Compustat North America Chapter 3 – Financial Formulas i 8/2003 Financial Formulas Financial Formulas i In this chapter… 1 Formulas Used in Financial Calculations 1 Statements of Changes in Financial Position (Total $) 1 Cash Flow ($ millions) 1 Statements of Changes in Financial Position ($ per Share) 2 Capital Expenditures 2 Cash Flow 2 Equity in Earnings per Share 2 Income Statement (Total $) 3 Cash Flow ($ millions) 3 Preferred Dividend Coverage 3 Pretax Income Available for Interest 3 Tax Rate 3 Income Statement ($ per Share) 3 Cash Flow 3 Depreciation and Amortization 3 Discontinued Operations 3 Earnings per Share (Diluted) 4 Earnings per Share (Basic) 4 Equity in Earnings 4 Extraordinary Items 4 Extraordinary Items and Discontinued Operations 4 Interest Expense 5 Labor and Related Costs 5 Nonoperating Income (Expense) 5 Operating Income After Depreciation 5 Operating Income Before Depreciation 5 Operating Income Before Depreciation (Restated) 5 Pension Expense 5 Pretax Income 6 Research and Development Expense 6ii Chapter 3 – Financial Formulas Compustat North America 8/2003 Sales (Net) 6 Operating Margins 6 (Item) as a % of sales 6 Cash Flow Margin 7 Net Profit Margin (After-tax Profit Margin) 7 Operating Profit Margin After Depreciation 8 Operating Profit Margin Before Depreciation 8 Pretax Profit Margin 8 Balance Sheet (Total $ Millions) 8 Capital Surplus 8 Gross Assets 8 Invested Capital (Total) 8 Net Operating Assets 9 Stockholders’ Equity (Net Worth) 9 Total Debt 9 Total Earning Assets 9 Working Capital 9 Balance Sheet ($ per Share) 9 Capital Expenditures 9 Common Equity – Tangible 9 Common Equity – Liquidating Value 9 Common Equity – Total 10 Gross Assets 10 Invested Capital 10 Net Operating Assets 10 Property, Plant, and Equipment – Total (Net) 11 Total Net Assets 11 Working Capital 11 Retained Earnings Statement (Total $) 12 Retained Earnings 12 Turnover Ratios 12 Accounts Receivable Turnover 12 (Item) as a % of Sales 12 Inventory Turnover 12 Number of Days’ Sales 13 Sales per $ Cash and Short-Term Investments 13 Sales per $ Common Equity 13 Sales per $ Gross Assets 13 Sales per $ Inventory 13 Sales per $ Invested Capital 14 Sales per $ Net Assets 14 Sales per $ Property, Plant, and Equipment 14 Sales per $ Receivable – Current 14 Sales per $ Stockholders’ Equity 14 Rates of Return 15 After-tax Return 15 Pretax Return 17 Sales per $ Working Capital 18 Working Capital as a % of Sales 18 Capitalization Ratios 18 Invested Capital 18 Criteria of Financial Soundness 20 (Item) as a % of Average Long-Term Debt 20 (Item) as a % of Average Total Debt 21 (Item) as a % of Current Assets 21Compustat North America Chapter 3 – Financial Formulas iii 8/2003 (Item) as a % of Intangibles 21 (Item) as a % of Total Assets 21 (Item) as a % of Total Debt 22 (Item) as a % of Total Liabilities 22 (Item) as a % of Total Liabilities and Stockholders’ Equity 23 Capital Expenditure Coverage 23 Current Ratio 23 Debt/Equity Ratios 23 Interest Coverage 24 Quick Ratio (Acid Test) 24 Management Decision Statistics 24 (Item) as a % of Cash Flow 24 (Item) as a % of Income Before Extraordinary Items – Adjusted for Common Stock Equivalents 25 (Item) as a % of Property, Plant, and Equipment – Total (Gross) 25 (Item) as a % of Property, Plant, and Equipment – Total (Net) 25 Price and Market Data 26 Price – High – Adjusted 26 Price – Low – Adjusted 26 Price – Close – Adjusted 26 Common Shares Outstanding – Adjusted 27 Common Shares Traded – Adjusted 27 Common Shares Used to Calculate Earnings per Share (Basic) – Adjusted 27 Common Shares Used to Calculate Earnings per Share – 12 Months Moving – Adjusted 27 Market Return 27 Market to Book (Fiscal Year End/Quarter End) 28 Treasury Stock – Number of Common Shares 28 Market Value Statistics 28 Income Before Extraordinary Items Adjusted for Common Stock Equivalents per $100 of Market Value 28 Income Before Extraordinary Items per $100 of Market Value 29 Market Value of Common Stock 29 Pretax Income per $100 of Market Value 29 Sales per $100 of Market Value 29 Price Ratios 30 Price – Earnings Ratio 30 Dividend Payout Ratio 30 Dividend Yield 30 Formulas Used in COMPUSTAT Prices, Dividends, and Earnings (PDE) Financial Calculations 31 Company Data 31 Index Data 32Compustat North America Chapter 3 – Financial Formulas 1 8/2003 In this chapter… To assist you in your financial applications, Compustat North America has developed a number of predefined formulas and calculations. These commonly used formulas are by no means all-inclusive; rather, they offer a starting point upon which you can expand. Due to the availability of certain data, not all of the calculations can be applied to all companies. However, the calculations are designed to help you obtain a basic understanding of Compustat North America data, their definitions, and their usage. Within the equations, numbers shown in a different typeface and boldface (for example, 100) are actual values and do not refer to data item numbers. When doing calculations based on ratios, take into account annual and quarterly time periods. Be aware of time period references (subscript t, t-1, etc.) in these calculations. Period information refers to quarterly calculations that include quarterly items that return year-to-date data. This is because the quarterly data items used in the calculation are cash flow data, which is year-to-date information. Formulas Used in Financial Calculations Legend  Period information Annual Data Item # Quarterly Data Item # Statements of Changes in Financial Position (Total $) Cash Flow ($ millions) Definition 1 Income Before Extraordinary Items plus Depreciation and Amortization 123 + 125 76 + 77 Definition 2 Income Before Extraordinary Items plus Depreciation and Amortization plus Deferred Taxes plus Equity in Net Loss (Earnings) plus Extraordinary Items and Discontinued Operations plus Minority Interest (Income Account) 123 + 125 + 126 + 106 + 124 + 49 NA Definition 3 Income Before Extraordinary Items plus Depreciation and Amortization plus Deferred Taxes plus Equity in Net Loss (Earnings) (Statement of Cash Flows) plus Extraordinary Items and Discontinued Operations 123 + 125 + 126 + 106 + 124 76 + 77 + 79 + 80 + 782 Chapter 3 – Financial Formulas Compustat North