Essential Learning for CTP Candidates New York Cash ... · CB = Average collected balances required to pay service charges ... Total Amount of Full Pmt × 1 Disc Rate PV Annual Opp

Essential Learning for CTP CandidatesNew York Cash Exchange: 2016 – Session #05

Copyright © 2016 – The Treasury Academy, Inc.All Rights Reserved – www.treasuryacademy.org 1

New York Cash Exchange: 2016Essential Learning for CTP CandidatesSession #5: Thursday Morning (6/02)

Overview of Basic CTP Math from ETM4 Chap 07: Earnings Credits

Chap 09: Working Capital

Chap 18: Fin. Statements

Chap 19: Financial Analysis

© 2016 - The Treasury Academy, Inc. - All Rights Reserved 1

Essentials of Treasury Management, 3rd Ed. (ETM4) is published by the AFP which holds the copyright and all rights to the related materials.

As a prep course for the CTP exam, significant portions of these lectures are based on materials from the Essentials text.

ETM4: CalculationsChapters 7, 9 , 18 & 19

These slides cover most of the basic calculations in ETM4 – Examples include both those from the text and additional problems.

2© 2016 - The Treasury Academy, Inc. - All Rights Reserved

Due to time constraints, we will NOT be able to cover all of the examples in this session. Students are encouraged to spend some time on their own reviewing these problems at a later date.

ETM4: Chapter 7 CalculationsManaging Relationships with Service Providers

Earnings CreditCollected Balance Required




Earnings Credit

Where:EC = Earnings creditCB = Average collected balancesRR = Reserve requirementECR = Earnings credit rateD = Number of days in the month

DEC = CB × (1 RR) × ECR365


Earnings CreditAssume the following scenario:

Average ledger balance $250,000Deposit float $ 30,000Reserve requirement 10%Earnings credit rate 5%Service charges for the month $ 1,000Days in month 30

Average Collected Balance Calculation:Average ledger balance $250,000Less: Deposit float ($30,000)Equals: Average collected balance $220,000

DEC = CB × (1 RR) × ECR 365

30= $220,000 × (1 0.10) × 0.05365

= $220,000 × 0.90 × 0.0041095 = $813.68


Source: ETM4 - © AFP

Collected/Available Balances Required

Where:CB = Average collected balances required to pay service chargesAB = Average available balances required to pay service chargesSC = Service chargesECR= Earnings credit rateRR = Reserve requirementD = Number of days in the month

SCCB =DECR × × (1 RR)

365SCAB =

DECR × 365




Collected/Available Balances RequiredAssume the following scenario:Monthly service charges $1,000Earnings credit rate 5%Reserve requirement 10%Days in month 30


365

$1,000=

300.05 × × (1 0.10)365

= $270,373

SCAB =DECR ×

365

$1,000=

300.05 × 365

= $243,333



ETM4: Chapter 7Managing Relationships with Service Providers

Additional Calculations


Assume ledger balance = $1.2M, deposit float = $0.4M, R/R = 10%, ECR = 0.5%, 31 days in the month. Calculate the earnings credits.

A. $295.89B. $305.75C. $339.73D. $3,057.53

© 2013 - The Treasury Academy, Inc. - All Rights Reserved 9© 2016 - The Treasury Academy, Inc. - All Rights Reserved 9

EC = CB x (1 RR) x ECR D365



Earnings CreditAssume the following scenario:

Average ledger balance $1,200,000Deposit float $ 400,000Reserve requirement 10%Earnings credit rate 0.5%Days in month 31

Average Balance Calculations:Average ledger balance $1,200,000Less: Deposit float ($400,000)Equals: Average collected balance $800,000Less: Reserve Requirement ($80,000)Equals: Average available balance $720,000

DEC = CB × (1 RR) × ECR 365

31= $800,000 × (1 0.10) × 0.005365

= $305.75

DEC = AB × ECR 365

31= $720,000 × 0.005365

= $305.75


Assume ledger balance = $1.2M, deposit float = $0.4M, R/R = 10%, ECR = 0.5%, 31 days in the month. Calculate the earnings credits.

A. $295.89B. $305.75C. $339.73D. $3,057.53

No reserve requirement

30 days rather than 31

Used 5% rather than 0.5%


Assume R/R = 10%, ECR = 0.4%, 30 days in the month. Calculate the collected balance required to support $1,200 in services.

