Chapter08.ppt

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1、FinancialStatementAnalysisKRSubramanyamJohnJWild8CHAPTERReturnonInvestedCapitalandProfitabilityAnalysisReturnonInvestedCapital•Jointanalysisiswhereonemeasureisassessedrelativetoanother•Returnoninvestedcapital(ROIC)orReturnonInvestment(ROI)isanimportantjointanalys

2、isImportanceofJointAnalysisReturnonInvestedCapitalROIRelationROIrelatesincome,orotherperformancemeasure,toacompany’slevelandsourceoffinancingROIallowscomparisonswithalternativeinvestmentopportunitiesRiskierinvestmentsexpectedtoyieldahigherROIROIimpactsacompany’sa

3、bilitytosucceed,attractfinancing,repaycreditors,andrewardownersReturnonInvestedCapitalApplicationofROI(2)measuringprofitability(3)Measureforplanningandcontrol(1)measuringmanagerialeffectiveness(2)measuringProfitability(3)measureforplanningandcontrolROIisapplicabl

4、eto:ReturnonInvestedCapitalMeasuringManagerialEffectiveness•Managementisresponsibleforallcompanyactivities•ROIisameasureofmanagerialeffectivenessinbusinessactivities•ROIdependsontheskill,resourcefulness,ingenuity,andmotivationofmanagementReturnonInvestedCapitalMe

5、asuringProfitability•ROIisanindicatorofcompanyprofitability•ROIrelateskeysummarymeasures:profitswithfinancing•ROIconveysreturnoninvestedcapitalfromdifferentfinancingperspectivesReturnonInvestedCapitalMeasuringforPlanningandControlROIassistsmanagerswith:•Planning•

6、Budgeting•Coordinatingactivities•Evaluatingopportunities•ControlComponentsofROIReturnoninvestedcapitalisdefinedas:IncomeInvestedCapitalComponentsofROIInvestedCapitalDefined•Nouniversalmeasureofinvestedcapital•Differentmeasuresofinvestedcapitalreflectuser’sdiffere

7、ntperspectivesComponentsofROIAlternativeMeasuresofInvestedCapitalCommonMeasures:•NetOperatingAssets•Stockholders’EquityComponentsofROI•Perspectiveisthatofthecompanyasawhole•Calledreturnonnetoperatingassets(RNOA)RNOA:measuresoperatingefficiency/performancereflec

8、tsreturnonnetoperatingassets(excludingfinancialassets/liabilities)NetOperatingAssetsComponentsofROICommonEquityCapital•Perspectiveisthatofcommonequityholders•C