沃顿商学院全套笔记-二十三-

沃顿商学院全套笔记（二十三）

沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P72：24_4 1 比率分析概述.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c

Hello and Professor Brian Boucher， welcome back。 In this video we're going to start our look at ratio analysis。

And it's a good point in the course to talk about ratio analysis because it'll help us。

review some of the material that we've covered so far。 After all。

there's not a lot to computing ratios。 It's just dividing one number by another。

The real challenge is to try to understand what the ratios are telling us。 And to do so。

we need to reverse engineer the financial statements。

We need to think about what underlying transactions must have happened to make the financial statements。

and the ratios change in the way that they changed。 In other words。

the ratios help us identify parts of the business that are changing where。

we need to go in and understand better what's going on with the company。

In this video we'll talk about some tips for using and misusing ratios。

And we'll also talk about something called the DuPont analysis， which is a common ratio。

analysis technique for understanding changes in one of the most common ratios people look。

at return on equity。 Let's get started。

Let's start by talking about how to use ratios。

So ratios are going to be useful in assessing profitability， liquidity and risk。

They're going to highlight sources of competitive advantage for the company so where the company。

is doing really well。 And then red flag any potential trouble spots so where the company is struggling。

But to do this we have to compare the ratios to a benchmark。

There's no absolute benchmark。 There's nothing like return on equity greater than 16% is great。

below 16% is bad。

Instead， you have to compare the company to the same company across time。

We call this a time series analysis and it helps us highlight trends for the firm。

And we also have to compare the firm to other firms in the industry doing what we call a。

cross-sectional analysis。 This is important because sometimes firm trends could really be driven by trends in the economy。

or the industry。 So to figure out whether it's the company that's doing something well or it's just an。

industry-wide phenomenon， we have to look at the firm compared to its industry or its。

competitors。 Ratios are contextual。

There's no such thing as a ratio being good news or bad news on its own。

The key is to try to figure out what activity drove the ratio to change and then decide whether。

that activity is good news or bad news for the company。

And we'll talk about a number of examples of this as we go through the videos。

And finally， the key is that ratio analysis does not provide answers， but instead it's。

going to help you ask much better questions。

My sister once told me that ratios provide all of the answers。

She is a long short hedge fund guru in Hong Kong。 What are your qualifications？ Well。

I'm not a long short hedge fund guru。 And I guess there's the old saying that those that can't do teach but have looked at a lot。

of financial statements in my time。 And I'm pretty confident in my claim that ratios provide an excellent diagnostic tool。

to help you figure out what areas of the financial statements you need to look into further， but。

they're rarely going to provide you all the answers。 Now let's talk about how to misuse ratios。

Not that I recommend that， I just recommend avoiding this problem。

So one of the ways that people often misuse ratios is they don't realize that standard。

ratios actually can have multiple definitions。

There's no standardization or gap for ratio definitions。

Different sources will use different definitions。 You want to always make sure you're using the same definition across time and across。

companies to make valid comparisons。

Also choosing the appropriate benchmark for comparison is important。

Many major changes in the firm can distort a time series analysis。

Differences in business strategy， capital structure or business segments can make it。

hard to do a cross sectional analysis。 And then any differences in accounting methods。

either across time or across companies， can。

make the comparisons difficult as well。

That preceding passage was a fair bid to abstract for me。

Can you elucidate this farther with some relevant concrete examples？ Yes， yes I can。

So for major changes in the firm， imagine a software company goes out and acquires a。

hardware company so that they can integrate their software into the hardware。

The problem is that this would make it a fundamentally different company which changed。

the amount of manufacturing capacity and the amount of inventory and the ratios wouldn't。

make sense anymore。 All they would tell you is that the company is a different firm if you look over time。

I'll talk about differences in business strategy and example later in the video。

As far as differences in accounting method， one of the ones we talked about earlier in。

the course was some companies have brand names on their balance sheet if they acquired them。

externally in acquisitions whereas other companies don't have them。

That's a difference that would affect almost all the ratios that we look at and you'd have。

to probably pull the brand name asset out of the one company in order to make meaningful。

cross sectional comparisons between the two。

The final thing to keep in mind is that ratios can be manipulated by managerial action。

So if a company's managers think that investors and analysts are all focused on the same one。

ratio like let's say an interest coverage ratio， then those managers have incentives。

to manipulate their accounting numbers to make that ratio look good。

So always keep in mind that manipulation is a possibility and more importantly don't just。

focus on one ratio but look at the whole body of ratios because it's hard and in fact。

impossible to manipulate every single ratio to make it look good。

Let's talk now about specific ratios starting with return on equity。

So is a net income of 10 million dollars good or bad？

I could live with 10 million sounds like a great net income to me。 Yeah。

if you were running a lemonade stand where your only assets were a table， a pitcher， some glasses。

a bunch of lemonade and maybe a cool letterman's jacket， then 10 million。

in net income would be pretty sweet。 But if you were running a company with billions and billions and billions of dollars of assets。

10 million dollars would be pretty meager for net income。

So to assess whether 10 million dollars of net income is good or bad， we need to know。

how much investment was required to get that level of net income。

So to assess whether a level of net income is good or bad， it depends on the level of。

investment required to get that net income。

And that's what return on equity is going to tell us。

Return on equity is defined as net income divided by average shareholders' equity。

