Corporate

Finance Professional Certificate MOOC

Course 2, The Free Cash Flow Method for Firm Valuation
Module 3, Estimating Future Free Cash Flows (FCFs)

Net Operating Profit (NOP) Fixed Asset Turnover Ratio
!"#$%

!"#$% − '()! − (* ,-*$.%$% − /"-$% 0. ,12/ .$344,

This ratio measures how effectively a firm uses its
assets. A higher number would imply that more sales
are generated per dollar of fixed assets.
Financial Ratio Net Operating Working Capital (NOWC)
A ratio between two items in the firm financials, for
instance, COGS to Sales. 5(6' = ('8 − ('9

NOWC = Net Operating Working Capital
OCA = Operating Current Assets
OCL = Operating Current Liabilities
Percent of Sales Income Statement Accounts Receivable Days on Hand
A table which depicts the ratio of different items in the
Income Statement to Sales. 8::0;.3% <$:$=>"?#$

@"=#A !"#$%

Daily Sales = Sales/365
Gross Profit Margin Inventories Days on Hand
)B0%% 4B0C=3 = !"#$% − '()!
2.>$.30B=$%

The ratio of Gross Profit to Sales. @"=#A '()!

Daily COGS = COGS/365
Operating Profit Margin Evolution of Inventories

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(*$B"3=.N ,-*$.%$%
)B0%% 4B0C=3 M"BN=. − ( ) 2.>$.30B=$% fZg = final inventory in a period
!"#$%
2.>$.30B=$%f = inventory at the beginning of a period
EBIT = Earnings Before Interest and Taxes
Change in NOWC Accounts Payable Days on Hand

8::0;.3% <$:$=>"?#$ + 2.>$.30B=$% 8::0;.3% 4"A"?#$
− 8::0;.3% 4"A"?#$
@"=#A 4;B:ℎ"%$%