Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Finance 1.Financial Planning 2.Financial Analysis 3.Principles of Investments 4.Cash Management& Control 5.Financial Forecasting a.Cost projections  Start-up costs  Monthly expenses  Working Capital  Variable cost  Sales projection b. Breakeven point c. Pro Forma financial statements  Income Statement  Balance Sheet  Cash Flows d. Ratio Analysis  ROI  ROE  Net Working Capital  Other Ratios e. Capital Requirements 6. Financial Risk Management

Ratio Analysis It’s used to evaluate various aspects of a company's operating and financial performance such as its solvency, efficiency, liquidity and profitability. It determines trends and clarify the strengths or weaknesses of a firm by comparing its performance with past ratios and ratios of other firms in the same industry. Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Financial Ratio Analysis are: 1.Short-term solvency or liquidity ratios 2.Long-term solvency or financial leverage ratios 3.Asset management or turnover ratios 4.Profitability ratios or performance ratios 5.Market value ratios 6.Other Ratios Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

1.Short-term solvency or liquidity ratios: Provide information about the firm’s liquidity. The primary concern is the firm’s ability to pay its bills over the short run without undue stress. ( the higher is better) a. Current Ratio = current assets current liabilities b. Current Ratio = current assets -Inventory current liabilities c. NWC to total assets = Net working capital Total Assets d. Interval measure = Current assets Average daily operating costs Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

2.Long-term solvency or financial leverage ratios: : Intended to address the firm’s long-term ability to meet its obligations. ( lower is better) a. Total debt ratio= Total assets – Total equity Total assets b. Debt-equity ratio= Total debt Total equity c. Equity multiplier= Total assets Total equity d. long-term debt ratio= long-term debt long-term debt + total equity e. Times interest earned ratio= EBIT Interest f. Cash Coverage ratio = EBIT + Depreciation Interest Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

3.Asset management or turnover ratios: Ratios are intended to describe how efficiently a firm uses its assets to generate sales. ( Higher is better) a. Inventory turnover = Cost of goods sold Inventory b. Days sales in inventory= 365 Inventory turnover c. Receivables turnover = Sales Accounts receivable d. Days sales in receivable = 365 Receivable turnover e. NWC = Sales NWC f. Fixed assets turnover = Sales Net fixed assets g. Total assets turnover = Sales Total assets Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

4. Profitability ratios or performance ratios: Ratios intended to measure how efficiently a firm uses its assets and manages its operation in terms of profit and income. (higher is better) a. Profit Margin = Net Income Sales b. Return On Assets (ROA) = Net Income Total Assets c. Return On Equity (ROE) = Net Income Total equity d. ROE = Net Income X Sales X Assets Sales Assets Equity Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

5.Market value ratios: Ratios focus on the market price per share. The market value of an asset reflects its earning power and expected cash flows. It’s related to corporations. Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

5.Other ratios -Profit per head = Net Profit / Full time staff -Sales to Employee ratio = sales/ Total employees -Net Working Capital = Current Assets - Current Liabilities -Net Working Capital Ratio = Current Ratio ROI = Net Income x Sales Sales Total Assets Operating Margin= Operating Income (EBIT)/Sales Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

Application: Using Excel Sheet to prepare the Financial Ratio Analysis Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen

References Gary Gibbons, Robert D. Hisrich, Carlos M. DaSilva( 2013); Entrepreneurial Finance: A Global Perspective; Sage Publications. Axel Tracy (2012): atio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet; Bidi Capital Pty Ltd; 2 edition Finance Citi Funded Entrepreneurship Training Program UNIVERSITY OF DUBAI Dr. Zahi Yaseen