Week 6 Notes
Week 6 Notes Fin 4310
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BUSN 1301 - 006
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This 3 page Class Notes was uploaded by Laura Notetaker on Friday October 2, 2015. The Class Notes belongs to Fin 4310 at University of Texas at El Paso taught by Dr. Oscar Varela in Summer 2015. Since its upload, it has received 37 views. For similar materials see Managerial Finance in Finance at University of Texas at El Paso.
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Date Created: 10/02/15
Week 6 Notes A B Earnings 80 million 60 million Shares 10 million 15 million EPS 8 4 Price per share 96 32 PE ratio 12 8 If A pays 48 per share of B It is a stock for stock transfer tax free 4896 50 12 shares of A for each share of B A B 140 million No synergy 10 million shares 15 million shares x 50 175 million shares EPSA 8 140 million 175 million shares EPSB 4 8 x 50 For A to get a gain A would need to buy at a cheaper price Lower than 48 but higher than 32 B has a low PE which means a higher risk and lower growth Chapter 3 1 Profitability ratios Profit margin most important in this category ROA return on assets ROE return on equity Basic Earning Power 2 Debt management ratios Debt ratio most important in this category Debt to equity ratio Times interest earned Fixed charge coverage ratio 3 Asset management Total turnover asset most important in this category Week 6 Notes Inventory turnover Accounts Receivable turnover Days sales outstanding Fixed asset turnover 4 Liquidity ratios Least important Current ratio Quick ratio Du Pont equation Profit margin x total asset turnover Return on Assets Extended Du Pont equation modified ROA 1 Debt ratio ROE These two equations integrate the ratios of ROE and RCA Profit Margin Total asset turnover Railroad High Low Trucks Low High Railroad has a high profit margin because it has a high operating leverage which has a high risk because of the operating leverage and high sales Trucks have a low profit margin because they have a lot of variable costs Degree of operating leverage DOL A EBIT A Revenues DOL quantity price variable cost quantity price variable cost fixed costs If DOL increases is because they have more fixed costs Degree of financial leverage DFL A EPS A EBIT DFL EBIT EBIT Interest f DFL increase is because they have a greater interest Week 6 Notes Insolvent bankruptcy is when the amount of interest is very big Technical insolvent is when current assets is lower than current liabilities
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