Intermediate Financial Management (with Thomson One)

Debt Management Ratios 257
How the Firm Is Financed: Total Liabilities
to Total Assets 257, Ability to Pay Interest:
Times-Interest-Earned 258, Ability to
Service Debt: EBITDA Coverage Ratio 258
Profitability Ratios 259
Profit Margin on Sales 259
Box: International Accounting Differences Create
Headaches for Investors 260
Basic Earning Power (BEP) 261, Return
on Total Assets 261, Return on Common
Equity 262
Market Value Ratios 262
Price/Earnings Ratio 262, Price/Cash Flow
Ratio 263, Market/Book Ratio 263
Trend Analysis, Common Size Analysis, and
Percent Change Analysis 264
Tying the Ratios Together: The Du Pont
Equation 268
Comparative Ratios and “Benchmarking” 270
Uses and Limitations of Ratio Analysis 271
Box: Ratio Analysis in the Internet Age 272
Looking beyond the Numbers 273
Summary 274
Part 2
Corporate Valuation 284
Chapter 9
Financial Planning and Forecasting Financial
Statements 286
Beginning-of-Chapter Questions 287
Overview of Financial Planning 287
Strategic Plans 287
Box: Corporate Valuation and Financial
Planning 288
Operating Plans 289, The Financial Plan 289
Sales Forecast 290
Financial Statement Forecasting: The Percent of
Sales Method 292
Step 1. Analyze the Historical Ratios 292,
Step 2. Forecast the Income Statement 294,
Step 3. Forecast the Balance Sheet 297,
Step 4. Raising the Additional Funds
Needed 300, Analysis of the Forecast 301
The AFN Formula 304
Forecasting Financial Requirements When
the Balance Sheet Ratios Are Subject to
Change 306
Economies of Scale 306, Lumpy Assets 306,
Excess Capacity Adjustments 308
Summary 309
Chapter 10
Determining the Cost of Capital 317
Beginning-of-Chapter Questions 318
The Weighted Average Cost of Capital 318
Box: Corporate Valuation and the Cost of
Capital 319
Cost of Debt, rd (1 – T) 320
Cost of Preferred Stock, rps 321
Cost of Common Stock, rs 322
The CAPM Approach 323
Estimating the Risk-Free Rate 324,
Estimating the Market Risk Premium
324, Estimating Beta 327, An Illustration
of the CAPM Approach 328
Dividend-Yield-Plus-Growth-Rate, or Discounted
Cash Flow (DCF), Approach 329
Estimating Inputs for the DCF Approach
329, Illustration of the Discounted Cash
Flow Approach 331, Evaluating the
Methods for Estimating Growth 331
Bond-Yield-Plus-Risk-Premium Approach 332
Comparison of the CAPM, DCF, and Bond-Yield-
Plus-Risk-Premium Methods 332
Composite, or Weighted Average, Cost of
Capital, WACC 333
Box: Global Variations in the Cost of
Capital 335
Factors That Affect the Weighted Average Cost
of Capital 335
Factors the Firm Cannot Control 335,
Factors the Firm Can Control 336
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