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Financial Management Essentials You Always Wanted To Know

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  • Александр Чикиткинhas quoted5 years ago
    FCF = EBIT x (1 – T) + Depreciation – Capital expenditure – Change in net operating working capital
  • Александр Чикиткинhas quoted5 years ago
    When making capital budgeting decisions companies use free cash flow to check whether the investment is worth making. Free cash flow is the cash that remains for distribution to all investors, stockholders and debtors, after the company has made all investments in fixed assets, and in additional working capital needed to run its operations.
  • Александр Чикиткинhas quoted5 years ago
    Investment decisions involving fixed assets are called Capital Budgeting.
  • Александр Чикиткинhas quoted5 years ago
    company borrows money from stockholders and invests that in Assets that help the company generate sales which finally generate profit. This gives us the below three entities:
    Borrowing from Stockholders to invest in Assets
    Assets-to-Equity ratio = Total Assets/Stockholders’ Equity
    Assets help generate Sales
    Asset Turnover ratio = Sales/Total Assets
    Sales generate Profit
    Return on Sales = Net Income/Sales
    If we combine all the three entities above, we get ROE as below:
    ROE = (Net Income/Sales) x (Sales/Total Assets) x (Total Assets/Stockholders’ Equity)
    The above expanded ROE equation helps us understand where the company needs to improve if its ROE is low.
  • Александр Чикиткинhas quoted5 years ago
    ompany borrows money from stockholders and invests that in Assets that help the company generate sales which finally generate profit. This gives us the below three entities:
    Borrowing from Stockholders to invest in Assets
    Assets-to-Equity ratio = Total Assets/Stockholders’ Equity
    Assets help generate Sales
    Asset Turnover ratio = Sales/Total Assets
    Sales generate Profit
    Return on Sales = Net Income/Sales
    If we combine all the three entities above, we get ROE as below:
    ROE = (Net Income/Sales) x (Sales/Total Assets) x (Total Assets/Stockholders’ Equity)
    The above expanded ROE equation helps us understand where the company needs to improve if its ROE is low.
  • Александр Чикиткинhas quoted5 years ago
    Return on Equity is given as:
    ROE = Net Income/Stockholders’ Equity
  • Александр Чикиткинhas quoted5 years ago
    Cash Times Interest Earned ratio = Cash earned before Interest and Tax/Interest expense where, Cash earned before Interest and Tax = Cash from Operating Activities + Interest expense + Income tax expense
  • Александр Чикиткинhas quoted5 years ago
    Cash Times Interest Earned ratio = Cash earned before Interest and Tax/Interest expense
  • Александр Чикиткинhas quoted5 years ago
    would be greater than 1 for a “cash cow” that is able to pay for its capital expansion using cash generated from operations alone. It does not need any further financing in form of debt or equity
  • Александр Чикиткинhas quoted5 years ago
    Cash Flow Adequacy ratio = Cash from Operating Activities/Cash used in Investing Activities
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