A. $392,473B. $405,555C. $3,650,000D. $4,055,555



365SCAB =

DECR × 365



Collected/Available Balances RequiredAssume the following scenario:Monthly service charges $1,200Earnings credit rate 0.4%Reserve requirement 10%Days in month 30


365

$1,200=300.004 × × (1 0.10)365

= $4,055,555

SCAB =DECR ×

365

$1,200=300.004 × 365

= $3,650,000


Assume R/R = 10%, ECR = 0.4%, 30 days in the month. Calculate the collected balance required to support $1,200 in services.

A. $392,473B. $405,555C. $3,650,000D. $4,055,555

Calculated Available Balance

Used 4% rather than 0.4%

Used 4% rather than 0.4% & 31 days


Practicing the Calculations

The more times you work through a calculation, the more comfortable you will be with it

Develop your own versions of the calculations and double check your math

Share calculations with others that are studying for the exam

Make a list of Study Buddies!!




ETM4: Chapter 9 CalculationsWorking Capital Metrics

Float Neutral CalculationCost of DiscountCash Conversion Cycle (CCC)Days Sales OutstandingAging ScheduleA/R Balance PatternNetting Calculation


Focus of Treasury on Cash Flow Timeline

Treasury focus is on the payment portion of the cycle

Calculation: Float Neutral Calculation TD = total days difference in payment timing r = Opportunity cost as an annual rate


1Discount 1

r1 TD

365

Float Neutral Calculation Assume r = 12% and TD = 3 days


1Discount 1

12%1 3

365

11 1 0.99901467

1.0009863

0.00098533

0.001 (Rounded) or 0.10%

If the buyer is allowed to take a discount of 0.10 %, they would be indifferent (in present value terms) between paying by check or by electronic transfer (a speedup of 3 days in loss of value)



Cost of a Buyer Not Taking a Cash Discount


D 365Discount Cost = 100 D N T

2 365= 100 2 30 10

2 365= = .0204 18.25 =.3723 or 37.23%98 20

WhereD = Discount percentage is 2%N = Net period is 30 daysT = Discount period is 10 days

The cost of not taking the discount can be compared with the organization’s opportunity cost to borrow short-term funds. If we assume a rate of 8% for this example, then borrowing cost would be less than the cost of not taking the discount – so the organization should borrow the funds and take the discount.


When Should a Buyer Forgo an Offered Discount?

Short-term investment rates above annualized discount rate

Buyer’s cost of short-term borrowing greater than annualized discount rateBuyer can “stretch” payables

enough to sufficiently lower annualized discount rate


Benefit to Seller of Offering a Cash Discount


Disc Pmt

Total Amount of Full Pmt × 1 Disc RatePV

Annual Opp Cost1 Days in Disc Period ×

365

Disc Pmt

$100,000 1 .02 $98,000PV

1 .0041096.151 10

365

$98,000$97,598.91

1.0041096

Assume credit terms of 2/10, net 30 and opp. cost = 15%

Present Value of Receiving Discounted Payment Amount




Benefit to Seller of Offering a Cash Discount


Assume credit terms of 2/10, net 30 and opp. cost = 15%

Present Value of Receiving Full Payment Amount

Full Pmt

Total Amount of Full PmtPV

Annual Opp Cost1 Days in Net Period ×

365

Full Pmt

$100,000 $100,000PV

1 .0123288.151 30

365

$100,000$98,782.13

1.0123288

NPV = PVDay 10 – PVDay 30 = $97,598.91 – $98,782.13 = – $1,183.22Source: ETM4 - © AFP

Cash Conversion Cycle (CCC)

Days’ InventoryDays’ ReceivablesDays’ PayablesCalculations of the Cash Conversion

Cycle (CCC)Cash Turnover Ratio


Days’ Inventory Days’ Receivables

Days’ Payables Cash Conversion Cycle

“Working Capital Gap”

Cash Conversion CycleElements in the cash conversion cycle:

Days’ Inventory

Days’ Receivables

Days’ Payables

Inventory365

Cost of G oods Sold

Accounts Receivable 365Sales

Accounts Payable365

Cost of G oods Sold




Cash Conversion Cycle

Elements in the cash conversion cycle:

Days’ Inventory

Days’ Receivables

Days’ Payables

Days 103.15 3659,200

2,600 365

COGS

Inv

Days 41.36 36515,000

1,700 365

Sales

A/R

Days 63.48 3659,200

1,600 365

COGS

A/P



Cash Conversion Cycle (CCC)

Calculates the time required to convert cash outflows (necessary to produce goods) into cash inflows (through the collection of accounts receivable)

CCC Days' Inv. Days' Rec. - Days' Pay.

