34:["$","title",null,{"children":"BSM219: Management Finance With Visualization | ssmaroju | Observable"}] 3c:T49b,md` ## Working Capital

${tex.block` WorkingCapital = TotalCurrentAssets - TotalCurrentLiabilities `}

Working Capital is the difference between a company’s current assets, such as cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable. Working capital is a measure of a company's liquidity and refers to the difference between operating current assets and operating current liabilities. ${reference( "https://www.investopedia.com/terms/w/workingcapital.asp#:~:text=Working%20capital%2C%20also%20known%20as,liabilities%2C%20such%20as%20accounts%20payable.", "Investopedia, Working Capital" )}

A company has negative working capital If the ratio of current assets to liabilities is less than one.
Positive working capital indicates that a company can fund its current operations and invest in future activities and growth.
High working capital isn't always a good thing. It might indicate that the business has too much inventory or is not investing its excess cash.

`3d:[{"id":"f01546870ed86d866b8a0d9a041d1bfc5fcd953abba07727973d822aca773357c3ff9bf7bc2a02a7ce543fa697c3b97f6d4e7657425f3a19765e35de652b443b","href":"https://static.observableusercontent.com/files/f01546870ed86d866b8a0d9a041d1bfc5fcd953abba07727973d822aca773357c3ff9bf7bc2a02a7ce543fa697c3b97f6d4e7657425f3a19765e35de652b443b","name":"FinancialStatements_wide@10.csv","type":"text/csv","lastModified":1618848678235.871,"size":33986},{"id":"e1fd32f6456a517b42b75aaf645a92d7714fd28d9efa2cbd92df3e3d3e9e56d1ae1a6c051a27ed3b07e7d00dbd35f9330f94403f2f7542c4682cec3489c9192c","href":"https://static.observableusercontent.com/files/e1fd32f6456a517b42b75aaf645a92d7714fd28d9efa2cbd92df3e3d3e9e56d1ae1a6c051a27ed3b07e7d00dbd35f9330f94403f2f7542c4682cec3489c9192c","name":"FinancialStatements_long@4.csv","type":"text/csv","lastModified":1618878651096.36,"size":71776}] 38:{"id":"5557c95ecac3316b","slug":"bsm219-management-finance-with-visualization","title":"BSM219: Management Finance With Visualization","thumbnail":"54bbd9c0b04fb980aa890aba8ab704ec353e29a63eacc5dca8397b0bd0f94a08","access_level":"public","create_time":"$D2021-04-19T16:11:18.235Z","update_time":"$D2021-04-20T00:33:27.926Z","view_time":null,"first_public_time":"$D2021-08-25T20:42:23.156Z","has_unpublished_edits":null,"fork":{"id":"b0942e83b5a3974e","slug":"bsm219-management-finance","title":"BSM219: Management Finance","owner":{"id":"ce694ebde2a4846a","login":"ssmaroju","name":""}},"stars":0,"starred":false,"owner":{"type":"team","id":"ce694ebde2a4846a","login":"ssmaroju","name":"","avatar_url":"https://avatars-next.observableusercontent.com/a6f4bc88e40e5218b6b64386fadd3418060d24b9386d7b2f8756b0641d0681e0","tier":"starter_2024","bio":"","followed_by_you":false,"follows_you":false},"version":793,"publish_version":793,"role":null,"authored":false,"authors":[{"type":"individual","id":"66932f025db24b86","login":"ssmaroju","name":"","avatar_url":"https://avatars-next.observableusercontent.com/a6f4bc88e40e5218b6b64386fadd3418060d24b9386d7b2f8756b0641d0681e0","tier":null,"bio":"","followed_by_you":false,"follows_you":false}],"members":[{"type":"individual","id":"66932f025db24b86","login":"ssmaroju","name":"","avatar_url":"https://avatars-next.observableusercontent.com/a6f4bc88e40e5218b6b64386fadd3418060d24b9386d7b2f8756b0641d0681e0","tier":null,"role":"editor"}],"comments":[],"custom_thumbnail":false,"trashed":false,"lapsed":null,"subscribed":null,"forks":1,"collection":null,"type":"notebook","body":{"titling":"auto","title":"BSM219: Management Finance With Visualization","cells":[{"id":0,"value":"md`# BSM219: Management Finance With Visualization`","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":524,"value":"md `All the parameters from Income Statement, Balance Sheet, and Cash Flow are presented in million Pounds, except ratios, percentages and earnings per shares.\n

\nThis notebook is to document the learnings and it is a work in progress.\n

\n`","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":218,"value":"viewof Parameters = html``","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":781,"value":"viewof metricChart = groupedBar(longData, Parameters)","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":420,"value":"md `# Ratios and Metrics`","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":422,"value":"md `Here are some rations, %, and metrics used to compare performance of companies under the same sector`","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":429,"value":"md`\n## Change in Sales\n\n

