Innovation Financing

das Gesellschaftsmittel

vorherige

frisch, jüngst, neuest, letztlichen, aktuellsten

Fremdkapital

it summarizes a company's assets, liabilities and shareholders' equity at a specific point in time (=end of business year) 

it reports the earnings of a company by stating all relevant income and all expenses that have been incurred during the entire business year to generate that income. 

It is the difference between operating current assets and operating current liabilities plus operating long-term assets. It is the total amount of capital needed to run the business. 

- Lenders to determine creditworthiness

- Stockholders to estimate future cash flows and risk

- Managers to identify areas of weakness and strength 

Can the company meet its short-term obligations using the resources it currently has on hand?
 

- Quick ratio

- Current ratio

The current ratio is calculated by dividing current assets by current liabilities. 

Best single indicator of the extent to which the claims of short-term creditors are covered by assets that are expected to be converted to cash fairly quickly.

Most commonly used measure of short-term solvency.

cash, marketable securities, accounts receivable and inventories

CA: Kunzfristiges Umlaufvermögen (Aktiven)

accounts payable, short- term notes payable, current maturities of long-term debt, accrued taxes, and other accrued expenses.

CL: Kurzfristiges Anlagevermögen (Passiva)

• Inventories are typically the least liquid of a firm’s current assets; hence they are the current assets on which losses are most likely to occur in a bankruptcy.

• Therefore, a measure of the firm’s ability to pay off short-term obligations without relying on the sale of inventories is important. 

Creditors like to see a high current ratio because...

• Shareholders might not want a high current ratio because:

  • it could mean that the company has a lot of money tied up in nonproductive assets, such as excess cash or marketable securities

  • large inventory holdings, which might well become obsolete before they can be sold. 

• How efficiently does the firm use its assets?

• How much does the firm have tied up in assets for each dollar of sales? 

Meaning: Each item of the inventory is sold out and restocked, or “turned over,” X times per year.

Note: sales occur over the entire year, whereas the inventory figure is measured at a single point in time.

→ Use an average inventory measure.

Comments: High levels of inventory add to net operating working capital (NOWC),
which reduces FCF (NOPAT – Net investment in op. capital), which leads to lower stock prices. 

Also called “average collection period” (ACP), used to appraise (einschätzen) accounts receivable.

Represents the average length of time that the firm must wait after making a sale before receiving cash, which is the average collection period. 

How effectively the firm uses its plant and equipment.

Measures the firm's ability to utilize (nutzen) its total assets to generate sales 

Does the company have too much debt?

Can the company’s earnings meet its debt servicing requirements? 

Measures the percentage of funds provided by current liabilities and long-term debt

Creditors prefer low debt ratios: the lower the ratio, the greater the cushion against creditors’ losses in the event of liquidation.

Stockholders may want more leverage because it magnifies their return. 

Indicates the extent to which the business relies on debt financing.

The ratio also shows the extent to which shareholders’ equity can fulfill the company’s obligations to creditors if liquidated. 

Firms that have a lot of leverage (i.e., a lot of liabilities or preferred stock) have a high equity multiplier because the assets are financed with a relatively smaller amount of equity. 

Also called the interest coverage ratio.

Measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs.

Failure to meet this obligation can bring legal action by the firm’s creditors, possibly resulting in bankruptcy.

WIE OFT KANN MIT DEM OPERATING INCOME (EBIT) DIE ZINSEN BEZAHLT WERDEN?
KANN ZU UNRUHE BEI DEN KREDITGEBERN FÜHREN UND IM BANKROTT ENDEN!
 

Profitability is the net result of a number of policies and decisions.

The ratios examined so far provide useful clues about the effectiveness of a firm’s operations, but the profitability ratios go on to show the combined effects of liquidity, asset management, and debt on operating results. 

Net profit margin (PM) gives the profit per dollar of sales.

MIT JEDEM DOLLAR IM SALES MACHT DIE FIRMA DIESEN %-SATZ GEWINN/VERLUST!

Operating profit margin (OM) shows performance of operations before impact of interest expenses: 

Raw earning power of the firm’s assets before the influence of taxes and leverage.

Useful for comparing firms with different tax situations and different degrees of financial leverage. 

DAMIT KANN DIE ROHE VERDIENKRAFT EINER UNTERNEHMUNG BESTIMMT WERDEN: DER EINFLUSS VON STEUERN UND ZINSEN IST NICHT INKL, SOMIT KANN MIT FIRMEN VERGLICHEN WERDEN, DIE NICHT DEN SELBEN STEUERSATZ ODER DIE SELBE FINANZIERUNGSART HABEN!

ROA measures the return on total assets after interest and taxes.

• ROA is lowered by debt--interest expense lowers net income, which also lowers ROA. 

Stockholders invest to earn a return on their money, ROE tells how well they are doing in an accounting sense.

• However, the use of debt lowers equity, and if equity is lowered more than net income, ROE would increase. 

EIGENKAPITALRENDITE, WIRD VON INVESTOREN ANGESCHAUT UM ZU SEHEN WIE DAS INVESTIERTE GELD VERMEHRT WIRD!

Market value ratios incorporate the:

• High current levels of earnings and cash flow increase market value ratios

• High expected growth in earnings and cash flow increases market value ratios

• High risk of expected growth in earnings and cash flow decreases market value ratios 

How much investors are willing to pay per dollar of reported profits.

Price/earnings ratios are higher for firms with strong growth prospects, other things held constant, but they are lower for riskier firms. 

• P/E: How much investors will pay for $1 of earnings. Higher is better. 

• P/E and M/B are high if ROE is high, risk is low. 

Stock prices depend on a company’s ability to generate cash flows. Consequently, investors often look at the price/cash flow ratio, where cash flow is defined as net income plus depreciation and amortization. 

Indication of how investors regard the company.

Companies with relatively high rates of return on equity generally sell at higher multiples of book value than those with low returns.

• M/B: How much paid for $1 of book value. Higher is better. 

• P/E and M/B are high if ROE is high, risk is low.