103.15 41.36 63.48 81.03 Days



365 D aysC ash Turnover =

C ash C onversion C ycle

365= = 4.5 T im es81.03 D ays

Days’ Sales Outstanding (DSO) Assume that a company has outstanding receivables of $285,000 at the end of the first quarter and credit sales of $310,000 for the quarter. Using a 90-day averaging period, the DSO for this company can be computed as follows:

Sales During Period $310,000Avg. Daily Credit Sales = = = $3,444.44Number of Days in Period 90

Outstanding A/R $285,000DSO = = = 82.74 DaysAvg. Daily Credit Sales $3,444.44

Average Past Due = DSO Avg. Days of Credit Terms

= 82.74 Days 60 Days = 22.74 Days

If the company’s credit terms are net 60, the average past due is computed as follows:





Aging ScheduleSeparates A/R into current and past-due receivables in 30-day increments (on a customer or aggregate basis) and can determine the percent past due

Age of A/R Amount of A/R % of Total A/R

Current $1,750,000 70%

1-30 Days Past Due 375,000 15%

31-60 Days Past Due 250,000 10%

Over 60 Days Past Due 125,000 5%

Total $2,500,000 100%



A/R Balance Pattern for March

29© 2016 - The Treasury Academy, Inc. - All Rights Reserved Source: ETM4 - © AFP

Before Netting





With Multilateral Netting



ETM4: Chapter 9 CalculationsWorking Capital Metrics



Assume a company is offered a 1.3% discount for paying on day 30 rather than day 90. At what opportunity cost would the company be indifferent between these two payment dates?

A. 4%B. 6%C. 8%D. 10%




Assume a company is offered a 1.3% discount for paying on day 30 rather than day 90. At what opportunity cost would the company be indifferent between these two payment dates?

A. 4%B. 6%C. 8%D. 10%

Example of just trying all the answers to find the correct one.

Alternative approach is to use discount cost formula


Float Neutral Calculation Assume: r = 8% and TD = 60 days


1Discount 1

8%1 60

365

11 1 0.98702

1.01315

0.01298 = 1.3% (Rounded)

If the buyer is allowed to take a discount of 1.3 %, they would be indifferent (in present value terms) between paying electronically today or on day 60 by check (a speedup of 60 days in loss of value)

A company is offered terms of 1/10, Net 40, but routinely takes 50 days to pay without incurring any penalties. What is the cost of not taking this discount?

A. 7.4%B. 7.9%C. 9.2%D. 12.3%


Discount Cost = D100 D

365N T



Cost of a Buyer Not Taking a Cash Discount


D 365Discount Cost = 100 D N T

1 365= 100 1 50 10

1 365= = .0101 9.125 = .09216 or 9.2%99 40

WhereD = Discount percentage is 1%N = Net period is 50 daysT = Discount period is 10 days

The cost of not taking the discount can be compared with the organization’s opportunity cost to borrow short-term funds. If we assume a rate of 8% for this example, then borrowing cost would be less than the cost of not taking the discount – so the organization should borrow the funds and TAKE the discount.

A company is offered terms of 1/10, Net 40, but routinely takes 50 days to pay without incurring any penalties. What is the cost of not taking this discount?

A. 7.4%B. 7.9%C. 9.2%D. 12.3%

Example of being sure to read the problem. Use the actual days taken, not the stated terms.

Used 40 day net period

Did not take out discount period


ETM4: Chapter 18Financial Accounting & Reporting




Sample Balance Sheet

“Snapshot”Assets:

Current assetsFixed assetsDepreciable fixed

assetsIntangible assets

Liabilities:Current liabilitiesLong-term liabilities

EquityAssets = Liabilities +

Shareholders’ Equity



Sample Income Statement

A record of revenues and expenses

Shows the net change in shareholders’ equity from operations over a specified period



Sample Statement of Cash FlowsShows sources and

uses of cash

Sections:

Operating

Investing

Financing

Cash from operations calculated by adding back non-cash charges (e.g., depreciation)

Cash, not earnings, repays debt

This example shows the indirect format





ETM4: Chapter 19 CalculationsFinancial Planning and Analysis

Time Value (PV & FV)Breakeven PointNPV, IRR, PIRatios & Ratio Analysis

Liquidity, Efficiency, Debt Management,

Performance, DuPont

Return vs. Residual Income Measures


Future Value

n

2

Future Value = PV × (1 + i)

= $100 × (1 + .10)

= $100 × 1.21 = $121

What is the future value of $100 if it can be invested for two years, compounded annually, at a rate of 10% per year?

