Page 66 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

52 The Complete Guide to Executive Compensation

common shares outstanding as well as by companies that have relatively flat stock-
price appreciation (perhaps because they are in the late stages of maturity or worse).
In the example, if year-end book value share prices were $8.39 and $8.99 for the
previous year and current year, respectively, the increase would be 60¢, or 7.2 percent.
• Book value to price ratio This is book value share price divided by market price of
the stock. In the example, with book value at $8.99 and market price at $10 per share,
the ratio would be 0.90 to 1.

• Book value share price This is shareholder equity divided by the average shares
outstanding during the year. In the example, this is $137,077,400 (Table 2-8) divided
by 15,250,000 (Table 2-1), or $8.99.

• Capital employed This is shareholder equity ($137,077,400 in Table 2-8) plus long-
term debt ($126,763,900 in Table 2-7), or $263,841,300. Some choose to use total non-
current liabilities ($170,237,400 in the example) instead of long-term debt to see how
management has used these available dollars. Capital employed is equal to total capital.

• Capital expenditures These are the dollars invested in noncurrent (long-term)
assets ($251,696,400 in Table 2-6).
• Capitalization ratio See Earnings price ratio.

• Cash flow As the words suggest, this is the net effect of cash received vs. cash paid
out during the year. Assets and expenses are a use of cash; liabilities, equity, and
income are a source of cash. An important cash flow figure is the net cash provided by
(or used by) the business ($23,608,600 in Table 2-2). Another interesting figure is the
net cash provided by (or used by) financing (outflow of $14,800,900 in Table 2-2) vs.
that used for investment (outflow of $8,244,100 in Table 2-2). In other words, to what
extent is the organization taking on debt to expand the business? The financing and
investment segments better relate to corporate than divisional measurements.
• Common stock This is the stated number of shares of ownership in the company.
For publicly traded companies, stock price is set by buyers and sellers on a listed stock
exchange. Each share has a voting right and may be eligible for a dividend, although
it is neither fixed nor guaranteed. In Table 2-1, there are 15,250,000 shares of
common stock outstanding.
• Cost of capital Interest on long-term debt plus an assigned value for common
stock. In the example, assume that long-term interest is $2,500,000 and common
stock dividends were $6,953,600 (Table 2-2); the cost of capital would then be
$9,453,600.
• Current assets This is cash and those assets that can be converted to cash within a
year. In the example in Table 2-6, this amount is $79,301,500.
• Current ratio This is current assets divided by current liabilities. In our example,
this is $79,301,500 (Table 2-6) divided by $23,683,100 (Table 2-7), or a ratio of
3.3 to 1.
• Debt The amount owed by the company that must be paid at some time in the
future. Typically, it is described in terms of short-term (portion due within a year) and