\n${tex.block`\nChange-in-Sales = \\frac{Revenue_{CurrentYear} -Revenue_{PreviousYear}}{Revenue_{PreviousYear}} * 100\n `}\n

\n\nPercentage change in sales is the difference between the total revenue in the current year compared to total revenue from previous year over the total revenue from previous year.${reference(\n \"https://bizfluent.com/how-8105436-calculate-percentage-increase-sales.html\",\n \"bizfluent\"\n)}\n\n

\nChange in Sales % can be a positive or a negative number. A positive number indicates the the sales revenue is growing. On the contrary, a negative number shows declining sales.\n

\n\n`","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":470,"value":"md`\n## Change in EBIT\n

\n${tex.block`\nChange-in-EBIT = \\frac{EBIT_{CurrentYear} -EBIT_{PreviousYear}}{EBIT_{PreviousYear}} * 100\n `}\n

\nEarnings before interest and taxes (EBIT) is an indicator of a company's profitability. Percentage change in EBIT is the difference between the current EBIT compared to EBIT over the previous year. Degree of Operating Leverage is another metric that is closely related to Change in EBIT %.\n\n

\nChange in EBIT % can also be a positive or a negative number. A positive number indicates the the earnings before interest and taxes is growing. On the contrary, a negative number shows declining earnings before interest and taxes.\n

\n${tex.block`\nDoF = \\frac{EPS_{Current} - EPS_{Previous}}{EPS_{Previous}}\n `}\n

\nPercentage change in EPS is the difference between the current EPS and EPS over the previous year over the previous EPS.${reference(\n \"https://budgeting.thenest.com/calculate-eps-growth-rate-26172.html\",\n \"The Nest\"\n)} This ratio can be used to determine how quickly the EPS is changing and whether the company is becoming more profitable or less profitable for shareholders. \n\n

\nBy calculating the change in EPS as a rate rather than a raw number, you can better compare companies of different sizes.\n

\n${tex.block`\nDoL = \\frac{\\%ChangeInEBIT}{\\%ChangeInSales}\n `}\n

\nDegree of operating leverage measures the change in operating income to the change in total sales or revenue. ${reference(\n \"https://www.investopedia.com/terms/d/degreeofoperatingleverage.asp\",\n \"Investopedia, DoL\"\n)}\n\n

The degree of operating leverage measures how much a company's operating income changes in response to a change in sales. \n
The DOL ratio assists analysts in determining the impact of any change in sales on company earnings. \n
A company with high operating leverage has a large proportion of fixed costs, meaning a big increase in sales can lead to outsized changes in profits.\n

\n${tex.block`\nDoF = \\frac{\\%ChangeInEPS}{\\%ChangeInEBIT}\n `}\n

\nDegree of financial leverage measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income. \n${reference(\n \"https://www.investopedia.com/terms/d/dfl.asp\",\n \"Investopedia, DoF\"\n)}\n

This ratio indicates that the higher the degree of financial leverage, the more volatile earnings will be. \n
Since interest is usually a fixed expense, leverage magnifies returns and EPS. \n
This is good when operating income is rising, but it can be a problem when operating income is under pressure.\n

\n${tex.block`\nDebtRatio = \\frac{TotalLiabilities}{TotalAssets}\n `}\n

\nThe debt ratio is defined as the ratio of total debt to total assets. It can be interpreted as the proportion of a company’s assets that are financed by debt.${reference(\n \"https://www.investopedia.com/terms/d/debtratio.asp\",\n \"Investopedia, Debt Ratio\"\n)}\n\n

The debt ratio measures the amount of leverage used by a company in terms of total debt to total assets.\n
A debt ratio greater than 1.0 tells you that a company has more debt than assets.\n
Meanwhile, a debt ratio less than 1 indicates that a company has more assets than debt.\n
Debt ratios vary widely across industries, with capital-intensive businesses such as utilities and pipelines having much higher debt ratios than other industries such as the technology or services sector. \n

\n${tex.block`\nLongTermDebtRatio = \\frac{LongTermDebt}{LongTermDebt+ \\left(LiabilitiesAndShareholderEquity - Liabilities \\right)}\n `}\n

\nDebt service, also called as Interest cover Debt service is the cash that is required to cover the repayment of interest and principal on a debt for a particular period. ${reference(\n \"https://www.investopedia.com/terms/l/long-term-debt-to-total-assets-ratio.asp\",\n \"Investopedia, Long Term Debt Ratio\"\n)}\n\n

Debt service is the cash required to pay back the principal and interest of outstanding debt for a particular period of time.\n
The debt service ratio is a tool used to assess a company's leverage.\n
Lenders are interested in knowing that a company is able to cover its current debt load in addition to any potential new debt.\n
In order to carry a high debt load, a company must generate consistent and reliable profits to service the debt.\n

