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Corporate Performance

Corporate Performance. Corporate Performance Measured. Market Value Added. What is it?. Why is it useful?. Defined:. MVA: Discussion. Consider AT&T and Home Depot Similar MVA, Different Market-to-Book Ratio Why?. TABLE 4.3. Economic Value Added. What is it?. Why is it important?.

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Corporate Performance

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  1. Corporate Performance

  2. Corporate Performance Measured

  3. Market Value Added What is it? Why is it useful? Defined:

  4. MVA: Discussion Consider AT&T and Home Depot Similar MVA, Different Market-to-Book Ratio Why? TABLE 4.3

  5. Economic Value Added What is it? Why is it important? Why is it called residual income? Defined:

  6. EVA: Discussion TABLE 4.4 Consider Coca-Cola and Google Similar EVA, Different Return on Capital Why? * Operating Income = Net Income + After-tax Interest; ROC = Return on Capital

  7. Book Rates of Return* What do they measure? Return on Capital: Return on Assets: Return on Equity: *Book Rates of Return are also referred to as Accounting rates of Return

  8. Calculating Return on Capital Lowe’s Return on Capital Lowe’s Balance Sheet (in $m)

  9. Calculating Return on Assets Lowe’s Return on Assets Lowe’s Balance Sheet (in $m)

  10. Calculating Return on Equity Lowe’s Balance Sheet (in $m) Lowe’s Return on Equity

  11. Financial Ratios and Shareholder Value Shareholder value depends on good investment and financing decisions. Financial Ratios help measure the success and soundness of these decisions.

  12. Efficiency Ratios OR* How does this ratio measure efficiency? How does this ratio measure efficiency? * Either equation is a legitimate way to calculate the asset turnover ratio

  13. Efficiency Ratios How does this ratio measure efficiency? How does this ratio measure efficiency? How does this ratio measure efficiency?

  14. Calculating an Efficiency Ratio Lowe’s Balance Sheet (in $m) Lowe’s Asset Turnover Ratio

  15. Profitability Ratios How does this ratio measure the firm’s profitability? When is this ratio potentially more useful than just profit margin? Note: ROC, ROA, ROE and EVA are also typically considered profitability ratios.

  16. Calculating a Profitability Ratio Lowe’s Balance Sheet (in $m) Lowe’s Operating Profit Margin

  17. Leverage Ratios How does this ratio measure leverage? How does this ratio measure leverage?

  18. Measuring Leverage How does this ratio measure leverage? How does this ratio measure leverage? How does this ratio measure leverage?

  19. Calculating a Leverage Ratio Lowe’s Balance Sheet (in $m) Lowe’s Times Interest Earned Ratio

  20. Measuring Liquidity How does this ratio measure liquidity? How does this ratio measure liquidity?

  21. Liquidity Ratios How does this ratio differ form the current ratio? Why might a financial manager prefer it? How does this ratio differ from the current ratio? Why might a financial manager prefer it?

  22. Calculating a Liquidity Ratio Lowe’s Balance Sheet (in $m) Lowe’s NWC to Total Assets Ratio

  23. The DuPont System What is it, and what is it used for?

  24. The DuPont System: ROA Asset Turnover Operating Profit Margin

  25. ROA Decomposition by Industry

  26. The DuPont System: ROE Leverage Ratio Debt Burden Operating Profit Margin Asset Turnover

  27. Sustainable Growth

  28. The Role of Financial Ratios Table 4.8 Comparability

  29. The Role of Financial Ratios TRANSPARENCY

  30. Appendix A: Average Ratios, by Industry Table 4.7

  31. Appendix B: Financial Ratios and Default Risk Table 4.9

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