BFin

• Affects the short term investment and non-current assets of an entity. Left side of the account form of SFP.


  Operating Leverage
• Primarily affects the short and long term debt, owners equity. Right side of the account form of SFP.

  Financial Leverage
• Commonly Used Financial Leverage Ratios

  Debt Ratio, Equity Ratio, Debt to Equity Ratio, Time Interest Earned
• Measures the proportion of funds provided by the creditor on the total resources of the business.

  Debt Ratio
• Debt Ratio

  Total Liabilities / Total Assets
• Determines the proportion of resources provided by the owners of the business.

  Equity Ratio
• = Total Equity / Total Assets

  Equity Ratio
• Equity Ratio

  = 1 - Debt Ratio
• measures the proportion of debt and equity in the capital structure of the business.


  Debt to Equity Ratio
• Debt to Equity

  = Total Liabilities / Total Equity
• is a tool that measures the debt paying ability of the business.

  Time Interest Earned (TIE)
• Are group of ratio that reflect the combined effects of liquidity and management efficiency in handling the assets and liabilities relative to the operations of the business.

  Profitability Ratio
• The ratios that show the effectiveness of business operations.

  Profitability Ratio
• The measure of profitability are?

  Gross Profit Rate, Operating Gross Profit Margin, Net Profit Margin, Return on Investment
• Measures the percentage of gross profit to sales.

  Gross Profit Rate
• Measures the percentage of gross profit margin available to cover the operating expenses for the period.

  Gross Profit Rate
• Reveals the percentage of cost of sales to sales.

  Gross Profit Rate
• Gross Profit Rate

  Gross Profit ÷ Net Sales
• Measures the percentage of profit available after deducting the cost of sales and operating expenses from the sales.

  Operating Gross Profit Margin
• The ____ is the difference between the __ and the ___. 


  Operating profit margin, gross profit, operating expenses
• Operating Gross Profit Margin

  = Operating Profit ÷ Net Sales
• Also called RETURN OF SALES, it measures the overall operating results of an entity.

  Net Profit Margin
• Net Profit Margin

  Return Of Sales
• In computing the ____ gains or losses from transactions not directly related to the normal operation of the business such as Sales of PPE or Sales of Investment in Stocks or bonds are included

  Net Profit Margin
• Net Profit Margin

  = Net Income ÷ Net Sales
• Also called RETURN ON ASSETS, it measures the amount of net income per peso of investment in a business.

  Return on Investment
• Return on Investment

  Return on Assets
• Return on Investment

  = Net Income ÷ Average Total Assets
• However if the business has interest-bearing liabilities, the return on investment computed as follows

  ROI = {Net Income + [ Interest (1-Tax Rate)]} ÷ Average Total Assets
• Average Total Assets

  = (Total Assets in Current Year + Total Assets in Previous Year) ÷ 2
• Future Value (FV)

  = PV (1+r)^t
• Present Value (PV)

  = FV ÷ (1+r)^t
• r

  = Rate of Interest (%)
• t

  = term /period/ years