Running a Profitable Business: Understanding Financial Ratios

Introduction

• Gain financial insights

1. What Is Financial Ratio Analysis?

• Introduction to financial ratio analysis

2. A Review of the Financial Statements

• What are the financial statements?
• The balance sheet
• The income statement
• The statement of cash flows

3. The DuPont Framework

• The DuPont company: creating accounting history
• Return on equity
• DuPont framework
• DuPont framework: Target and Walmart
• Problem description to explanation

4. Common-Size Financial Statements

• Olympic medals and GDP per capita
• Common size overview
• Target's common-size income statement
• Target's common-size balance sheet

5. Profitability Ratios

• McDonald's most profitable items
• Comparing profitability with financial ratios
• Specific profitability ratios
• Price-earnings ratio

6. Efficiency Ratios

• Mark-up vs. profitability: Harry Winston vs. Walmart
• Number of days' sales in inventory
• Average collection period
• Length of the operating cycle
• Fixed asset turnover and other utilization ratios

7. Leverage Ratios

• Singapore Airlines' low leverage
• Current ratio
• Leverage ratios

8. Potential Pitfalls to Ratio Analysis

• Historical data pitfalls and baseball
• Excess data and comparability issues
• "Smoking gun" and historical data biases

Conclusion

• What financial ratio analysis can NOT do