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Finance Basics: Rania A. Azmi
Finance Basics: Rania A. Azmi
Finance Basics: Rania A. Azmi
Rania A. Azmi
E-mail: rania.a.azmi@gmail.com
University of Alexandria, Department of Business Administration
Finance
Finance can be thought of as the study of the
following three questions:
1.
2.
3.
4.
5.
Short-term solvency
Activity
Financial Leverage
Profitability
Value
4
Short-Term Solvency
Short-Term Solvency
Ratios of short-term solvency measure
the ability of the firm to meet recurring
financial obligations (that is, to pay its
bills).
The most widely used measures of
accounting liquidity are the current ratio
and the quick ratio.
6
Short-Term Solvency
Activity
Activity
Activity
Activity
12
Activity
Financial Leverage
14
Financial Leverage
Financial Leverage
Financial Leverage
Financial Leverage
Profitability
19
Profitability
20
Profitability
21
Profit Margins
Profitability
Profitability
24
Profitability
25
Profitability
ROE= Profit margin * Asset turnover * Equity multiplier
= (Net income/ TOR* ) * (TOR/ ATA * *) * (ATA/ ASE* * * )
Value
27
Value
28
Value
1- Market price
2- Price-to-earnings (P/E) ratio
3- Dividend Yield
4- Market-to-book (M/B) value ratio
29
Value
Value
31
Value
Value
33
Conclusions
Conclusions (Cont.)
You should keep in mind the following points
when trying to interpret financial statements:
1- Measures of profitability such as return on equity
suffer from several potential deficiencies as
indicators of performance. They do not take into
account the risk or timing of cash flows.
2- Financial ratios are linked to one another. For
example, return on equity is determined from the
profit margins, the asset turnover ratio, and the
financial leverage.
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