The numerator represents how much return the company generated for its shareholders during。

the year based on a cruel accounting。

So that's the net income number that we've generated through the course。

The denominator represents the shareholders' investment in the company。

Now one of the problems we run into is net income happens over a period of time， whereas。

stockholder's equity is at a point in time。

So we have to take an average of the beginning and ending balance of shareholder equity to。

approximate its level during the period we were generating in the net income。

This RWE measure measures a return on investment。 And it's something that should increase with the risk of the company。

For example， I could take a dollar and put it in a savings account with a bank and I'd。

get roughly one cent of interest。 So my return on investment would be one cent。

If I'm going to take that same dollar and invest it in a company， I'm taking much more。

risk and so I should get much higher return。 I should get an RWE much higher than 1%。

So RWE is a great starting point because you compare across all of your investments and。

hopefully the RWE is high enough to compensate you for the risk that you're taking investing。

in the company。 Now we're going to divide RWE into two drivers to figure out whether a company is getting。

high or low RWE due to operating performance or due to leverage。

So the first driver of RWE is operating performance， which answers the question of how effectively。

do managers use the company's resources， in other words their assets， to generate profits。

The ratio that we look at here is return on assets or ROA。

RWE is defined as net income divided by average assets。

So what it tells you is for each dollar of assets the manager has to play with， how much。

net income do they generate？

The second driver is financial leverage。 This answers the question。

how much do the managers use debt to increase available assets。

for a given level of shareholder investment？

Financial leverage is defined as average total assets divided by average stockholders'。

equity。 So for each dollar of stockholders' equity， how much assets does the company have？

Now the only way that this can be greater than one is if the company also borrows money。

takes on liabilities。 So this is a measure of leverage in terms of it measures how much debt the company is。

taking on to buy more assets than it has in terms of dollars of equity。

One note is that this leverage ratio is very different from the other leverage ratios that。

we're going to be talking about this week。

It's going to work for what we're doing with RWE， but we're going to use other ratios when。

we want to measure other kinds of risk due to leverage。 Pardon me。

my sister just texted me back that you need to delete the net income in RWE。 Moreover。

she said debt to equity is a better leverage ratio than your financial leverage。 You know。

I agree with your sister on this one。 We do need to de-lever in that income for RWE。

but we'll get to that later。 For now， I want to keep it simple so that you can see the two drivers of RWE。

And yes， there are better measures of leverage for assessing things like bankruptcy risk。

and long-term liquidity， and we'll also get to those later。

But the financial leverage measure that we're looking at here is the right measure if we。

want to see how much of RWE or return on equity is driven by the company going out and borrowing。

money， company going out and levering up。 Let me show you a picture to tie this together。

So we start with return on equity， and that can be split up into components， operating。

performance which is return on assets， and the financial leverage component。

And so you see in the equation we have RWE equals net income over assets times assets。

over equity。 The assets cancel and we get RWE equals net income over equity。

Let me do a quick example。 The company raises $100 from shareholders。

borrows $100 from a bank to buy $200 of assets。

Those assets are then used to generate $10 of net income。

So RWE in this case would be 10%， $10 of net income divided by $100 from shareholders。

RWE would be 5%， $10 of net income divided by 200 of assets， and leverage would be 2。

$200 of assets divided by $100 of shareholders equity。

Multiplying it together， 5% RWE times a leverage of 2 gives you an RWE of 10%。

And this highlights how these two components drive RWE。

So let's say instead of buying $200 of assets with $100 of shareholders equity， we bought。

$400 of assets。 We borrowed 300 from the bank， combined that with a 100 from shareholders to buy 400 of。

assets。 Now our leverage is 4。

If we can maintain the same RWE of 5%， our RWE would go up to 20%。

Or let's say that we keep leverage at 2， but we find a way to operate the business more。

efficiently to get the performance or the RWE up to 10%。

Then we'd have 10% RWE times a leverage of 2 would give us RWE of 20%。

So either operating performance or leverage can get you to a high RWE。

I am completely and utterly flambousal to buy your example。

Did you not inform us mere seconds ago that one must utilize average balances？

Really sorry to flambousal you， but I was trying to keep it simple。

I was trying to do an example which clearly shows how these two factors， RWE and financial。

leverage， combine to drive RWE。 And yes， if I was doing these ratios in practice。

I would take the average of the beginning and， the ending balance for both assets and for equity。

Next， we're going to look more carefully at the return on assets component， which also。

can be separated into two drivers。

The first driver is profitability。 How much profit does the company earn on each dollar of sales？

The ratio we're going to use here is return on sales or ROS， which is defined as net income。

divided by sales。

So what it's telling you is for each dollar of sales， how much net income do you generate？

The other driver of return on assets is efficiency。 This answers to the question。

how much sales does the company generate based on its available。

resources？

The ratio here is called asset turnover， which is defined as sales divided by average total。

assets。 So for each dollar of assets， how much in sales does the company generate？

Now I'm going to go through an example of how to do this in a little bit， but first I。

have to deal with that complication that came up in the question earlier。

So ideally， return on assets would measure operating performance independent of the company's。

financing decisions。 We want to measure RWE。 That's not at all affected by financial leverage。

The problem is the numerator of ROA， net income， includes interest expense。

If you have more leverage， means you have more debt， more debt means higher interest。

expense， higher interest expense means lower net income， and so now your leverage is affecting。

your net income。 So to remove the financing effects from ROA， we have to delever net income。

