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Working with Financial Statements

Explore the significance of financial statements, ratio analysis, liquidity, solvency, asset management, profitability, and market value. Learn to interpret balance sheets, income statements, and key ratios for informed decision-making. Dive into DuPont Identity and Growth Rate concepts for comprehensive financial analysis.

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Working with Financial Statements

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  1. Working with Financial Statements • Standardized Financial Statements • Balance sheet: Table 3.2 • Liabilities: % of ??? • Income statement: Table 3.4 • Expenses: % of ??? Working with Financial Statements

  2. Working with Financial Statements • Ratio analysis: what they tell / who cares.. • Liquidity • Solvency • Asset Management • Profitability • Market Value • Other • Intracompany/Intercompany/Industry Working with Financial Statements

  3. Working with Financial Statements • Liquidity • Current ratio • Quick ratio • Solvency • Debt • Times Interest Earned: EBIT/Int Exp Working with Financial Statements

  4. Working with Financial Statements • Asset Management • Inventory Turnover = COGS / Inv • A/R Turnover = Sales / A/R • Profitability • Profit Margin • ROA • ROE Working with Financial Statements

  5. Working with Financial Statements • Market Value • EPS • Trend… • P/E • Market capitalization • PEG • Beta • Other • Dividend payout: dividends/net income • Retention ratio: • Growth rate: EPS goes from $1.00 to $3.00 Working with Financial Statements

  6. Working with Financial Statements • DuPont Identity: what we need to know • ROE increases if… • Profit margin increases/decreases • Asset turnover increases/decreases • Leverage increases/decreases Working with Financial Statements

  7. Working with Financial Statements • Internal/Sustainable Growth Rate: what we need to know • Growth rate increases if… • Profit margin increases/decreases • Asset turnover increases/decreases • Leverage increases/decreases • Dividends increase/decrease Working with Financial Statements

  8. Issues with Financial Statement Analysis • Peer companies • Accounting methods Working with Financial Statements

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