Unit 5

• variable cost revenue ratio (VCRR) = VC / R
• Financial ratios show the relationship between one or more financial variables
• Types of analyses via financial ratios:

  • Trend analysis: examines a venture’s performance over time
  • Cross-sectional analysis: compares a venture’s performance against another firm at the same point in time
  • Industry comparables analysis: compares a venture’s performance against the average performance in the same industry
• Cash burn is the cash a venture expends on its operating and financing expenses and its investments in assets
• Net cash burn is the cash a venture expends on its operating and financing expenses and its investments in assets
• Cash burn rate is the amount of cash that a business spends each month.
• Liquid assets are assets that can be converted into cash within a year.
• Cash build=net sales - cnanges in receivables and payables
• Net cash burn = cash burn - cash build
• cash burn = cash outflows - cash inflows
• Current ratio = Current assets / Current liabilities x 100
• Quick ratio = (current assets - inventories) / current liabilities
• Quick ratio is a liquidity ratio that measures the ability of a business to pay its short-term liabilities within one year.
• Net working capital (NWC) is the difference between current assets and current liabilities.
• Net working capital (NWC) = current assets - current liabilities
• NWC-to-total assets ratio = NWC/total assets
• Total debt-to-total assets ratio is a measure of the extent to which a company is leveraged.
• Total debt-to-total assets ratio= Total debt/Total assets
• Equity multiplier = Total assets / Owners' equity x 100
• Current liabilities-to-total debt ratio = current liabilities / total debt
• Interest coverage ratio = EBITDA / Interest expense
• Fixed-charges coverage = (EBITDA+Lease payments)/(Interest+Lease payments+ debt repayments/(1-tax rate))
• Why should ventures care about leverage ratios in the first place? Risk management.
• Gross profit margin = (Net sales-COGS)/Net sales
• Op. profit margin = EBIT / Net sales
• Net profit margin = Net profit / Revenue(Net sales) x 100
• Sales-to-total-assets ratio = sales/total assets
• Return on assets (ROA) = Net profit / Total assets
• Return on equity (ROE) = Net income / Owners' equity