Liquidity Ratios

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• Liquidity Ratios

Current Assets Current Liabilities
Net Working Capital
Net Working Capital
Net Working Capital as a of Total Assets

Total Assets
Current Assets
Current Ratio
Current Liabilities
Cash Marketable Securities Receivables
Quick Ratio
Current Liabilities
Also known as the Acid Test Ratio
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• Leverage Ratios

Total Liabilities
Total Debt Ratio
Total Assets
LT Debt
Long Term Debt Ratio
LT Debt Equity
EBIT
Times Interest Earned (TIE)
Interest Payments
EBIT Depreciation
Cash Coverage Ratio
Interest Payments
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• Profitability Measures

Net Income
Return on Assets (ROA)

Average Total Assets
Net Income
Return on Equity
Average Equity
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The Story of Enron

• Enron - a natural gas, natural gas liquids,
  electricity, exploration and production, operator
  of power plants and natural gas pipelines.
• Enron stock price fell from 75 to nothing due to
  bankruptcy. One aspect of their collapse was the
  way they managed to keep debt off their balance
  sheet and hid commitments to honor the debt.
  Without full disclosure, no one knew the true
  situation.

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Off balance sheet practice is more common than
you think

• Make companies and managers look good because
  return on capital looks better.
• Investors and regulators do not freak out when
  debt balloons.
• Spreads confusion
• These off balance sheet debt obligations are
  typically triggered (parent requited to pay debt)
  if stock falls bellow a certain level or its debt
  is downgraded.
• That is why the SEC is taking care of these
  issues.

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The Importance of Short-Term Finance and Planning

• Decisions that come under the heading short-term
  finance are equally important, because, while
  typical decisions often dont involve as much
  money, decisions are much more frequent. This is
  suggested in the results of a recent survey of
  CFOs.
• Ranked Greatest Average Time
  Activity Importance Allocated
• Financial Planning 59
  35
• Working Capital Mgmt. 27 32
  
• Capital Budgeting 9 19
  Long-Term Financing 5 14
• Total 100 100

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Working Capital

• A Simple Cycle of Operations

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