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Notes
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EVA is discussed in a subsequent chapter.
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Customers in less developed countries are more risky compared to customers in developed countries.
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Appendix: Glossary of Ratios
Appendix: Glossary of Ratios
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1.
$$\begin{array}{l}\rm{EBIT Interest Coverage} = \\\frac{\rm{Earnings from continuing operations before interest and taxes}}{\begin{array}{l}\rm{Gross sinterest incurred before subtracting capitalized interest and interest} \\{\rm income}\end{array}}.\end{array}$$
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2.
$$\begin{array}{l}\rm{EBITDA Interest Coverage} = \\\frac{\begin{array}{l}\rm{Earnings from continuing operations before interest, taxes, depreciation} \\\rm{and amortization}\end{array}}{\begin{array}{l}\rm{Gross interest incurred before subtracting capitalized interest and interest} \\{\rm income}\end{array}}.\end{array}$$
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3.
$$\begin{array}{l}\frac{\rm{Funds from operations}}{\rm{total debt}} = \\\frac{\begin{array}{l}\rm{Net income from continuing operations plus depreciation, amortization}, \\\rm{deferred income taxes, and other non cash items}\end{array}}{\begin{array}{l}\rm{Long term debt plus current maturities, commercial paper and other short} \\\rm{term borrowings}\end{array}}.\end{array}$$
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$$\begin{array}{l}\frac{\rm{Free operating cash flow}}{\rm{total debt}} = \\\frac{\begin{array}{l}\rm{Funds from operations minus capital expenditure, minus (plus) the increase} \\\rm{(decrease) in working capital (excluding changes in cash and equivalents} \\\rm{and short term debt)}\end{array}}{\begin{array}{l}\rm{Long term debt plus current maturities, commercial paper and other short} \\\rm{term borrowings}.\end{array}}\end{array}$$
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$$\begin{array}{l}\rm{Return on capital} = \\\frac{{\rm EBIT}}{\begin{array}{l}\rm{Average of beginning of year and end of year capital, including short debt}, \\\rm{current maturities, long term debt, non current deferred taxes and equity}\end{array}}.\end{array}$$
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$$\begin{array}{l}\frac{{\rm Operating \ income}}{{\rm sales}} = \\\frac{\begin{array}{l}\rm{Sales minus cost of goods manufactured (before depreciation and} \\{\rm amortization}), \rm {SGA and R} \& {\rm D \ costs}\end{array}}{{\rm Sales}}.\end{array}$$
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7.
$$\begin{array}{l}\frac{\rm{Long-term debt}}{{\rm capital}} = \\\frac{\rm{Long-term debt}}{\begin{array}{l}\rm{Long-term debt}+\rm{shareholder's equity (including preferred stock) plus} \\\rm{minority interest}\end{array}}.\end{array}$$
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8.
$$\begin{array}{l}\frac{{\rm Total \ Debt}}{{\rm Capital}} = \\\frac{\begin{array}{l}\rm{Long-term debt plus current maturities, commercial paper and other} \\\rm{short-term borrowings}\end{array}}{\begin{array}{l}\rm{Long-term debt}+\rm{shareholder's equity (including preferred stock) plus} \\\rm{minority interest}\end{array}}.\end{array}$$
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Krishnamurti, C., Vishwanath, S. (2009). Accounting and Financial Analysis. In: Krishnamurti, C., Vishwanath, R. (eds) Investment Management. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-88802-4_6
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