So we're going to define ROA as delever net income divided by average assets， where delever。

net income is net income plus one minus t times the interest expense， where t is the tax rate。

So what we're doing is taking after tax interest expense and adding it back to net income， then。

when we use this delever net income as the numerator in ROA， we get a measure of operating。

performance that's not contaminated by the company's financing decisions。

Ideally， you could explain this one minus t stuff， and it would not have to explain what。

delever means and why we have interest expense to delever。 Yeah。

I know the formulas are a little bit abstract， so let's go through an example and。

see how this works。

Here's a quick example to show why we need to delever net income to remove the effects。

of financing decisions。 Let's say we have two companies。

one that has no debt and one that has some debt。

Both companies have the same pre-tax， pre-interest income， so their performance seems identical。

in an operating sense。

Then the no-debt company obviously has no interest expense， so their pre-tax income， is 300。

We take off taxes at 35% and their net income is 195。

For the company that has some debt， they have interest expense， so if they had 50 of interest。

expense， their pre-tax income would only be 250。 We take off taxes and their net income is only 162。

5。

So if we use net income in the numerator for ROA， then ROA is going to be affected by the。

fact that the some debt firm has some borrowing。

Now if you look in the last row， we're going to calculate delivered net income。

We don't have to do anything for the no-debt firm because it has no interest expense。

For the some debt firm， we take net income plus interest expense times 1 minus the tax。

rate and we end up with delivered net income of 195， which is identical to the delivered。

net income for the no-debt firm。 So using delivered net income in ROA gives us a measure of ROA that only measures operating。

performance。

Now when we use ROE， we do want the interest expense in there because ROE does want to reflect。

the effective financing。 So we take the financing out of ROA， but we leave the financing in for ROE。

Now I'm going to try to tie all of this together with something called the DuPont Racial Analysis。

Framework。 Hey， is this the same the point that makes the model airplane blue？

It is pronounced DuPont， it is named after a Leo Saria Irena DuPont。

Thanks for the correct pronunciation there Renee。 But yes。

this formula was developed by people that worked for the DuPont chemical company。

back in the 19th century。 In 1914， DuPont bought a big stake in this startup company called General Motors。

which， eventually became the largest car company in the world。

And when the DuPont management team started working with General Motors， they would use。

this formula a lot so much so that the GM people would say， "Hey， give me the DuPont。

formula analysis。"， And that's where the formula got the name and we've continued to use it since then。

So anyway， we've seen that return on equity has two drivers， return on assets and financial。

leverage。 And return on assets has two drivers， return on sales and asset turnover。

So the DuPont formula is that ROE equals net income over sales， which is profitability。

times sales over assets， which is efficiency， times assets over equity， which is leverage。

And what this allows us to do is identify whether a company's advantage or disadvantage。

in their ROE is driven by their profitability， by their efficiency， or by their leverage。

Will you elucidate this farther with a relevant concrete example of how one might utilize。

this DuPont formula？ Yes， now I'm going to do an extended example of how to use the DuPont formula。

which will， also allow me to show you the importance of choosing firms that are using the same business。

strategy when you want to do a ratio analysis comparison。

So I'm going to talk about the retail industry。 There's a couple big segments within the retail industry。

One segment would be discount retailers。 So those are the stores that have MART in their name and try to compete on low prices。

And another segment are the high-end retailers， the ones that are located in the really expensive。

shopping districts。 Let's start by talking about the discount end of the market， the MART stores。

So their strategy is very low profitability。

They have a small markup over cost and their strategy is to get you into the store with。

their low prices。 So how do they get high ROE？

By very high asset turnover。 In other words， they generate a huge amount of sales for their investment in assets。

How do they do that？ Whether assets are things like fairly simple stores that are not constructed from fancy。

materials， they're located in world districts where the land is pretty inexpensive。

And then when you go into the store， you don't see a lot of fancy schmancy displays。

The merchandise is just sort of crammed in there。

And they're really set up to try to maximize the volume of sales for their level of investment。

in assets。 So if you were looking at a discount type store， you'd want to compare it to another。

company doing a discount strategy to see if the company is able to get a little bit extra。

profitability even though it's low in absolute terms。

Or if they're able to get much higher asset turnover， either one of those would give them。

an ROE advantage over their competitor。

In the opposite end of the spectrum， you have the high end retailers。

Now what I've heard that these stores are like， and I don't think I've actually ever。

been in one because I order all my clothes over to the internet， but what I've heard。

is that they're really nice stores。 They're constructed of expensive materials， marbles， woods。

They're located in very expensive real estate areas。

The merchandise is not crammed in there。

Very nice， elegant displays。 Their asset turnover。

the amount of sales they generate for their investment in assets。

is fairly low。 But when they make a sale， it's hugely profitable。

They have very high markup over cost。

So if you were looking at a high end retailer， you'd want to compare it to another high end。

retailer to see it if they're able to squeeze out even higher markups or if they're able。

to squeeze out a little bit more asset turnover even though it's lower in absolute terms。

So the DuPont formula allows you to look at these different drivers of ROE and as long。

as you're comparing companies that are doing the same strategy， find out where companies。

competitive advantages or disadvantages lie in trying to execute their business model。

