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Financial Statement Analysis

Financial Statement Analysis. Common Financial Statements. Balance Sheet Income Statement Statement of Retained Earnings Statement of Cash Flows Events?. Ratio Analysis. What is the main benefit of conducting ratio analysis? What are the major limitations of ratio analysis? See page 83.

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Financial Statement Analysis

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  1. Financial Statement Analysis

  2. Common Financial Statements • Balance Sheet • Income Statement • Statement of Retained Earnings • Statement of Cash Flows • Events?

  3. Ratio Analysis • What is the main benefit of conducting ratio analysis? • What are the major limitations of ratio analysis? See page 83.

  4. Liquidity Ratios • Current Ratio • Quick (Acid Test) Ratio

  5. Asset Management Ratios • Inventory Turnover Ratio • Days Sales Outstanding • Fixed Asset Turnover • Total Assets Turnover

  6. Debt Management Ratios • Why is it important to have a good understanding of a firm’s leverage position? • Debt to Assets • Times Interest Earned • Fixed Charge Coverage

  7. Profitability Ratios • Profit Margin on Sales • Basic Earning Power (BEP) • Return on Total Assets • Return on Common Equity

  8. Market Value Ratios • Price to Earnings • Market to Book • Look at summary for MicroDrive on p. 75.

  9. Trend Analysis • What can be learned from trend analysis? • What makes trend analysis so difficult in the short run?

  10. Du Pont Equation • Look at Du Pont chart on page 77. • Du Pont analysis allows us to see what is driving ROE. • Why is that important?

  11. Comparative Ratios and Benchmarking • What is benchmarking and why is it of value?

  12. Looking Behind the Numbers!! • Are the company’s revenues tied to one key customer? • To what extent are the company’s revenues tied to one key product? • To what extent does the company rely on a single supplier? • What percentage of the company’s business is generated overseas?

  13. What is the competition like? • What are the future prospects of the firm? • What is the legal and regulatory environment like?

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