Ratio Analysis

ROE t = NI t / EQ t-1

RNOA t = NOI t / NOA t-1

ROE = RNOA + (RNOA - i * (1- tax rate)) * (NFO / EQ)

ROE = RNOA +(RNOA - NBC) * (NFO / EQ)

NBC -> net borrowing cost ( NBC = NFE / NFO after tax)

i = NFE/NFO (before tax)

Measures how much capital does the company need to maintain its day-to day operations

(net amount of past cash flows tied into operations and not yet used up)

NOA = EQ + NFO

NOA = OA - OL

NFO measueres the company’s net debt -> extent on which company relies on external financing

(NFO positive -> company is et debtor)

NFO = FL - FA

Operating profit independent from financing decision -> profit earned if company wouldn’t have any debt

NOI = NI + NFE

NOI = (EBIT + non operating income) * (1 - tax rate) + other income + discontinued operations

(non operating income -> Impairment, Gain/Loss on disposal etc.)

Cost of debt financing after tax

NFE = Interest Expense * (1 - tax rate) + preferred dividends + minority interst in earnings

1. Turnover Ratio -> Capital Efficiency

2. Intangible + Goodwill per NOA (Capital tied up without generating revenue)

3. RoU-Assets

4. Cash-Conversion-Cycle

1. Cost leadership -> low NOI margin & high NOA turnover

2. Differentiation strategy -> high NOI margin & low NOA turnover