the secondary market transactionssecondary markets
- 26if the stock market show that the market prices of the stocks are about equal or close to intrinsic valuesmarket efficiency
- 27the stock price reflects all publicly available information, hence are fairly priced. Thus, investors returns or losses are relatively lowefficient market
- 28the stock prices are considered to be highly overvalued or undervalued. hence, the investors are not confident to invest unless they knew some information over the othersstock market is inefficient
- 29levels of efficiency in the efficient market hypothesisweak form
semi-strong form
strong form - 30this level shows that the information regarding the past or historical prices of a particular stock is not conclusive in predicting stock pricesweak form
- 31in this level an investor cannot beat the market by simply analyzing the past performances of the stockweak form
- 32this level shows that all the available public information is already incorporated in the stock pricessemi-strong form
- 33in this level investors cannot beat the market solely by analyzing the published financial reports of the company unless they have information from company insiderssemi-strong form
- 34this level show that investors cannot bear the market even with insider information. hence, the investors in this efficient market cannot earn high returnsstrong form
- 35classification of stock pricesmarket value
intrinsic value - 36also known as perceived value, is the prce of the stock which is currently traded in the marketmarket value
- 37this is the true value of the stock. this is the price that the willing buyers will bid and willing seller will ask provided that all necessary information about the stock is availableintrinsic value
- 38how can the intrinsic value be estimated?dividend discount model
corporate valuation model - 39if the so called market value is equal to the intrinsic valuethe stock price is at equilibrium
- 40the investor is neutral as to selling or buying stocksstock price is at equilibrium
- 41if the market value of the stock is higher than the intrinsic valuethe stock price is overvalued
- 42the stockholders are expected to sell than to buy shareswhen the stock price is overvalued
- 43if the market value is lower than the intrinsic valuethe stock price is undervalued
- 44the investors are expected to purchase more shares to take advantage of lower pricethe stock price is undervalued
- 45financial statements are composed ofstatement of financial position (balance sheet)
statement of comprehensive income (Income statement)
statement of cash flow
statement of owner's equity
notes to financial statements - 46are the primary means to communicate the material financial information to its users regarding the operating performance, profitability, and the ability of company to meet its obligationsfinancial statements
- 47in order to analyze and evaluate the company performance and conditions, financial managers used _tools and techniques
- 48tools and techniques used by the financial managershorizontal analysis
vertical analysis
financial ratios
duPont techniques - 49method of comparing the peso value or amount of the particular line item in the statement of financial position, statement of comprehensive income or cash flow statements over a two or more consecutive accounting periodhorizontal analysis of financial statements
- 50also known as trend analysishorizontal analysis
- 51provides assessment of the significant increase or decrease in these different items in the financial statementshorizontal analysis
- 52in performing horizontal analysis technique, we can use __peso value
percentage change for comparison and evaluation of company's performance - 53percentage change formulapercentage change = CY-PY / PY
- 54is a technique that involves assessment of the different line items in a single period financial statementvertical analysis
- 55in this technique, the financial managers can appropriately evaluate the financial information of companies of different sizes because using % for comparison provides more useful and relevant conclusions than using peso values in comparing these companies of different sizesvertical analysis
- 56vertical analysis is performed on the statement of financial position where in the base amaount in calculating the % is total assets while the base amount for income statement is net salesvertical analysis
- 57after using this technique, the financial statements prepared are known as common size financial statementsvertical analysis
- 58the comparison between one of financial information with other financial informationfinancial ratio
- 59this comparison formulates relationship that provides relevant information in evaluating the operating performance and financial condition of the companyfinancial ratio
- 60classification of financial ratiosliquidity ratio
leverage ratio
activity ratio
profitability ratio - 61this measures the ability of the company to meet its short term obligationsliquidity ratio
- 62this measures the ability of the company to term obligation when they fall dueleverage ratio
- 63this measures how the company productively uses or manages its assetsactivity ratio
- 64this measures the overall financial performance of the firm and its return on investmentsprofitability ratio
- 65are the ratios that measure the ability of a company to pay its short term debt obligations when they fall dueliquidity ratio