Where: FV = Future value PV = Present valuei = Periodic interest raten = Number of periods


$100 x (1.10)5

$100 x (1.10)(1.10)(1.10)(1.10)(1.10)$100 x

Present Value

What is the present value of $2,382 to be received after three years, discounted at a rate of 6.00% annually?

Where:FV = Future valuei = Periodic interest raten = Number of periods

n 3

$2,382FVPresent Value = = 1 + i 1 + 0.06

$2,382= = $2,0001.191




PV of a Stream of Payments


31 2 n1 2 3 n

CC C CPV ... ...

(1 i) (1 i) (1 i) (1 i)

1 2 3

$200 $400 $600PV

(1 .12) (1 .12) (1 .12)

$200 $400 $600

1.12 1.2544 1.4049

$178.57 $318.88 $427.08 $924.53

As an example, assume the following annual cash flows: $200 in year one, $400 in year two and $600 in year three. If the appropriate discount rate is 12%, then the PV of the stream would be:

Breakeven Analysis

Fixed CostsUnit B/E Point = Selling Price Per Unit Variable Cost Per Unit

$10,000= $10 $6

= 2,500 Units

Breakeven point: Level of activity for an operation at which costs exactly equal benefits



Net Present Value (NPV)Evaluates the present value

(PV) of all inflows and outflows of a project using the weighted average cost of capital as a discount rate

If the only cash outflow takes place in the present :

NPV = PV of Cash Inflows PV of Cash Outflows

31 2 n1 2 3 n

NPV = PV of Cash Inflows Cash Cost

CC C CNPV = + + + ... + Cost

(1+ i) (1+ i) (1+ i) (1+ i)© 2016 - The Treasury Academy, Inc. - All Rights Reserved 48



Net Present Value (NPV)

A 1 2 3 4 5

B 1 2 3 4 5

$300 $300 $400 $100 $100NPV = + + + + $1,000(1 + .10) (1 + .10) (1 + .10) (1 + .10) (1 + .10)

= $ 48.42

$1,000 $1,000$300 $300 $400NPV = + + + + (1 + .10) (1 + .10) (1 + .10) (1 + .10) (1 + .10)

$1,000

= $1,124.98

Year 1 Year 2 Year 3 Year 4 Year 5

Project A $300 $300 $400 $100 $100

Project B $300 $300 $400 $1,000 $1,000

Assume an initial outlay of $1,000 and a cost of capital of 10%



Profitability Index (PI)

Present Value of Cash InflowsProfitability Index = Present Value of Cash Outflows

Ratio of the PV gained to the cost required to obtain that value; shows value gained per dollar of investment

If the only cash outflow is in the present (period 0):

A

B

$951.57PI = = 0.952$1,000

$2,124.98PI = = 2.125$1,000


Internal Rate of Return (IRR)Discount rate (i) for NPV = 0

or

PV of Cash Inflows = PV of Cash Outflows

=

A 1 2 3 4 5

B 1 2

NPV = PV of Cash Inflow Cost = 0

$300 $300 $400 $100 $100NPV = + + + + $1,000 0(1 + i) (1 + i) (1 + i) (1 + i) (1 + i)

i = 7.7%

$300 $300 $400NPV = + + (1 + i) (1 + i) (1 + i

=

3 4 5

$1,000 $1,000+ + $1,000 0) (1 + i) (1 + i)

i = 38.1%





Capital Expenditure Analysis Summary

MethodProject

Acceptance Criterion

Project A Project B

Net Present Value (NPV)

NPV > 0 $ – 48.43 $1.124.98

Profitability Index (PI)

PI > 1 0.952 2.2125

Internal Rate of Return (IRR)

IRR > WACC* 7.7% 38.1%

* Weighted Average Cost of Capital (WACC) = 10% in the example


Source: ETM4 © AFP

Liquidity or Working CapitalCurrent Ratio

Measures the degree to which current obligations are covered by current assets

Total Current AssetsCurrent Ratio =

Total Current Liabilities

$8,000= = 2.35

$3,400



Liquidity or Working Capital: Quick Ratio

Measures the degree to which a company’s current liabilities are covered by its most liquid current assets

(Cash) + (S-T Investments) + (A/R)Quick Ratio =


($1,500 + $1,300 + $1,700)= = 1.32

$3,400





Liquidity or Working Capital: Cash Flow to Total Debt Ratio

Measures ability to repay debt (a relatively low ratio indicates an inability to repay debt and can predict financial failure; a higher ratio would imply more safety)