\n${tex.block`\nDebtService = \\frac{OperatingIncome}{InterestIncome(Expense),NetNonOperating}\n `}\n

\nDebt service, also called as Interest cover Debt service is the cash that is required to cover the repayment of interest and principal on a debt for a particular period. ${reference(\n \"https://www.investopedia.com/terms/d/debtservice.asp#:~:text=Debt%20service%20is%20the%20cash,service%20required%20on%20each%20loan.\",\n \"Investopedia, Debt Service\"\n)}\n\n

Debt service is the cash required to pay back the principal and interest of outstanding debt for a particular period of time.\n
The debt service ratio is a tool used to assess a company's leverage.\n
Lenders are interested in knowing that a company is able to cover its current debt load in addition to any potential new debt.\n
In order to carry a high debt load, a company must generate consistent and reliable profits to service the debt.\n

\n${tex.block`\nCurrentRatio = \\frac{TotalCurrentAssets}{TotalCurrentLiabilities}\n `}\n

\nThe current ratio compares all of a company’s current assets to its current liabilities. Current ratio measures a company's ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables.${reference(\n \"https://www.investopedia.com/terms/c/currentratio.asp\",\n \"Investopedia, Current Ratio\"\n)}\n\n

These are usually defined as assets that are cash or will be turned into cash in a year or less, and liabilities that will be paid in a year or less.\n
The current ratio helps investors understand more about a company’s ability to cover its short-term debt with its current assets and make apples-to-apples comparisons with its competitors and peers.\n

\n${tex.block`\nInventoryTurnover = \\frac{CostOfTotalRevenue}{\\left(\\frac{TotalInventory_{Current} - TotalInventory_{Previous}}{2}\\right)}\n `}\n

\nInventory turnover ratio shows how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.${reference(\n \"https://www.investopedia.com/terms/i/inventoryturnover.asp\",\n \"Investopedia, Inventory Turnover\"\n)}\n\n

A slow turnover implies weak sales and possibly excess inventory, while a faster ratio implies either strong sales or insufficient inventory.\n
High volume, low margin industries—such as retailers and supermarkets—tend to have the highest inventory turnover.\n

\n${tex.block`\nAssetTurnoverRatio = \\frac{TotalRevenue}{TotalAssets}\n `}\n

\nThe asset turnover ratio measures the value of a company's revenues relative to the value of its assets. The asset turnover ratio can be used as an indicator of the efficiency with which a company is using its assets to generate revenue.${reference(\n \"https://www.google.com/search?q=asset+turnover&rlz=1C1UEAD_enUS935US935&oq=ass&aqs=chrome.0.69i59j69i57j69i60l3.1417j0j4&sourceid=chrome&ie=UTF-8\",\n \"Investopedia, Asset Turnover\"\n)}\n\n

Investors use the asset turnover ratio to compare similar companies in the same sector or group.\n
A company's asset turnover ratio can be impacted by large asset sales as well as significant asset purchases in a given year.\n

\n${tex.block`\nROA = \\frac{NetIncome}{TotalAssets}*100\n `}\n

\nReturn on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's management is at using its assets to generate earnings. ROA is displayed as a percentage; the higher the ROA the better.${reference(\n \"https://www.investopedia.com/terms/r/returnonassets.asp\",\n \"Investopedia, ROA\"\n)}\n\n

ROA is best used when comparing similar companies or by comparing a company to its own previous performance.\n
ROA takes into account a company’s debt, unlike other similar metrics such as return on equity (ROE).\n

\n${tex.block`\nNetProfitMargin = \\frac{NetIncome}{TotalRevenue}*100\n `}\n

\nNet profit margin measures how much net income or profit is generated as a percentage of revenue. Net profit margin is the net income divided by the total revenue.${reference(\n \"https://www.investopedia.com/terms/n/net_margin.asp\",\n \"Investopedia, Net Profit Margin\"\n)}\n\n

Net profit margin helps investors assess if a company's management is generating enough profit from its sales and whether operating costs and overhead costs are being contained.\n
Net profit margin is one of the most important indicators of a company's overall financial health.\n

\n${tex.block`\nOperatingProfitMargin = \\frac{OperatingIncome}{TotalRevenue}*100\n `}\n

\nOperating profit margin is the operating income divided by the total revenue.${reference(\n \"https://www.investopedia.com/terms/o/operatingmargin.asp\",\n \"Investopedia, Operating Profit Margin\"\n)}\n\n

An operating margin represents how efficiently a company is able to generate profit through its core operations.\n
It is expressed on a per-sale basis after accounting for variable costs but before paying any interest or taxes (EBIT).\n
Higher margins are considered better than lower margins, and can be compared between similar competitors but not across different industries.\n

\n${tex.block`\nReturn-on-Capital = \\frac{NetIncome-Dividends}{TotalLongTermDebt + TotalEquity}*100\n `}\n

