İŞLETME FİNANSI I

Price Earnings Ratio (P/E Ratio): This ratio is very important for shareholders or potential investors, because it gives the number of times EPS that investors are willing to pay for one share of stock. It is also called the “multiple”. Most analysts publish P/E ratios for various companies.

PriceEarningsRatio= MarketPriceperShare / EarningsperShare

The correct answer is A.

When using financial ratios, factors that needs to be considered are;

• Comparing ratios for the company’s current year with those of preceding years, e.g., 5 to 10 years;

• Comparing ratios of the company with those of its competitors (These can be obtained from the published financial statements of competitors); and

• Comparing the company’s ratios with ratios for the industry in which the company operates. (Industry statistics can be obtained from annual publications of trade associations; for example, TUSIAD publishes such ratios for various industries. For some of the ratios, data can be obtained from weekly stock exchange magazines or internet databases.)

Therefore, the correct answer is E.

Solvency ratios are Long-term Debt Ratio,Debt to Equity, Debt Ratio, Book Value Per Share of Common Stock and Times Financing Expenses Earned. Therefore, the correct answer is C.

Dividend Yield ratio is computed and expressed as follows :

Dividend Yield = Annual Dividends per Share / Current Market Price

Therefore, the correct answer is A.

Financial Leverage Effect ratio is expressed as follows :

Financial Leverage Effect = ROE – ROA

The correct answer is C.

Current liabilities include obligations which are settled within the next year or operating cycle, resulting in an outflow from the entity either in cash or in kind.

Earnings Quality: The extent which the reported income reflects the true financial condition and performance of the company.

A statement of cash flows has three sections; cash-flows from operating, investing, and financing activities.

Free Cash Flow = Cash Provided by Operations – Capital Expenditures – Cash Dividends

times financial expenses earned= (net income before taxes and financial expense)/financial expenses

Thus for 2014; times financial expenses earned=(18000+3600+2400)/2400=24000/2400=10

return on equity=net income/average equity

For year 2015 average equity=0.5*(39600+48000)=43800

So return on equity=26800/43800=61.2%

Either sales or total assets are used as a denominator in vertical analysis.

Current ratio is a liquidity ratio but all others are market ratios.

sustainable growth rate=return on equity*(1-dividend payout ratio)

where return on equity=net income/average shareholder equity

and

dividend payout ratio=dividends/net income.

Thus an increase in return on equity, an increase in net income, a decrease in average shareholder equity or a decrease in dividend payout ratio causes to an increase in sustainable growth rate. However an increase in dividends results in a decrease in susainable growth rate.

Horizontal analysis is also known as trend analysis. This analysis performs better for longterm analysis within the same company.

Although there are several available ratios in the literature, most commonly used ratios are within the following classifications. • liquidity ratios • solvency/capital structure ratios • working capital management ratios • profitability ratios • market ratios

The current ratio is computed as follows: Current Ratio = Current Assets / Current Liabilities

Quick ratio provides a severe test of immediate liquidity, revealing a company’s ability to meet sudden demands upon liquid current assets. Care must be taken when determining Quick Assets in terms of the assets to be included in the numerator of the equation.

Financial Leverage: The extent which the company uses debt in financing its assets. As long as the cost of debt financing is lower than equity financing financial leverage is beneficial for the company.