AFM101 Chapter Notes - Chapter 13: Dividend Yield, Financial Statement

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lilacmouse857

26 Jun 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM101

Professor

Donna Psutka

For unlimited access to Textbook Notes, a Class+ subscription is required.

AFSA Education

- compares earnings that a company generated during one before, before interest and

income tax expenses, to its interest expense for the same period

- represents margin of protection for the creditors

14. Cash Coverage Ratio: compares cash generated with cash obligations of the period

= Cash Flows from Operating Activities before Interest and Taxes / Interest Paid (from

statement of cash flows)

- Ability to make interest payments

15. Debt-to-Equity Ratio: expresses a company’s debt as a proportion of its shareholder’s

equity

= Total liabilities / Shareholder’s Equity

- Equity capital is much less risky than debt

Market Tests

- Market tests: ratios that tend to measure the market worth of a common share

16. Price/Earnings (P/E) Ratio: measures the relationship between the current market price

per share and its EPS

= Current Market Price per Share / Earnings per Share

- Reflects the stock market’s assessment of the company’s future business performance

- High ratio indicates that the market expects earnings to grow rapidly

- Share price is related to the present value of the company’s future earnings

- High P/E ratio can be good but if companies aren’t able to meet earnings expected,

there can be a negative impact on its share price

17. Dividend Yield Ratio: measures the relationship between the dividend per share paid to

shareholders and the current market price per share

= Dividend per Share / Market Price per Share

- This ratio for most companies is not high compared with returns on alternative

investments

- Investors can buy shares with low dividend yields if they think share price will increase

- Dividend yield is important for investors who buy shares for the dividends

Interpreting Ratios and Other Analytical Considerations

- Except for EPS, financial ratios have not been standardized

- Financial statements relay information based on various decisions

- Ratios are interpreted only by comparing them to other ratios

- There are limitations to ratio analysis

o Companies rarely use the exact same accounting policies

o Must understand the effects of accounting methods to interpret financial results

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= cash flows from operating activities before interest and taxes / interest paid (from statement of cash flows) Ability to make interest payments: debt-to-equity ratio: expresses a company"s debt as a proportion of its shareholder"s equity. Equity capital is much less risky than debt. Market tests: ratios that tend to measure the market worth of a common share: price/earnings (p/e) ratio: measures the relationship between the current market price per share and its eps. = current market price per share / earnings per share. Reflects the stock market"s assessment of the company"s future business performance. High ratio indicates that the market expects earnings to grow rapidly. Share price is related to the present value of the company"s future earnings. = dividend per share / market price per share. This ratio for most companies is not high compared with returns on alternative investments. Investors can buy shares with low dividend yields if they think share price will increase.

Related Questions

Calculate and discuss the importance of the following ratios:

Liquidity Ratiosâworking capital, current ratio, quick/acid-test ratio, receivable turnover, average day's sales uncollected, inventory turnover, average day's inventory on hand, operating cycle

Profitability Ratiosâprofit margin, asset turnover, return on assets, debt-to-equity ratio, return on equity

Long-term Solvency Ratiosâdebt-to-equity ratio, debt to total assets, times interest earned, cash debt coverage

Cash Flow Ratiosâcash flow yield, cash flows to sales, cash flows to assets, free cash flow

Market Strength RatiosâEarnings per share, price-earnings per share, payout ratio, book value per share

lilacmink742

E13-5 Matching Each Ratio with Its Computational Formula LO 13-4, 13-5, 13-6, 13-7

Match each definition with its related ratios or percentages by selecting the appropriate letter in the drop down provided.