Now that we have the basic framework down， what we're going to do in the next couple。

of videos is look at a case study of a company that had some real troubles in their business。

but then they changed their strategy， had a nice turnaround and now they're performing， very well。

So we'll use the DuPont analysis to figure out exactly what parts of their strategy really。

help to kickstart their turnaround。 I'll see you next time。 See you next video。 Bye。

沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P73：25_4 2 Plainview技术案例部分1.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c

Hello and Professor Brian Buchay， welcome back。 This video kicks off a three video sequence where we're going to use ratio analysis to。

study the case of a growth company and see what we can learn about the sources of their。

competitive advantages and disadvantages。 I can't wait， let's get started。

Let's start with some background on plain view technology。

The plain view manufactures IRIS scanning equipment for biometric identification。

In 2009， plain view lost its largest customer， a defense contractor， which accounted for。

half of its business。 The customer transferred its business to a foreign competitor which had lower labor。

costs。 Plain view management responded by increasing automation。

They also built new plants in California and South Carolina to be closer to their customers。

Plain view expanded into new industries， healthcare， financial institutions， nuclear。

power。 They switched from high volume standard products to smaller batch customized products。

In 2010， plain view adopted new 6G technology which provides better manufacturing results。

at a lower manufacturing cost。 The company's experienced explosive growth after surviving its crisis and has now picked。

up a greater following by analysts and investors。

A new analyst is just a few hours to prepare before participating on a conference call。

with plain view technology management。 The only information they have are the financial statements and ratios。

Based on the ratios， what seems to be the secret of the company's turnaround and what。

questions would you ask management during the call。

Before we take a look at the ratios， I always think it's a good idea to start with the financial。

statements。 Take a look at the balance sheet， the income statement and cash flow statement to see if。

there's any trends that jump out at us or seem unusual。

Then we can keep those in the back of our mind as we go through the ratios。

So here's the asset side of the balance sheet for plain view。

I'm going to put up the pause sign and recommend that you pause the video。

Take a minute or so to look over the balance sheet and see if there's anything that jumps。

out at you and then resume the video and we'll talk about what you're seeing。

It certainly appears that PP and E has grown substantially。

There also is a huge jump in inventory and accounts receivable after 2009。

Yes， but the whole company has gotten bigger。

Look at total assets。 Do you have a point that you are trying to make？ Yes， Dave， I do have a point。

My point is that the balance sheet is a good starting point to try to look at what's going。

on in the company。 Eric noted that there were big increases in accounts in inventory。

Elizabeth noted that there were big increases in PP and E。 We probably want to understand。

those。 But you're right that if the company is growing so much as a whole it's hard to interpret。

the balance sheet。 And so later on we'll look at techniques that will take out the effects of this growth。

and let us know whether light items on the balance sheet are growing faster or slower。

and other light items。 Here is the liabilities and stockholders equity side of the balance sheet。

So please again pause the video， take a look and see what you find。

Well， I would say that long term debt and paid in capital have grown tremendously。

Hey， I wanted to go first this time。 This payable has grown similar to inventory and accounts receivable。

but current liabilities。

are actually down in 2011。

But you are going to pop it and tell us again that the whole company is growing and we can't。

learn anything until we remove the effects of growth and yada yada yada。

Yes， that's what I was going to say that it's hard to draw too many conclusions from this。

part of the balance sheet without taking out the effects of growth。

But there are a few things that sort of leap out as we look through this。

So for instance， current liabilities went down even though the company grew substantially。

So there are some things that you can occasionally learn by looking at the balance sheet as a。

starting point。 Next we're going to look at the income statement。

Here are the last three years of income for Plainview。

Please pause the video and see what trends leap out of you。 Well， it looks like。

It looks like sales， gross profit， operating income and net income are all growing stupendously。

And yes， we will have to remove the effects of growth to understand this better， which。

we'll do later in the video。

Next we have the statement of cash flows。

We're going to start with the operating section that shows you cash flows from operating activities。

Please pause the video and take a look。

Ladies first， even though net income has been growing steadily， cash from operations is。

for lack of a better term， quite squirrely。 Is that some strange jargon for volatile？

Look at those big negatives for inventory and accounts receivable。

Yes， those negatives match the growth we saw on the balance sheet。

Now I think we are getting somewhere。 We are getting somewhere。

We see a lot of volatility in cash flows and it looks like a lot of it is driven by accounts。

receivable and inventory， which we saw big movements on on the balance sheet。

We are getting somewhere。

Here are the investing and financing sections of the statement of cash flows along with the。

supplemental disclosures of cash interest paid and cash taxes paid。

So again， pause the video and take a look。

Although lumpy， the capital expenditures proceeds from borrowing and common stock issued。

mere the growth in PP&D， debt and equity on the balance sheet。

Yes， this part of the statement shows us the company's growing substantially through capital。

expenditures。 We don't see any acquisitions listed here， so it's all internal cap X。

which makes sense。

because from the case we know that they built two new factories。

And they're financing this growth with both debt and equity。

So we see a lot of cash flow from debt issuances and we see some cash flow from a couple of。

equity issuances。 So they're financing themselves with both debt and equity。

Now that we've taken a look at all the financial statements， I want to talk about something。

called common size financial statements。 As we've talked about。

it's hard to spot trends in the financial statements when there's。

tremendous growth。 Basically the growth in assets and growth in sales drive trends in all of the other line。

items。

What we really want to know is are certain line items growing more or less than would。

be expected given the overall growth in assets or sales。

So we're going to come up with a common size balance sheet where we'll express all numbers。

as a percent of total assets which will remove the effect of the growth in assets。

