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## Corporate Performance

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**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? Why is it called residual income? Defined:**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**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**Calculating Return on Capital**Lowe’s Return on Capital Lowe’s Balance Sheet (in $m)**Calculating Return on Assets**Lowe’s Return on Assets Lowe’s Balance Sheet (in $m)**Calculating Return on Equity**Lowe’s Balance Sheet (in $m) Lowe’s Return on Equity**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.**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**Efficiency Ratios**How does this ratio measure efficiency? How does this ratio measure efficiency? How does this ratio measure efficiency?**Calculating an Efficiency Ratio**Lowe’s Balance Sheet (in $m) Lowe’s Asset Turnover Ratio**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.**Calculating a Profitability Ratio**Lowe’s Balance Sheet (in $m) Lowe’s Operating Profit Margin**Leverage Ratios**How does this ratio measure leverage? How does this ratio measure leverage?**Measuring Leverage**How does this ratio measure leverage? How does this ratio measure leverage? How does this ratio measure leverage?**Calculating a Leverage Ratio**Lowe’s Balance Sheet (in $m) Lowe’s Times Interest Earned Ratio**Measuring Liquidity**How does this ratio measure liquidity? How does this ratio measure liquidity?**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?**Calculating a Liquidity Ratio**Lowe’s Balance Sheet (in $m) Lowe’s NWC to Total Assets Ratio**The DuPont System**What is it, and what is it used for?**The DuPont System: ROA**Asset Turnover Operating Profit Margin**The DuPont System: ROE**Leverage Ratio Debt Burden Operating Profit Margin Asset Turnover**The Role of Financial Ratios**Table 4.8 Comparability**The Role of Financial Ratios**TRANSPARENCY**Appendix A: Average Ratios, by Industry**Table 4.7