- 66it measures the capacity of the company to convert short term assets into cashliquidity ratios
- 67liquidity ratioscurrent ratio
quick ratio
cash ratio
working capital to total asset ratio - 68termed as working capital ratio, indicates whether or not the company has sufficient resources to pay its debt obligations that are due within 12 monthscurrent ratio
- 69this ratio shows the liquidity of a company which is the ability of assets to be easily and quickly converted into cash at the lowest costcurrent ratio
- 70low current ratio meansthe company will have difficulty in paying its short term debts
- 71high current ratio signifiesthe company is not utilizing its current assets efficiently
- 72formula of current ratiototal current assets/ total current liabilities
- 73more stringent measurement of the ability of the company to pay its short term debt obligation using the quick assets of the companyquick ratio
- 74are composed of the most liquid asset which is cash and those highly liquid current assets that are easily convertible into cash such as marketable securities and accounts receivablequick assets
- 75quick assetscash
marketable securities
accounts receivables - 76also known as acid test ratioquick ratio
- 77formula of quick ratioquick ratio = current assets - inventories / total current liabilities
- 78is considered the most stringent and conservative among the liquidity ratios because it only uses cash and cash equivalent in paying the short term obligations of the companycash ratio
- 79this ratio shows the comparison of the company's most liquid assets such as cash and marketable securities over its total current liabilitiescash ratio
- 80cash ratio formulacash ratio = cash+marketable securities/ total current liabilities
- 81measures the company's potential value of cash reserves, is the difference between the total current assets and total current liabilitiesworking capital to total asset ratio
- 82sometimes called net working capitalworking capital to total asset ratio
- 83working capital to total asset ratio formulaworking capital to total asset ratio =
current assets-current liabilities / total assets - 84are ratios that show the capacity of the company to meet its long term debt obligations when they fall dueleverage ratio
- 85these ratios indicate the solvency of the company, thus, showing whether or not there are sufficient financial resources to insure payment of the principal and interests of lendersleverage ratio
- 86also know as solvency ratioleverage ratio
- 87a very high leverage ratio signifiesthat the company is facing operating and financial risks
- 88leverage ratiosdebt ratio
equity ratio
debt to equity ratios
times interest earned ratio
cash coverage ratio - 89is a ratio that shows the percentage of the total debt of a company compared to its total asset.debt ratio
- 90is considered as a component of the capital structure of the company which reflects the proportion of total assets that is funded by total debtdebt ratio
- 91higher weight of debt to total asset signifies that the company is __highly levered, thus, faces greater financial risks
- 92debt ratio formuladebt ratio = total liability / total assets
- 93indicates the proportion of the total equity of the company compared to its total assetsequity ratio
- 94this ratio is considered as a component of the capital structure of the company which shows the proportion of total assets that is funded by shareholder's equityequity ratio
- 95is the residual interest after deducting the total debt from total assets of the company or this is sometimes referred as the net worth of the companyshareholders equity
- 96also known as net worth to total asset ratioequity ratio
- 97equity ratio formulaequity ratio = total shareholders equity / total asset
- 98is a ratio that shows the proportion of company's fund financed by debt compared to funds financed by equitydebt to equity ratio
- 99this ratio is a good measure of the financial status of the companydebt to equity ratio
- 100the higher the debt equity ratio impliesthe company is highly financed by debt or creditors, thus increases the financial risk of the company
- 101the lower the debt to equity ratio impliesthe contribution from the stockholders is more than the creditors, thus the company has better standing in terms of solvency yet it does not increase earnings through leverage
- 102debt to equity ratio formuladebt to equity ratio= total liability / total shareholder's equity
- 103sometimes referred as interest coverage ratiotimes interest earned ratio
- 104ratio that indicates the degree to which interest are covered by earnings before interest and taxestimes interest earned ratio
- 105this ratio measures the number of times the interest payments can be made by the company through the use of ebittimes interest earned ratio
- 106the times interest earned ratio is low, impliesthat the ability of the company to meet its interest expenses is impaired because of less earnings generated from operations
- 107higher times interest earned ratio showsa good financial standing of the company
- 108times interest earned ratio formulatimes interest earned ratio = earnings before interest and tax (EBIT) / interest expense
- 109is a ratio that indicates the extent to which interest are covered not only by earning but by the cash flows generated from operationscash coverage ratio