Definitions:			Ratios or Percentages	Definitions
A.	Net Income (before extraordinary items) Ã· Net Sales	1	Profit margin
B.	Days in Year Ã· Receivable Turnover ratio	2	Inventory turnover ratio
C.	Net Income Ã· Average Stockholdersâ Equity	3	Average collection period
D.	Net Income Ã· Average Number of Shares of Common Stock Outstanding	4	Dividend yield ratio
E.	Return on Equity â Return on Assets	5	Return on equity
F.	Quick Assets Ã· Current Liabilities	6	Current ratio
G.	Current Assets Ã· Current Liabilities	7	Debt-to-equity ratio
H.	Cost of Goods Sold Ã· Average Inventory	8	Price/earnings ratio
I.	Net Credit Sales Ã· Average Net Receivables	9	Financial leverage percentage	E
J.	Days in Year Ã· Inventory Turnover Ratio	10	Receivable turnover ratio
K.	Total Liabilities Ã· Stockholdersâ Equity	11	Average daysâ supply of inventory
L.	Dividends per Share Ã· Market Price per Share	12	Earnings per share
M.	Market Price per Share Ã· Earnings per Share	13	Return on assets
N.	[Net Income + Interest Expense (net of tax)] Ã· Average Total Assets	14	Quick ratio
O.	Cash from Operating Activities (before interest and taxes) Ã· Interest Paid	15	Times interest earned
P.	Net Sales Revenue Ã· Net Fixed Assets	16	Cash coverage ratio
Q.	(Net Income + Interest Expense + Income Tax Expense) Ã· Interest Expense	17	Fixed asset turnover ratio

blackgerbil844

Fill in the remaining boxes and write short response toquestion.

Company Name	McDonald's	Wendy's	YUM!	Industry
				Average
Market Price of Common Stock (Stock Price)	$35.0	$31.0	$45.0	$37.0
Revenue (Sales)	$22,151.0	$3,550.0	$8,380.0	$11,360.3
Cost of Goods Sold	$7,384.1	$2,299.6	$3,940.0	$4,541.2
Gross Profit	$14,766.9	$1,250.4	$4,440.0	$6,819.1
SG&A Expense	$5,776.0	$261.1	$3,005.0	$3,014.0
Depreciation + amortization	$1,148.2	$167.8	$401.0	$572.3
Operating Income (EBIT) Earnings before interest and taxes	$7,842.7	$821.5	$1,034.0	$3,232.7
Interest Expense	$467.1	$48.5	$164.5	$226.7
Net Profits After Tax	$1,675.0	$236.0	$617.0	$842.7
3-5 Year Growth Rate In Earnings	15.00	8.00	7.00	10.00
Cash	$492.8	$171.2	$192.0	$285.3
Accounts Receivables	$734.5	$124.0	$169.0	$342.5
Inventory	$129.4	$54.4	$67.0	$83.6
Total Current Assets	$6,500.0	$1,235.0	$1,485.0	$3,073.3
Total Assets	$28,524.0	$3,164.0	$6,500.0	$12,729.3
Short Term Debt	$388.0	$50.9	$10.0	$149.6
Total Current Liabilities	$2,485.8	$528.5	$1,461.0	$1,491.8
Long Term Debt	$9,342.5	$692.6	$2,056.0	$4,030.4
Total Liabilities (Total Debt)	$11,828.3	$1,221.1	$3,517.0	$5,522.1
Stockholders Equity	$16,695.7	$1,942.9	$2,983.0	$7,207.2
Annual Dividends paid to common stock	$578	$54.0	$125	$252
Preferred Dividends	$0.0	$0.0	$0.0	$0.0
# of Common Shares Outstanding	1,154.0	114.7	292.0	520.2
Financial Ratio's	McDonald's	Wendy's	YUM!	Average
Liquidity
Current Ratio	2.61	2.34	1.02	1.99
Quick Ratio	2.56	2.23	0.97	1.92
Asset Activity
Accounts Rec. Turnover
Inventory Turnover
Total Asset Turnover
Debt
Total Debt to Equity
Equity Multiplier
Times Interest Earned
Profitability
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
(ROA) Return On Assets
(ROE) Return On Equity
Market Value
EPS
P/E
PEG Ratio
Dividends Per Share
Dividend Payout Ratio
Book Value Per Share
Price to Book Value
Market Capitalization
Cash Per Share
Revenue Per Share

Based on the Financial Ratio's, which company do you fell is thebest investment?

(enter answer in this textbox) (must be 100 words or more)

cerisehound365

AFM101 Chapter Notes - Chapter 13: Dividend Yield, Financial Statement

AFM101 Full Course Notes

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