We'll come up with a common size income statement where we express all numbers as a percent of。

sales， thereby taking out the growth in sales。

The cash flow statement is typically not common sized。

It's not as susceptible to growth and it's not clear what we would divide by to common。

size it。 So it's only the balance sheet and the income statement that are typically common sized。

Here's the common size balance sheet for plain view， specifically the asset side。

So why don't you pause and take a look。

Even though P。P。 and E was growing so much， this makes it look like it is shrinking。

It is really inventory that is growing splendidly。

Yes Elizabeth， nice catch。

It is inventory whose growth is out of whack compared to the rest of the company。

And we saw earlier that inventory had negative effects on cash flow。

So we're going to want to pay close attention to what's going on with inventory as we go。

through the rest of these videos。

Here is the liability and stockholder's equity side of the common size balance sheet。

So again， pause， take a look and see what you see。

These numbers look much more， as Elizabeth would say， squarely。

The biggest trend is the increase in liabilities relative to equity。

Yes Eric， the big conclusion we would draw here is that the numbers seem to be squarely。

on the liability and stockholder's equity side。

There doesn't seem to be a lot of clear trends。 The numbers are bouncing up and down。

The only trend that really emerges is total equity has gone down as a percent of liabilities。

and stockholders' equity over time which means the company is relying more on debt financing。

and other liabilities and less on equity financing。

And here is the common size income statement where everything has been divided by sales。

Please pause and take a look。 Gross profit percentage has gotten bigger。

But isn't this a video on ratios？

When are we going to start looking at ratios？ Well Dave， these technically are ratios。

We're dividing numbers by sales and anytime you divide one number by another number it's。

a ratio。 But you picked up the key thing here which is there is a clear increasing trend in the。

gross profit margin ratio and that increase in gross margin has driven the increase in。

operating income ratio and the net income ratio。

We're going to look at this more as we go through the videos。

Finally we have the DuPont analysis。

Here is the return on equity for playing view and then it's broken down into all of its。

components with the definitions at the bottom of the slide。

When you pause the video for a minute or two take a look at the slide and see what kind。

of conclusions you draw。

I'm going to go ahead and pop in here and analyze this one。

For return on equity we see a large and increasing trend in RLE over the three year period。

It started at eleven percent which meant that for every dollar of equity the company generated。

eleven cents of net income and now it's sixteen percent。

So for every dollar of equity the company generates sixteen cents of net income。

So each dollar of equity is generating an extra nickel of net income which is a pretty。

big increase over a three year period。 Now let's look at the two drivers of RLE return on assets and financial leverage to see if。

playing views increase in RLE is due to better operating performance or to taking on more。

debt。

So for return on assets we see that it increased from seven percent to almost ten percent which。

means that every dollar in assets is now generating about ten cents of net income for。

playing view compared to only seven cents a couple years ago。

So clearly there's been an improvement in operating performance。

If we look at financial leverage it's been fairly flat over this period around two point。

three。 For every dollar of equity， playing view has two dollars and thirty cents of assets which。

means they're taking on about a dollar thirty at that and that really hasn't changed。

So it seems like the increase in RLE is primarily driven by the improvement in return on assets。

Now let's look at the two drivers of return on assets， return on sales and asset turnover。

We see another increasing trend in return on sales which means that playing view sales。

have become more profitable over this period。

ROS has gone from five percent to almost seven percent so each dollar sales now generates。

almost seven cents of net income instead of five cents。

What's two cents？ Well if you multiply it times a hundred million in sales it adds up pretty quickly。

Now if we look at asset turnover it briefly went up but then came back down to around。

one point four five which means that for every dollar of assets playing view generates。

about a dollar forty five in sales。 So there's no clear upward trend in asset turnover。

So it looks like the sole secret to playing view success with their RLE is that their。

sales have become more profitable over this period。

You said last video that RLE equals R08 times financial leverage。

In 2011 9。68 times 2。28 is 22。1 not 16。4。

Just another and a long line of your mistakes。

So it actually isn't a mistake it's a simplification。

So if you remember from last video the return in return on equity is net income but the return。

in return on assets is delivered net income which is net income plus after tax interest。

expense。 Because the returns are different it won't multiply together。

To get it to multiply together cleanly you'd have to add a third factor or a correction。

factor which would be net income divided by after tax net income。

If you multiply that third factor times ROA and financial leverage then you will get RLE。

Didn't plan view adopted new 6G technology？ Maybe every company in the industry have better profitability as a result of the new technology。

Excellent point Elizabeth what we talked about in an earlier video is that we need to do cross-sectional。

comparisons。 So what I'll do next is compare playing view to three of their closest competitors。

If you look at the industry it looks like playing view is having much more success than。

their other three competitors。 They're the only company that had an increase in RLE over this time period。

Their ROA was also up whereas two of their competitors were down and one was up and then。

down。 They're the only company that had an increase in return on sales。

The other three companies were either down or flat and there doesn't seem to be much。

difference in terms of asset turnover。

So to wrap up what we learned from the DuPont analysis is that the big increases in RLE for。

playing view were unique for the industry。

Playing view was clearly doing something that the rest of the industry was not able to do。