- 110this ratio shows the use of company's earnings exclusive of non-cash expenses in meeting its interest expensescash coverage ratio
- 111this measures how many times the interest payment can be made by the company through earnings before EBIT after adding back depreciationcash coverage ratio
- 112cash coverage ratiotimes interest earned ratio = EBIT + depreciation / interest expense
- 113measures how efficient the company produces revenue through the management of its assetsactivity ratio
- 114this ratio indicates the company's capacity of converting its assets into sales revenueactivity ratio
- 115are also known as efficiency ratio or asset management ratioactivity ratio
- 116activity ratiosasset turnover ratio
accounts receivable turnover ratio
days' sales receivable
inventory turnover ratio
days; sales in inventory
accounts payable turnover ratio
days payable outstanding
cash conversion cycle - 117also referred as sales to asset ratioasset turnover ratio
- 118indicates the value of peso sales generated by the each peso asset employed by the companyasset turnover ratio
- 119it is assumed that high asset turnover ratio signifiesthe effective use of company's assets
- 120if the asset turnover ratio is low, it impliesinefficient use of assets, there is a need to analyze the performance of key asset such as receivables and inventories
- 121asset turnover ratio formulasales revenue / average assets
- 122indicates how many times the company collects its average accounts receivables during an accounting periodaccounts receivable turnover ratio
- 123measuring how fast the collection department of the company collects its credit salesaccounts receivable turnover ratio
- 124higher accounts receivable turnover ratio meansthe more efficient the company is managing its credit granting to customers and vice versa
- 125accounts receivable turnover ratio formulacredit sales / average accounts receivables
- 126indicates how fast the company collect its credit sales in terms of daysdays sales outstanding
- 127also known as average collection perioddays sales outstanding
- 128days sales outstanding formuladays sales outstanding = average receivables / average daily sales
beg AR + end AR / 2
/
sales (revenue/360) - 129measures the number of times the company replaces its average inventories during an accounting period due to salesinventory turnover ratio
- 130this ratio shows how the company manages its inventory efficientlyinventory turnover ratio
- 131high inventory ratio impliesbetter sales efficiency
- 132low inventory ratio impliesobsolete inventories or that too much inventory is held in stock
- 133inventory turnover ratio formulainventory turnover ratio = cost of sales sales / average inventory
- 134indicates how quick the company can sell its inventories in terms of days or the number of days the company holds these inventories before selling to customersdays' sales inventory
- 135also known as average inventory perioddays' sales inventory
- 136days' sales inventory formuladays' sales inventory = average inventory / average daily cost of sales
- 137indicates the number of times the company pays its outstanding average accounts payable durng an accounting periodaccounts payable turnover ratio
- 138this ratio shows the creditworthiness of the company or how it manages its payments to the creditorsaccounts payable turnover ratio
- 139high accounts payable turnover ratio meansthe company pays its purchase on account in a short period of time
- 140accounts payable turnover ratio formulaaccounts payable turnover ratio = purchases / ave accounts ayable
- 141purchase formulacost of goods sold + ending inventory - beginning inventory
- 142shows the number of days it will take for the company to pay its liability from date of purchasedays payable outstanding
- 143this is also termed as accounts payable perioddays payable outstanding
- 144days payable outstanding formuladays payable outstanding = ave accounts payable / ave daily purchases
- 145this cycle starts from the purchase of materials from the supplier, followed by the sale of finished goods inventory to the customers then finally the collection of cash payments made by these customersnormal operating cycle
- 146the delay of time between purchase of materials and the sale of finished goodsaverage inventory period
- 147the delay of time between sale of finished goods and collection of customer paymentsaverage receivable period
- 148is the summation of the two perios (AIP and ARP), thus, is the delays in collecting cash paymentsnormal operating cycle
- 149the delay time between purchase of material and the payment made to the supplieraccounts payable period
- 150measures the number of days from cash being paid to the suppliers up to the time cash is received from salescash conversion cycle
- 151it is the period of time from the purchase of raw materials up to the collection of receivablecash conversion cycle
- 152its objective is to shorten the cash conversion cycle by implementing a policy that speed up the collection from customers and slows down the payment to the supplierworking capital management
- 153cash conversion cycle formulaAIP + ARP - APP
average inventory period
average receivable period
accounts payable period - 154accounts receivable period is also known asday;s sales outstanding
day's sales receivable
average collection period - 155inventory period is also known asday's sales inventory
average age of inventory