\nSubtract dividends from net income, add debt and equity together, and divide net income minus dividends by debt and equity.${reference(\n \"https://www.investopedia.com/terms/r/roce.asp\",\n \"Investopedia, ROC\"\n)}\n\n

\nA company's return on capital is an indicator of the size and strength of its ability to maintain competitive advantage over competitors to protect its long-term profits and market share from them.\n

\n${tex.block`\nReturnOnEquity = \\frac{NetIncome}{TotalEquity}*100\n `}\n

\nReturn on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity. ROE is considered a measure of the profitability of a corporation in relation to stockholders’ equity.${reference(\n \"https://www.investopedia.com/terms/r/returnonequity.asp\",\n \"Investopedia, ROE\"\n)}\n\n

Return on equity (ROE) measures the profitability of a corporation in relation to stockholders’ equity.\n
Whether an ROE is considered satisfactory will depend on what is normal for the industry or company peers.\n
As a shortcut, investors can consider an ROE near the long-term average of the S&P 500 (14%) as an acceptable ratio and anything less than 10% as poor.\n

\n${tex.block`\nCashFlowMargin = \\frac{TotalCashFromOperations}{TotalRevenue}*100\n `}\n

\nOperating cash flow margin is the operating cash flow divided by revenue.${reference(\n \"https://www.investopedia.com/terms/o/operating-cash-flow-margin.asp\",\n \"Investopedia, Cash Flow Margin\"\n)}\n\n

The operating cash flow margin reveals how effectively a company converts sales to cash and is a good indicator of earnings quality.\n
This ratio uses operating cash flow, which adds back non-cash expenses.\n
Operating margin uses operating income, which includes such expenses as depreciation.\n

${DOM.text(\n d.url.replace(/^http[s]\\:\\/\\//, \"\")\n )}`\n)}`","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":262,"value":"data = Object.assign(\n allData.filter(d => {\n return (d.metric === Parameters) & (d.Year > 2015);\n }),\n { y: Parameters }\n)","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":194,"value":"CF = allData.filter(d => {\n return d.Statement === 'CashFlow';\n})","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":188,"value":"BS = allData.filter(d=>{return ((d.Statement==='BalanceSheet'))})","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":183,"value":"IS = allData.filter(d=>{return ((d.Statement==='IncomeStatement'))})","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":6,"value":"allData = Object.assign(\n d3.csvParse(\n await FileAttachment(\"FinancialStatements_wide@10.csv\").text(),\n d3.autoType\n ),\n { y: 'Turnover' }\n)","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":682,"value":"longData = d3.csvParse(\n await FileAttachment(\"FinancialStatements_long@4.csv\").text()\n)","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":601,"value":"mutable data_ref = []","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":772,"value":"function groupedBar(data, metric) {\n var tickerColors = [\"#66DA60\", \"gold\", \"#3971CB\"];\n var thisChart = vl\n .markBar()\n .data(\n longData.filter(d => {\n return d.metric === metric;\n })\n )\n .encode(\n vl.column().fieldO(\"Year\"),\n vl\n .x()\n .fieldN(\"Ticker\")\n .axis({ title: null }),\n vl.y().fieldQ(\"Value\"),\n vl\n .color()\n .fieldN(\"Ticker\")\n .scale({ range: tickerColors })\n )\n .render();\n return thisChart;\n}","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":664,"value":"// vegalite = require(\"@observablehq/vega-lite@0.2\")","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":733,"value":"import { vl } from \"@vega/vega-lite-api\"","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":655,"value":"d3 = require(\"d3@6\")","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":606,"value":"superscript = \"⁰¹²³⁴⁵⁶⁷⁸⁹\"","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":599,"value":"function reference(url, title = \"\") {\n if (!data_ref.length)\n document.head.appendChild(html`\n`);\n let i = mutable data_ref.findIndex(f => f.url === url);\n if (i < 0) {\n i = mutable data_ref.push({ url, title });\n mutable data_ref = mutable data_ref;\n } else {\n ({ url, title } = mutable data_ref[i]);\n ++i;\n }\n const a = document.createElement(\"A\");\n a.className = \"reference\";\n a.title = title;\n a.rel = \"noreferrer\";\n a.target = \"_blank\";\n a.textContent = i.toString().replace(/\\d/g, i => superscript[i]);\n a.href = url;\n return a;\n}","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":463,"value":"// 2. Apply the l3css() so that its contents are used as html in your notebook\nhtml`${l3css()}`","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"},{"id":460,"value":"// 1. Import the l3css() function\nimport { l3css } from \"@neelsmith/l3-common\"","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","tool":"$undefined","providerMetadata":"$undefined","attachments":"$undefined","output":"$undefined","database":"$undefined"}],"files":"$W3d","stdlib":"1"}} 33:null