Playing views improved ROA was the source of its increase in RLE。

It didn't take on more debt it didn't lever up because financial leverage was largely unchanged。

Yet the ultimate source of the RLE increase was improvement in profit margin or return。

on sales。 In contrast to the competitors， playing views return on sales grew dramatically over this。

period whereas its asset turnover was flat much like the competitors。

So the secret to playing view success is that their sales became much more profitable between。

2009 and 2011。

Okay， but how were they able to make their sales more profitable？ Can ratio analysis tell us that？

Well， I do have a few more ratios up my sleeve and we can take a look at those in the next， video。

Yes， let's wrap up here and I'll see you next video when we continue the ratio analysis for。

playing view technology。 See you then。 See you next video。 Bye。 You， [ Silence ]。

沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P74：26_4 3 Plainview技术案例部分2.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c

Hello and Professor Brian Michay， welcome back。 In this video。

we're gonna continue our ratio analysis， of plain view technology。

We've got a lot of ratios to get through， so let's get started。 Let's start by bringing back up。

the DuPont ratio analysis slide。

I've added a couple boxes to what we had last time。 Below return on sales。

we have some additional ratios。

that'll let us drill down into profitability， things like gross margin and various expense ratios。

And below asset turnover， we can look at turnover ratios for individual assets。

like receivables and inventory， and liabilities like accounts payable。

We're gonna start by looking at the profit margin ratios。

to try to figure out what are the drivers， of plain views profitability。

Most of these ratios are gonna come straight， from the common size income statement。

We're gonna look at gross margin。

which is sales minus cost of goods sold divided by sales， which gives us a sense of the markup。

of the selling price over cost。 We'll look at selling general administrative expenses。

to sales， so SG&A expense to sales， to get a sense for how much operating expenses。

are as a percent of sales。 The combination of those two is operating margin。

which is operating income over sales。 Then we'll also look at the ratio of interest expense。

to sales and something called the effective tax rate。

which is income tax is divided by pre-tax income。

Yes， yes。 We already saw all of these ratios。

of the common size income statement。 Will the entire video be this repetitious？

No， the whole video won't be repetitive， and it won't be repetitive either。

But these are the ratios from the common size， we looked at before。 We need to look at them again。

because to understand drivers of return on sales， we need to divide the various items。

on the income statement by sales as well。 Here are the profit margin ratios for plain view。

I have repeated all the definitions at the bottom。

I'm gonna put up the pause sign。 Why don't you take a look at the ratios。

and see what kind of things jump out at you。

One thing that leaps out at me is the steady increase。

in gross margin over the period。 Does anyone have any theories for what could explain。

this increase in gross margin？ Maybe the shifts to customized products。

and to customers in new industries， allow plain view to charge a higher price。

And it would certainly help that one large customer， does not have monotony power over plain view。

Ironically， plain view is probably afraid， to charge the defense contractor a high price。

for fear of losing the business。 No， you have it all wrong。

It is the shift to automation and the new technology。

that allowed plain view to reduce its manufacturing costs。

leading to a larger gross profit。 All excellent theories。

It could be that plain view is able to charge a higher price， for roughly the same cost。

And maybe that's by moving in new industries， or providing the customized products。

or by getting rid of the monotony relationship。 And monotony is the opposite of a monopoly。

where the customer has all the power instead of the flyer。

Or it could be something on the cost side。

where plain view is able to reduce costs， but charge around the same price。

So maybe it's the automation that's doing that， or it's the new technologies。

We're gonna have to look at a lot more ratios， to try to get more evidence。

on which of these theories is correct。

Let's look at the rest of the ratios。 The ratio of selling general administrative expenses。

to sales is completely flat over the period。

So as plain view has grown substantially， it's managed to keep its SG&A expenses in line。

and not have them grow faster than sales as a whole。 Then if we look at interest expense。

and effective tax rate， there's not much going on。 Interest expense is pretty flat。

And other than a blip a couple years ago， effective tax rate hasn't changed that much either。

• Could it not be the case， that a flat trend in SG&A would be back news？

If they were at economies of scale， we might expect the SG&A to sales ratio to go down。

• That's an excellent point， Elizabeth。 Usually when we look at a ratio。

and see that not much has changed， we assume that not much has changed。

But it could be the fact that plain view， should have gotten some economies of scale。 For instance。

they're able to grow their sales volume。

faster than they grow their sales force。 Or maybe they automated their accounts receivable collection。

so that they were able to reduce their SG&A costs， as they grew。

But lacking such information， we have to assume that this is just a flat trend。

and it's at least good news， that plain views SG&A hasn't grown faster than it's sales。

So our profit margin analysis tells us， that gross margin was the big driver of plain view success。

Now we have to think about what are some possible explanations。

for this improvement in gross margin。

Was plain view able to reduce production costs， while maintaining sales price？

So we'd have the question of did plain view， further automate its production？

Or were they able to raise the selling price， while keeping costs constant？ So we have the question。

did the entry into new markets。

the customized products allow a higher markup？

Or maybe it's a combination of both。 There are no more ratios in the income statement。

that would allow us to drill down even further。

So at this point， we're gonna have to search， for confirming or disconfirming evidence。

of these explanations elsewhere， in the financial statements and ratios。

And of course， if we were the analyst on the call。

we could actually ask management very specific questions。

about what the source of their improvement， in gross margin was。

That's it。 Can't the ratios tell us more？ I still don't know the answer。

to how they made their sales more profitable。 - I can't promise that we'll ever know for sure。

just by looking at the ratios。 Remember ratios allow us to ask better questions。

not necessarily give us the answers。 But I do have some more ratios we can look at。