(Net Income + Depreciation)CF to Total Debt Ratio =

Short-Term Debt + Long-Term Debt

($850 + $200) $1,050= = = 0.184

$1,800 + $3,900 $5,700



Liquidity or Working Capital: Working Capital

Indicates the dollar amount by which current assets exceed current liabilities

Working Capital = Current Assets Current Liabilities

= $8,000 $3,400 = $4,600



Efficiency and Asset Management: Total Asset Turnover

RevenuesTotal Asset Turnover =

Total Assets

$15,000= = 0.968 Times

$15,500

Measures how many times the asset base is turned over with the flow of revenue





Efficiency and Asset Management: Fixed Asset Turnover

RevenueFixed Asset Turnover =

Net Property, Plant & Equip

$15,000= = 2.0 Times

$7,500

Focuses on how efficiently fixed assets, or plant and equipment, are used

© 2016 - The Treasury Academy, Inc. - All Rights Reserved 58Source: ETM4 - © AFP

Efficiency and Asset Management: Current Asset Turnover

RevenuesCurrent Asset Turnover =

Current Assets

$15,000= = 1.88 Times

$8,500

Measures how many times the stock of most liquid assets is turned over with the flow of revenue



Efficiency and Asset Management: Cash Conversion Efficiency

Cash ConversionCash Flow from OperationsEfficiency =

Sales

$550= $15,000

= 0.37 or 3.7%

Measures the efficiency with which a company converts sales into cash





Debt Management: Total Liabilities to Total Assets

Total LiabilitiesTotal Liabilities to Total Assets =

Total Assets

$7,300= = .471 or 47.1%

$15,500

Measures the percentage of all liabilities relative to total investments or total assets



Debt Management: Long-Term Debt to Capital

-

-

Long Term DebtL / T Debt to Capital =

Long Term Debt + Equity

$3,900= = .322 or 32.2%

$3,900 + $8,200

Measures the percentage of a company’s capitalization that is provided by long-term debt



Debt Management: Debt to Tangible Net Worth

Total DebtDebt to Tangible N/W =

Total Equity Intangible Assets

$1,800 + $3,900= = .695 or 69.5%

$8,200 0

Measures a company’s debt as a percentage of its tangible net worth





Debt Management/Coverage: Times Interest Earned (TIE) Ratio

Operating ProfitTIE =

Interest Expense

EBIT =

Interest Expense

$1,600= = 5.33 Times

$300

Measures a firm’s ability to service debt through interest payments



Debt Management/Coverage: Fixed Charge Coverage Ratio

EBIT + Lease PmtsFixed Charge Coverage =

Interest Expense + Lease Pmts

$1,600 + $500 $2,100= = = 2.625 Times

$300 + $500 $800

Measures a firm’s ability to service all fixed-charge items with operating profits

* Assuming $500 of annual lease payments© 2016 - The Treasury Academy, Inc. - All Rights Reserved 65


Performance: Gross Profit Margin

Gross Profit $5,800Gross Profit Margin = =

Revenues $15,000

= .387 or 38.7%

Measures the percentage of revenues remaining after the cost of goods sold is deducted from revenue – it is also a typical common-size ratio measure





Performance: Operating & EBITDA Profit Margins

EBITOperating Profit Margin =

Revenues

$1,600= = 0.107 or 10.7%

$15,000

Measures the flow of commonly used operating income measures in relation to the flow of revenue

EBITDAEBITDA Margin =

Revenues

$1,800= = 0.120 or 12.0%

$15,000© 2016 - The Treasury Academy, Inc. - All Rights Reserved 67


Performance: Net Profit Margin

Net IncomeNet Profit Margin =

Revenues

$850=

$15,000

= .057 or 5.7%

Measures the flow of net income in relation to the flow of revenue



Performance: Return on Total Assets

Net IncomeReturn on Total Assets =

Total Assets

$850=

$15,500

= .055 or 5.5%

Measures net income in relation to the stock of assets




Performance: Return on Common Equity

Earnings Avail. to Common S / HsReturn on Common Equity =

Common Equity

Net Income Preferred Dividends=

Total Equity Preferred Stock

$850 0= = 0.104 or 10.4%

$8,200 0

Measures earnings available to common shareholders (net income less any preferred stock dividends) expressed as a percentage of common equity



Integrated Ratio Analysis: DuPont Equation

Return on Total Assets = Return on Sales Total Asset Turnover

Net Income Total Revenues =

Total Revenues Total Assets

= 0.057 0.968 = 0.055 = 5.5%

Looks at the return on total assets as a product of the return on sales and total asset turnover



Performance Measurement

Return on Investment (ROI)

Residual Income (RI)

Free Cash Flow (FCF)

Economic Value Added (EVA)




Performance Measurement Return on investment (ROI)◦ ROI over a partial period may be misleading.◦ ROI does not include charge for cost of capital.◦ Positive NPV project can be rejected if it lowers overall ROI

Residual Income (RI)◦ Assigns charge for invested capital.◦ RI is a dollar amount, and any profitable project after

deducting cost of capital will increase RI.

