chap008Return on Invested Capital(财务报表分析,台湾中兴大学).ppt

Return on Invested Capital 2 2 2 2 2 2 2 2 2 2 2 2 Sales to Cash: Reflects trade-off between liquidity and accumulation of low-return funds Sales to Receivables: Reflects trade-off between increased sales and accumulation of funds in receivables Sales to Inventories: Reflects trade-off between funds accumulated in inventory and the potential loss of current and future sales Sales to Fixed Assets: Reflects trade-off between fixed asset investments having high break-even points and investments in more efficient, productive assets with high sales potential Sales to Other Assets: Reflects trade-off between assets held for current and future sales and accumulation of funds in higher risk assets Sales to Current Liabilities: Reflects a relation between sales and current trade liabilities Analyzing Return on Assets--ROA Disaggregating Asset turnover Analyzing Return on Common Equity--ROCE Role in Equity Valuation where ROCE is equal to net income available to common shareholders (after prefered diviends) divided by the beginning-of-period common equity This can be restated in terms of future ROCE: Analyzing Return on Common Equity--ROCE Disaggregating ROCE ? Adjusted profit margin: portion of each sales dollar remaining for common shareholders after providing for all costs and claims (including preferred dividends) ? Asset turnover (utilization): measures effectiveness in generating sales from assets ? Leverage*: measures the proportion of assets financed by common shareholders *Also called financial leverage and common leverage. ROCE = Adjusted profit margin × Asset turnover × Leverage Adjusted profit margin = Pre-tax adjusted profit margin x Retention rate Analyzing Return on Common Equity--ROCE Further Disaggregation of Adjusted Profit Margin Pre-tax adjusted profit margin: measure of operating effectiveness Retention rate: measure of tax-management effectiveness ROCE = [(EBIT profit margin × Asset turnover) – Interest burden] × Lever