• One place to look for further information。

on how plain view is doing， is to do a detailed asset turnover analysis。

Although plain views asset turnover ratio。

is steady over the period， looking at the detailed components of the ratio。

may give us more insight into what happened， with plain views turnaround。

For example， when there's dramatic increases in sales， like plain view had。

you often see lower inventory levels。

so production can barely keep up with sales。

and higher accounts receivable levels， because the company has to extend credit。

to risk your customers to fuel its sales growth。

And if you remember on the financial statements， we saw all this weird stuff going on。

with accounts receivable and inventory over the period。 So let's define the asset turnover ratios。

Basically what these ratios are gonna tell us， is how many times during a year。

a company cycles through its accounts。 For example， inventory turnover of eight。

would meant that it builds and sells inventory。

eight times during the year on average。 So we're gonna look at accounts receivable turnover。

which is sales divided by average accounts receivable。

Inventory turnover， which is cost of goods sold。

divided by average inventory， accounts payable turnover。

which is purchases over average accounts payable。

Purchases we're trying to get out the purchase， of new raw materials。

So we calculate that as the difference between ending， and beginning inventory plus cogs。

And then fixed asset turnover is sales divided， by average property plant equipment。

Here are the asset turnover ratios for plain view。

along with the definitions at the bottom。 I'm gonna put up the pause sign。

so you can take a look and see， what these ratios are telling you。

• I do not find these turnover ratios very intuitive。

I mean accounts receivable turns over six times。

What's that？ That's about 60 days on average。

Could we think about it that way？ - Yeah， I've never found these turnover ratios。

that intuitive either。 So I'm gonna recast them in a way that is more intuitive。

to me and hopefully will be more intuitive to you as well。

• So now we're gonna look at the same ratios。

from a different perspective。 We're gonna turn them into what are called。

days outstanding ratios。 These ratios will help answer the question。

how many days on average are given accounts outstanding？

For example， if you saw a days inventory of 45， it means that it takes 45 days on average。

from the time we start building the inventory， until we sell it。

So the days receivable outstanding ratio， or day sales outstanding ratio， which is often called DSO。

So if you've heard the term DSO， it's referring to this ratio。

It's just 365 divided by the AR turnover。

So 365 being the number of days in the year。 And in fact， that's how the days inventory。

and days payable ratios work as well。 We just take the turnover ratio and divide it into 365。

But by putting these ratios in days， we can come up with a new ratio called the net trade cycle。

This is the days receivable plus the days inventory。

minus the days payable。 The net trade cycle represents the gap。

between cash outflows， which are the days payable， and cash inflows。

which come from the days receivable。

that we need to bridge with short-term financing。

So in other words， the bigger the net trade cycle， the more borrowing you have to do。

I'll talk about this ratio more in the context of plainview。

Speaking of plainview， here are the days ratios for plainview。

These are the ones we're going to talk about in detail。

So why don't you pause the video and take a look at them。

Let's start on the top line with days receivable。

So days receivable for plainview， has gone down from 60 to 44 over this period。

Now， the 44 means that from the time plainview makes the sale。

it's 44 days until they collect the cash。

So they're collecting their cash 16 days more quickly， over this period。

Is that good news or bad news？

Well， it depends。 Remember， ratios on their own are not good news or bad news。

But instead， we want to figure out， what activity drove the change in the ratio。

and is that activity good news or bad news。 For example， this could be good news if plainview put。

in new collection efforts。 And as a result， they get paid more quickly。

It could be bad news if they've been restricting their sales。

to customers that pay more quickly。 And as a result， they've been giving up。

a lot of sales growth and profitability。 But let me ask you guys， what do you think caused this？

Clearly， it is the loss of the death-ense contract。

that allowed plainview to collect more quickly。 Such a large customer can practically dictate its payment terms。

Maybe plainview offer discounts for customers。

that paid more quickly。 Or it was the improvement in the economy。

After the financial crisis ended， customers had better financial health。

and it were better able to pay on time。

Those are all excellent theories。 Let's look at them one by one。

Elizabeth suggested it was losing the defense contractor， that allowed us to collect more quickly。

And certainly， if one big customer has power over us。

and refuses to pay more quickly， it's going to hurt our days receivable。

Once that customer leaves and we can choose other customers。

we can choose customers that pay more quickly。 Plus， plainview moved into new industries。

And one thing we could look at is maybe the companies。

in those industries just tend to pay more quickly。

Eric suggested that maybe we're offering discounts， for more quick payments。

The problem with that theory is that if we were offering discounts。

it would cut into our selling price， and cut into our gross margin。

But we see that plainview actually had。

an increase in gross margin。 Dave suggested it's the economy as a whole。

Well， we can check on that one as well。 Why don't we bring up three of plainview's competitors？

Because if it's the economy， this improvement in collection。

should be shared by everyone in the economy。

And as we can see， that's not the case。 Only plainview had an improvement in days receivable。