Net Income Net IncomeROI = = Invested Capital Long-Term Debt + Equity

$850 $850= = = 0.0702 or 7.02%$3,900 + $8,200 $12,100

RI = Net Income Invested Capital Cost of Capital

= $850 $12,100 .10 = $850 $1,210 = $360


Performance Measurement: Free Cash Flow

Free Cash Flow (FCF)◦ A type of RI analysis, but also includes adjustments

for noncash items, operating working capital investments and capital expenditures (CAPEX)◦ There are many different formulas used for FCF◦ Considered a better representation of the value of

the firm to shareholders

FCF = Net Income + (D&A) Change in Op W/C CAPEX

= $850 + $200 $500 $900 = $350


Economic Value Added (EVA)A measure of the incremental value that a

company’s investments add.What is the EVA for the following company? Long-term debt of $3,900,000

Equity of $8,200,000

Marginal tax rate of 34.615%

Weighted average cost of capital (WACC) of 10%

Operating income (EBIT) of $1,600,000

EVA = EBIT (1 Tax Rate) (WACC)(Long-term Debt + Equity)

= $1,600,000 (1 .34615) (.10)($3,900,000 + $8,200,000)

= $1,046,160 (.10)($12,100,000)

= $1,046,160 $1,210,000 = $163,840




ETM4: Chapter 19Financial Planning and Analysis





A company currently has Cash of $200,000, ST Investments of $500,000, A/R of $600,000, and Inventory of $700,000. If their bank has imposed a loan covenant which requires the company maintain a quick ratio of 1.5 or better, what is the maximum level of current liabilities they can have?

A. $666,667B. $866,667C. $1,333,333D. $2,000,000


This Slide Intentionally Blank





(Cash) + (S-T Investments) + (A/R)Quick Ratio =


($200,000 + $500,000 + $600,000)= = 1.50


$1,300,0001.50 =


1.50 (Total CL) = $1,300,000

$1,300,000Total CL = = $866,667

1.50




A company currently has Cash of $200,000, ST Investments of $500,000, A/R of $600,000, and Inventory of $700,000. If their bank has imposed a loan covenant which requires the company maintain a quick ratio of 1.5 or better, what is the maximum level of current liabilities they can have?

A. $666,667B. $866,667C. $1,333,333D. $2,000,000


Included Inventory

Subtracted Cash from Result B

Just added all items in problem

Practice Calculation

A company has a Return on Total Assets of 20%, Return on Sales of 10% and Net Income of $100,000. What is the level of Total Assets for this company?

A. $ 250,000B. $ 500,000C. $ 750,000D. $1,000,000




Practice Calculation

A company has a Return on Total Assets of 20%, Return on Sales of 10% and Net Income of $100,000. What is the level of Total Assets for this company?

A. $ 250,000B. $ 500,000C. $ 750,000D. $1,000,000


Integrated Ratio Analysis: DuPont Equation

Return on Total Assets = Return on Sales Total Asset Turnover

Net Income Total Revenues =


$100,000 Total Revenues 20% =


20% = 0.10 TATO =>

= =

TATO = 2.0

$100,000 Return on Sales = 0.10 =

Total RevenuesTotal Revenues = $1,000,000

Total Revenues $1,000,000 TATO = 2.0

Total Assets Total AssetsTotal Assets = $500,000


Session Wrap-up

84

What did we learn in this session?

What topics do we need to learn more about?

© 2016 - The Treasury Academy, Inc. - All Rights Reserved



New York Cash Exchange: 2016Essential Learning for CTP Candidates

End of This Session

We will reconvene after a short break.

The topics will be

Let’s Go to the MarketsMoney Markets

Short-Term Investing and Borrowing


Documents

Essential Learning for CTP Candidates New York Cash ... · CB = Average collected balances required to pay service charges ... Total Amount of Full Pmt × 1 Disc Rate PV Annual Opp