Lesson 8 of 9 · All lessons in this module
- The analysis process and ratio basics
- Common-size, trend analysis and graphs
- Activity ratiosVideo lesson
- Liquidity ratios and the cash conversion cycleVideo lesson
- Solvency ratiosVideo lesson
- Profitability ratiosVideo lesson
- Integrated ratio analysis and DuPontVideo lesson
- Integrated cases: a five-year scorecard, a peer comparison and a DuPont trend
- Industry-specific ratios and forecasting
Lesson 8 of 9 · 17 min
Integrated cases: a five-year scorecard, a peer comparison and a DuPont trend
An evaluation question gives you a summary table, expects you to compute a handful of ratios for the first and last year, and then asks which conclusion is valid: efficiency, profitability, liquidity and solvency each need their own ratio and their own direction.
In short
- Compute the same ratios for the first and last year, using average balances where the definition says so, and read the direction before the level.
- Keep the four families apart: turnover for efficiency, margins for profitability, current ratio for liquidity, coverage and debt ratios for solvency.
- Use ROE = net margin × asset turnover × leverage to say why one company's ROE is higher; one factor can offset another.
- In a five-factor trend, a rising tax burden means a lower tax rate and a falling interest burden means interest is taking a larger bite.
- A flat DSO can hide credit deterioration: check the ageing of receivables and the allowance as a percentage of gross receivables.
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