inventory conversion period - 156accounts payable period is also known asdays purchases payable
average age of payable - 157measures the overall financial performance of the company as provided by returns generated from investments and salesprofitability ratio
- 158classification of profitability ratioas to margins
as to returns
as to shareholders interest - 159profitability ratio as to margingross profit margin
operating profit margin
net profit margin - 160profitability ratio as to returnsreturn on sales
return on assets
return on equity - 161profitability ratio as to shareholders interestearning per share
price-earning ratio
dividend yield
pay-out ratio
plow back ratio - 162shows the earnings of the company in terms of gross profit, operating profit, and net profitstatement of comprehensive income
- 163is calculated by deducting the production cost from sales revenuegross profit
- 164is computed after deducting the operating expenses incurred by the company from its gross marginoperating profit
- 165also referred as earnings before interest and taxoperating profit
- 166it is equal to ebit less the interest expense and taxesnet profit
- 167indicates the proportion of gross profit over the sales revenue generated by the company from operationsgross profit margin
- 168this shows the earning capacity of the company after taking into account the cost of productiongross profit margin
- 169gross profit margin formulagross profit margin gross profit / net sales
- 170shows the percentage of operating profit or the EBIT over the sales revenue generated by the company from operationsoperating profit margin
- 171operating profit margin formulaoperating profit margin = operating profit / net sales
- 172reveals the percentage of the net income after tax over the sales revenue generated from operationsnet profit margin
- 173this shows the earning capacity of the company after paying all its expenses such as production cost, operating cost, financing cost and taxesnet profit margin
- 174net profit margin formulanet profit margin = net income after tax / net sales
- 175these ratios indicate the profitability of the company through the relationship of the peso value of income generated from sales, employment of assets and investment in equityprofitability as to returns
- 176shows the proportion of profit, after payment of all expenses, over the sales revenue.return on sales
- 177this ratio is the same as the net profit marginreturn on sales
- 178return on sales formulareturn on sales = net income / net sales
- 179measures the relationship of the peso value of income generated for every peso of asset employed by the companyreturn on assets
- 180it shows how the company efficiently use its assets. this ratio expresses the percentage of net income of the company over its total assetsreturn on assets
- 181return on assets formulareturn on assets = net income / average assets
- 182illustrates the relationship of the peso value of income earned per equity investments by the shareholdersreturn on equity
- 183this ratio is one of the most significant profitability ratios, especially to the owners or shareholders, because it shows how profitable the company is through the use of investments from its ownersreturn on equity
- 184return on equity formulareturn on equity = net income / average equity
- 185the shareholders or investors may expect return on their investment through the dividends paid by the company or the capital gains from increasing stock priceshareholders interest
- 186these stockholders primarily look into the earnings, dividends policy, and stock prices of the company throughout their investmentshareholders interest
- 187indicates the ratio of the annual income and the common stocks of the companyearnings per share
- 188this shows how much of the total earnings may be given to each share of common stocksearnings per share
- 189earnings per share formulanet income - preferred dividends /
no of outstanding common stocks - 190reflects the ratio of the market price per share of common stock and the earnings per shareprice earnings ratio
- 191this ratio is used by the investors or stockholders in assessing the ability of the company to sustain growth and generate cash flows in the futureprice earnings ratio
- 192price earnings ratio formulamarket price per share / earning per share
- 193shows the proportion of earnings that is paid out to shareholders as dividendspayout ratio
- 194high payout ratioinvestors, who prefer short term returns like cash dividends rather than capital gains, usually search for companies with
- 195payout ratio formuladividends per share / earnings per share
- 196also referred as retention ratioplowback ratio
- 197shows the proportion of earnings that is not paid out to stockholders rather it is plowed back or reinvested to the company to be used for its expansion and growthplowback ratio
- 198this ratio is the complement of the payout ratioplowback ratio
- 199plowback ratio formulaearning per share - dividends per share /
earnings per share
1- payout ratio - 200indicates the return on investment for stockholders in terms of dividend paiddividend yield
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- Financial Management Fichas sobre 2, creado por clarissa joy mascarinas el 15/06/2018.
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- clarissa joy mascarinas
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