MFIN1127 Lecture Notes - Lecture 4: Financial Statement, Net Present Value, Cash Conversion Cycle

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22 Jan 2014
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Outline: are accounting targets compatible with maximizing shareholder value, roe. Stock price is influenced by many factors outside of management"s control. %return on equity investment: is shareholders" equity = amount of dollar invested, careers are made on this measure. Widely used as yardstick in compensation packages. Clear positive relationship between roe and market value of equity. The higher the average roe, the higher the market value. Profit margin: earnings squeezed out of each dollar of sales. Asset turnover: sales generated from each dollar of assets employed. Financial leverage: amount of equity used to finance the assets. =roa: let"s look at each of these elements in turn , profit margin. Fraction of each dollar of sales that ends up in the bottom line. It reflects: pricing strategy, ability to control operating costs. Highly dependent on products sold and business strategy. Profit margin cannot be viewed independently of asset turnover. Profit margin and other profitability ratios: gross margin = 33. 3/186. 7 =

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