Standard ratio analysis-compound growth rates, Finance Basics

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Standard ratio analysis should be used to supplement the discussion of strength and weakness.

The following ratios are most often used by practitioners:

(a) Growth Rates: PEG Ratio and 10 year or 5 year compound growth rates (CAGR) in Sales and EPS of the two companies prior to the merger.

(b) Liquidity Ratios

(c) Leverage Ratios:

(i) Book Value of Total Debt/Book Value of Equity

(ii) Book Value of Long-term Debt/Book Equity

(iii) Book Value of Total Debt/Market Value of Equity

(iv) Interest and other fixed charge Coverage Ratio

(d) Operating Characteristics:

(i) Total Asset Turnover

(ii) Average Collection Period

(iii) Gross Profit Margin

(iv) ROE and ROA

(e) Investment Characteristics:

(i) Capital Expenditure as a percentage of Total Asset

(ii) R&D as a percentage of Total Assets

Most of these ratios are available from Bloomberg, Standard and Poor's Industry Survey, or similar sources. You may also access WRDS for relevant information.


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