Their competitors did not。

So the most likely theory is that it's the fact， that we got rid of the defense contractor。

and moved into the new industries with new customers。

that's now allowing us to collect 16 days more quickly。

Next， let's look at days inventory。

Days inventory has increased from 81 days to 105 days。

which means from the first point， that plainview gets raw materials。

it's 105 days before the finished inventory， leaves the warehouse to go to the customers。

So plainview is having to hold inventory 24 days longer。 Is that good news or bad news？

Well， I guess it depends on what it reflects。 It would be bad news if the inventory wasn't selling。

but that's probably not the case， for plainview given their growth in sales。

It could be good news if they are ramping up， their inventory production in advance of future sales。

But what do you guys think is the explanation？

I think it was a shift to customization。 It takes longer to produce inventory。

when it is made in customized small batches。 Yes， that would make sense with a higher gross margin。

Plainview can charge more for our product。

because it is customized and takes longer to produce。

But it is peculiar that plainview holds inventory longer。

when its sales are growing so much。 I really like Eric's customization explanation。

for the increase in days inventory。

If you make customized products， they're going to take longer to make。

You have to make smaller batches， set up the machine for each batch。

bring in different raw materials， and you're just going to have inventory longer。

But as long as you're getting paid for that， you should see the gross margin increase。

which is what we see with plainview。 Elizabeth raises an excellent point。

that it's strange to see days inventory go up， when sales growth is also going up quite a bit。

What could explain that is the two new factories。

So maybe plainview sales are not at a level， that can support the two new factories。

to run around the clock， but we want to run them at capacity。 So maybe plainview is overproducing。

a little bit of inventory now， in anticipation of future sales。

Now let's look at the days payable ratio。

That's gone down from 55 days to 33 days。

which means that from the point plainview。

gets raw materials from its suppliers， it's 33 days until they send them a check。

to pay them what they owe them。 So plainview is paying its suppliers。

22 days more quickly than it did before。

What could explain that？ - No though， collect cash faster from customers。

pay suppliers more quickly。 - If buying view pays suppliers more quickly。

it might get to take advantage of discounts。

which would reduce inventory costs， and improve gross margin。

Hey， this is fun。 - Yeah， this is fun。 So maybe it is a simple matter。

that if you collect cash more quickly， you can pay your suppliers more quickly。 And in doing so。

you can take advantage of discounts。

as Eric pointed out。 And if you take advantage of discounts。

your raw materials costs less， which means your cost of goods sold is lower。

and your gross margin is higher。

So why doesn't everybody always take advantage， of discounts？ Well， there's a cost to it。

and that's what we're gonna look at， in this next ratio， the net trade cycle。

The net trade cycle is basically a measure。

of the number of days that you have to borrow， from a bank to meet a short-term cash shortfall。

So the net trade cycle is days inventory。

plus days receivable。 So that's basically the number of days。

from when you first get raw materials， to when you make the sale and then collect the cash。

So in PlayView's case， it's 105 days inventory。

44 days receivable， 149 days， from when you get the raw materials， to when you collect cash。

Then we subtract the days payable。

which is the number of days that you have， until you have to pay cash to your supplier。

That's only 33 days。

So 149 minus 33 creates a gap of 116 days。

That 116 days is the number of days， plainview has to go to a bank to borrow money。

And note that plainview is borrowing 30 days more now。

than they were a few years ago。 Hmm， is this good news or bad news？

• This is very odd。 Why would plainview pay its supplies more quickly。

when it would have to turn around， and borrow more money from the bank？ - Yeah。

the only way this would make sense for plainview。

is if the discounts that they get， by paying their suppliers earlier。

are greater than the extra interest， that they pay from borrowing from the bank longer。

And that's probably the case for plainview。 We saw earlier that their interest expense。

as a percent of sales has been fairly flat over time， indicating that they're able to borrow more。

without having it negatively affect， their interest rate or their interest expense。

So all in all， this seems to be a good thing for plainview。

whereby taking advantage of the discounts。

they're able to reduce their costs， and increase their gross margin。

• So what are the overall conclusions， that we can draw from this DuPont ratio analysis？

It seems that for plainview， the entry into new markets has produced higher margin sales。

with faster collections， and those faster collections are potentially allowing them。

to take advantage of discounts， but they have much longer production times。

and have to hold much more inventory。 There's still a couple puzzles out there。

How are they able to do this with 40%， and higher sales growth？

And why is their cash flow from operations so volatile？ Or as we said before， squirrely。

So at this point， we have a pretty good idea， of what's going on with plainview。

but it's only a pretty good idea。 We don't know specifics。

but we're at a point now where the ratio analysis。

will allow us to ask much better， much more specific questions。

to try to get to the bottom of what's going on， with the company。

• So can you tell us what happened？ - No， I'm not gonna tell you what happened。

because if this was real life， you would do the ratio analysis。

without knowing what was gonna happen， in the company's future。

The ratio analysis is not about the outcome， it's about the journey。

It's about using a systematic approach， to looking at ratios。

to try to figure out what may be working， or not working for the company。

but also to generate a good set of questions， that you would then follow up and do more research。

or try to contact the company to find out the answers。 So I'm gonna leave you hanging。

and not tell you what ended up happening to plainview。

So we just have one more video to do on plainview technology。

We haven't looked at any of the liquidity ratios yet。 So in the next video。

we'll introduce the liquidity ratios， and take a look at those ratios for plainview。

I'll see you then。 - See you next video。 [ Silence ]。