2.5 invested capital operation side = trade capital + net fixed assets ...
2.5 invested capital operation side = trade capital + net fixed assets trade capital: current assets - current liabilities - current liability account that is financial in nature net fixed assets: investment that support long term production activities of the firm cost basis of fixed assets - accumulated depreciation financial side = debt + equity debt: long term debt, short term debt, bank indebtness, deferred taxes, other financial assets equity: common stock, share capital, R/E, preferred shares debt to IC = debt (short term, long term, others)/IC tells us the business investment is financed with debt (creditors) equity to IC = equity/IC tells us the business investment is financed with equity (shareholders) debt to IC + equity to IC = 1 trade capital to IC = trade capital/IC tells us how much of the business investment is being held up for short term usage ROIC = EBITDA/IC (bop) = EBITDA Margine x IC turnover not the market rate of return but rather only the company's rate of return ROIC (after tax, after depreciation) = (EBITDA-DA)(1-t)/ICbop invested capital turnover = sales/IC tells us everyone 1$ invested in capital generate $x of sales - increase sales without increase invested capital is best high IC turnover -> low EBITDA due to competition ROE = net income/equity (bop) - when ROE > ROIC then shareholders benefit because ROIC is high - when ROE < ROIC then
when firm borrows at low interest and generate higher returns then shareholder's benefit current ratio = current assets/current liabilities tells us that the company is liquid enough to meet its current liabilities quick ratio = current assets - inventory/ current liabilities there is no liabilities because inventories are not that liquid and there is value loss A/R turnover = sales/A.R tells us how many times the company receives their A.R. in one year inventory turnover = cost of goods sold/ inventory tells us how many times the company sells its inventory each year accounts payable turnover = cogs/A.P tells us how may times the firm pays it creditors each year conversion = 365/turnover rate tells us how many days it takes to for company to make payments, receive payment and sells its inventory FCF from operating 2 types of cash flows = trade capital increments (inflow) and capital expenditure (outflow) free = means that it is available to distribute the shareholders and creditors operating def. of FCF = FFO - incremental business activities Funds from operations = [EBITDA – CCA] × (1 – tax rate) + CCA FFC tells us what is the benefit from the past business activities or FFO = undo everything done to Net income Net income + depreciation + deferred tax + other non cash charges + interest (1t) increment business investment = incremental TC + incremental capital expenditure
incremental trade capital = end of period - beginning period capital expenditure = changes in net fixed assets (end - beg NFA) + depreciation FCF from financing FCF = distribution to debt holder (after corporate tax) + dist. to shareholders + dist. to other assets holders corporate tax rate = 29.6% and tax deductible dist. to debt holders = - new borrowings + repayments + interest (1-t) dist to shareholders = dividends + share repurchase - new issue
when firm borrows at low interest and generate higher returns then shareholder's benefit current ratio = current assets/current liabilities tells us that the company is liquid enough to meet its current liabilities quick ratio = current assets - inventory/ current liabilities there is no liabilities because inventories are not that liquid and there is value loss A/R turnover = sales/A.R tells us how many times the company receives their A.R. in one year inventory turnover = cost of goods sold/ inventory tells us how many times the company sells its inventory each year accounts payable turnover = cogs/A.P tells us how may times the firm pays it creditors each year conversion = 365/turnover rate tells us how many days it takes to for company to make payments, receive payment and sells its inventory FCF from operating 2 types of cash flows = trade capital increments (inflow) and capital expenditure (outflow) free = means that it is available to distribute the shareholders and creditors operating def. of FCF = FFO - incremental business activities Funds from operations = [EBITDA – CCA] × (1 – tax rate) + CCA FFC tells us what is the benefit from the past business activities or FFO = undo everything done to Net income Net income + depreciation + deferred tax + other non cash charges + interest (1t) increment business investment = incremental TC + incremental capital expenditure
incremental trade capital = end of period - beginning period capital expenditure = changes in net fixed assets (end - beg NFA) + depreciation FCF from financing FCF = distribution to debt holder (after corporate tax) + dist. to shareholders + dist. to other assets holders corporate tax rate = 29.6% and tax deductible dist. to debt holders = - new borrowings + repayments + interest (1-t) dist to shareholders = dividends + share repurchase - new issue
