**Valuation ratios (5)**

- Price to earning

- Most widely used valuation ratio
- Ratios of
- Current market price of a share of stock
- Company’s earnings per share

- Price to cash flow
- Price to sales
- Price to book value

**Per-share valuation (6)**

- Earnings per share
**Basic EPS**: ratios of- Net income available to common
- And weighted average number of common shares outstanding

**Diluted EPS**

- A what-if value
- The
*lowest possible EPS*that could have been reported if- all firm securities can be converted into common stock
- That decrease basic EPS

**Dilutive securities**- Convertible debt
- Convertible preferred stock
- Option
- Warrants

- Numerator of diluted EPS increased by:
*After-tax interest savings*on dilutive debt securities*Dividends*on any dilutive convertible preferred stock

- Denominator of diluted EPS increased by:
- Common share that result from conversion of exchange of dilutive securities

- Other per-share measures
**Cash flow per share****EBIT per share****EBITDA per share**

- Per share measures are not comparable due to difference in outstanding shares

**Dividends (7)**

- Declared on per-common-share basis
**Dividends declared (8)**- Total dividends on a f
*irm-wide basis* - Net income – dividends declared =
**retained earnings**- Used to
*grow*the corporation - Being distributed to equity holders

- Used to
**Sustainable growth rate (9)**- Proportion of a firm’s net income that is
*retained to fund growth* **Retention rate (RR) (10)**- Proportion of earnings reinvested

- Proportion of a firm’s net income that is

- Total dividends on a f

Some other ratios

**Net income per employee**and**sales per employee**- Used in service and consulting companies

**Growth in same-store sales**- Used in restaurant and retail industries

**Sales per square foot**- Metric commonly used in the retail industry

Business risk

- Uncertainty about a firm’s performance:
- Standard deviation of
- Revenue
- Net income
- Operating income

- Standard deviation of
**Coefficient of variation****(CV) (11)**- Standard deviation/expected value

**Capital adequacy (12)**- Dollar measure of risk of the firm to equity capital
**Value-at-risk (13)**- Measure of capital risk
- Dollar size of the loss that a firm will exceed only some specific percent of the time over a specific period of time

**Reserve requirements**- Ratios of various liabilities to central bank must be the
*minimums*

- Ratios of various liabilities to central bank must be the
**Liquid asset requirement**- Bank’s
*liquid assets*to certain liability

- Bank’s

**Net interest margin (14)**- Performance of financial companies that lend funds

Credit Analysis

- To assess company’s
*ability to service and repay*its debt - Use following indexes:
**Interest coverage ratios****Return on capital****Debt -to-asset ratios**

- Use to analyze and predict bankruptcies
**Z-score**: useful in*predicting firm bankruptcies*based on:**Working capital to assets**,**Retained earnings to assets**,**EBIT to asset**,**Market to book value**