FIL 240 Lecture 8 Outline of Last Lecture I. Profitability Ratiosa. Gross Marginb. Operating Marginc. Net MarginII. Return on Assets (ROA)a. Equationb. DefinitionIII. Return on Equitya. EquationIV. Quick Ratioa. Equationb. DefinitionV. Current Ratioa. EquationVI. Burn Ratioa. Equation Outline of Current Lecture I. Inventory Turnovera. Formula for inventory turnoverb. “Just in time” inventoryII. Asset Turnovera. Exampleb. ProblemIII. Riska. Rule #1b. Ways to measure riskc. Rule #2d. StocksCurrent LectureVolatility (Risk)I. Inventory Turnovera. Sales/InventoryThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.b. “Just in time” inventory can be a problem when you run out and don’t have enough to get you through the dayII. Asset Turnovera. US refinery industry – hadn’t been updated or new ones built since the 1970s, so thevalue of the refineries was very low and the sales were high. This caused the old refineries to get worked until they caused an explosion. b. A high asset turnover can be a warning towards future breakdown.III. Riska. High risk = expected possible high returnb. Ways to measure risk:i. Standard deviationii. Coefficient of variation (CV)iii. Interest ratesiv. Beta (β)c. When you are protected from risk, you’re more likely to take higher risksd. Stocks:i. The more diverse your stock portfolio, the less riskii. Market-related risk – the bottom-line amount of risk always included when buying stockiii. Mutual Funds – spending less money to have a diverse portfolio along with many others; pooling money; no fees, but limited trading abilityiv. Diversifiable risk (nonsystematic risk) – risk you don’t have to take and arenot rewarded by it v. ETF (exchange-traded fund) – stocks that invest in all the Standard & Poor’s 500
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