Fundamental Ratios

[Ayan1]

□ Fundamental Ratios

■ Profitability Ratios:

●ROE: It measures the ability of a firm to generate profits from its Shareholder’s investments in the company.

                Net Income
   ROE= ---------------------- ×100
         Shareholder's Equity 
  
 Shareholders’ Equity = Share Capital + Retained Earnings – Treasury Stock                            

●ROCE: It measures how efficiently a company is using its capital employed [Debt & Equity].

                     EBIT
 ROCE: --------------------------- ×100
             Capital Employed

Capital Employed = Total assets - Current Liabilities.

●EPS: It is the profit allocated to each outstanding share of common stock.

                   Net income of the company  
    1. EPS   ------------------------------------------‐-------
                   Averages Outstanding shares


              
                     Net income after tax   - Total dividends                                                                                                                                                                                                                                                                                       
    2. Weighted EPS ---------------------------------------------
                       Total number of outstanding shares



■●  EBITDA
     - D&A(Depreciation, and Amortisation)
    ----------------
     EBIT  
   -   I    (Interest)
    ----------------
       EBT       
        -T   (Tax)
   -----------------
    PAT/NET PROFIT

[Ayan1]

■ Valuation Ratios:

● P/E: It is a valuation parameter that measures the company’s current share price relative to its per-share earnings. Generally, high P/E is Overvalued & low P/E is Undervalued.

P/E Rerating happens when the stock price rises without any growth in earnings, just on the basis of future earnings growth possibility. P/E Derating is when stock price falls without fall in earnings, but due to the expectation of fall in earnings.

(Stock Return= PE Rerating + Earnings Growth)

              Market value per share
P/E Ratio : ----------------------------
                Earnings per share 

● PEG Ratio: a PEG ratio value of 1 represents a perfect correlation between the company’s market value and its projected earnings growth.

               P/E
PEG Ratio: ------------
          EPS Growth Rate

​

                            EV
● Enterprise Multiple: --------------
                          EBITDA

EV=Enterprise Value= Market capitalization + total debt − cash and cash equivalents

​

● DCF: Discounted cash flow is a valuation method that calculates the value of an investment based on the present value of its future income. The method helps to evaluate the attractiveness of an investment opportunity based on its projected future cash flows.

1st Step:  FREE CASH FLOW FORMULA

                  Free Cash Flow = EBIT
                                - Taxes
               +  Depreciation & Amortization
                       - Capital Expenditures
          - Increase in non-cosh working capital
   ------------------------------------------------------
              =         Free Cash Flow    

NON-CASH WORKING CAPITAL FORMULA = Current Assets - Cash - Current Liabilities

2nd Step: WACC Calculator 

 WEIGHTED AVERAGE COST OF CAPITAL

3rd Step: TERMINAL VALUE CALCULATOR 	

4th Step: Discounted cash flows	

5th Step : ENTERPRISE VALUE  TO EQUITY VALUE		

              Market price per share
   ● P/B= ----------------------------------
              Book value per share

  
                             (assets - liabilities)
    Book value per share = ------------------------------
                            number of shares outstanding

■ Solvency Ratios:

                                     EBIT
   ● Interest Coverage Ratio= ----------------------
                                Interest Expense


                        Current Assets
   ● Current Ratio = ----------------------
                      Current Liabilities

                           
                      Total Liabilities
   ● Debt/Equity= -----------------------------
                   Total Shareholders’ Equity

Thank you!

[Ayan1]

■ Efficiency Ratios :

                                             Net Credit Sales
 ● Accounts Receivable Turnover Ratio = -----------------------------
                                        Average Accounts Receivable


                                  ( Beginning Accounts Receivable + Ending Accounts Receivable )
     Average accounts Receivable = --------------------------------------------------------------
                                                                    2

                                      365
Receivable Days Ratio = -----------------------------------
                         Accounts Receivable Turnover Ratio


                                      Net credit purchases 
 ● Accounts Payable Turnover Ratio = ----------------------------
                                   Average accounts Payable


                               ( Beginning Payable + Ending Payable )
     Average Accounts Payable = ---------------------------------------
                                                   2


                                     365
 Payable Turnover Days = ----------------------------------
                          Accounts Payable Turnover Ratio



                                 Cost of Good Sales 
  ● Inventory Turnover Ratio = ----------------------
                                 Average Inventory


                         ( Beginning Inventory + Ending Inventory )
    Average Inventory = ---------------------------------------------
                                           2


                                     365
 Inventory Turnover Days = -----------------------
                           Inventory Turnover Ratio


                                   Sales 
  ● Assets Turnover Ratio = ------------------------
                             Average of Total Assets 

                                  ( Beginning Assets + Ending Assets ) 
     Average of Total Assets = ----------------------------------------
                                                  2



  ● Working Capital = Current Assets - Current Liabilities 

        Working Capital Cycle = ( Inventory Days + Receivable Days ) - Payable Days

Thank you!