ANALYSING FINACIAL STATEMENTS (terminology)

Jun 21st, 2015
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Terminology : Invested capital = Equity + Total debt. Capital employed = Equity + Long-term debt; It represents the long-term funds employed in the firm Total Asset = Invested capital + Interest-free credits.

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ANALYSING FINACIAL STATEMENTSTerminologyInvested capital = Equity + Total debtCapital employed = Equity + Long-term debt; It represents the long-term funds employed in the firmTotal Asset = Invested capital + Interest-free creditsProfit HierarchyGross profit = Net sales Cost of sales (earlier it was called cost of goods sold)In a merchandising business it includes total costs incurred to acquire the merchandise and to bring it to the location and condition of sale.In a manufacturing business it includes total costs incurred to manufacture finished goods and to bring it to the location and condition of sale.Earnings before interest tax, depreciation and amortization (EBITDA) It is also called cash profit EBITDA = Gross Profit + Depreciation on manufacturing facilities Operating expenses (other than depreciation and amortization)Earnings before interest and tax (EBIT) It measures operating profit if, other income is not materialEBITDA Depreciation and amortizationNet profit = EBIT Interest Tax expenseNet Operating Profit less Adjusted Tax (NOPAT)NOPAT = EBIT (1 Tax rate)RATIOSReturn on InvestmentAlternative ratiosReturn on invested capital (ROIC) = EBIT/Av. In Cap or NOPAT/Av. In CapReturn on Capital Employed (ROCE) = EBIT/Av. C E or NOPAT/Av. CEReturn on Total Assets (ROA) = EBIT/Av. Assets or NOPAT/ Av. AssetsReturn on Equity (ROE) = Net profit/Av. EquityDecomposition of ROICROIC = NOPAT/Av. Invested Capital

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