Fixed asset turnover = ■ Total asset turnover =


Net fixed assets Sales

Total assets

IV. Profitability ratios

Net income


Net income Total assets Net income Total equity Net income Sales Assets

Return on assets (ROA) — Return on equity (ROE) —


Assets Equity

V. Market value ratios

Price per share

Earnings per share

Book value per share

Ross et al.: Fundamentals II. Financial Statements 3. Working with Financial of Corporate Finance, Sixth and Long-Term Financial Statements Edition, Alternate Edition Planning

Notice that book value per share is total equity (not just common stock) divided by the number of shares outstanding.

Because book value per share is an accounting number, it reflects historical costs. In a loose sense, the market-to-book ratio therefore compares the market value of the firm's investments to their cost. A value less than 1 could mean that the firm has not been successful overall in creating value for its stockholders.

Market-to-book ratios in recent years appear high relative to past values. For example, for the 30 blue-chip companies that make up the widely followed Dow-Jones Industrial Average, the historical norm is about 1.7; however, the market-to-book ratio for this group has recently been twice this size.

0 0

Post a comment