March 3,2020

• Financial Analysis 
• Equity: Ownership
• Debt: Borrowing Money 
• 2 ways to make money 
• dividend: periodic income 
• capital gains: selling the entire business, the stock price increase
• Ratio Analysis 
• price 
• liquidity  ratio: ability to have cash on hand 
• current ratio = current assets/current liabilities 
• current assets: cash, accounts receivable, inventory 
• current liabilities: accounts payable, salaries, rent 
• the bigger the number the better: greater than 2 but less than 5 
• Steady: 1.4-1.5
• profitability ratio 
• net profit margin: net income/sales/revenue 
• net income: revenue-expense 
• financial leverage ratio 
• optimizing the mix of debt + equity  to maximize ROI
• debt to equity ratio: debt/equity 
• if the market goes up it's better to use debt financing if the market goes down it's better to not use debt financing 
• return on investment ratio 
• return on equity: net income/ total equity 
• the investor wants money 4-6 years: management capability
• shareholder ratios 
• earning per share: net income/ # of shares - want it to be high 
• price to earnings ratio: share price/ earnings per share: want it to be low