financial statement analysis l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Financial Statement Analysis PowerPoint Presentation
Download Presentation
Financial Statement Analysis

Loading in 2 Seconds...

play fullscreen
1 / 25

Financial Statement Analysis - PowerPoint PPT Presentation


  • 280 Views
  • Uploaded on

Financial Statement Analysis. Managers Officers Internal Auditors. Shareholders Lenders Customers. Purpose of Analysis. Financial statement analysis helps users make better decisions. Internal Users. External Users. Purpose of Analysis. Outcomes.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Financial Statement Analysis' - sandra_john


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
purpose of analysis

Managers

Officers

Internal Auditors

Shareholders

Lenders

Customers

Purpose of Analysis

Financial statement analysis helps users make better decisions.

Internal Users

External Users

outcomes
Outcomes
  • Describe meaning and usage of financial statement analysis
  • 3 Types of Analysis
  • 5 Types of Financial Ratios
ratio analysis
numbers versus ratiosRatio Analysis

Why?

EX :

COMPANY

AA

BB

NET INCOME

$ 1,000,000

$ 10,000

TOTAL ASSETS

$ 5,000,000

$ 20,000

NI / TA

0.20 = 20%

0.50 = 50%

ratio analysis6
Ratio Analysis
  • Types of ratio analysis
    • Industry Comparative

You

Industry average

NI / TA

28 %

22 %

To compare with the average of the companies in the same industry

(your performance is higher or lower than the mean?)

ratio analysis7
Ratio Analysis
  • Types of ratio analysis
    • Trend or time series

YEAR

2001

2002

2003

NI / TA

22 %

23 %

25 %

To compare with yourself along the period of time

(your performance is improving or getting worse?)

ratio analysis8
Ratio Analysis
  • Types of ratio analysis
    • Cross-sectional

COMPANY

You

C1

C2

C3

NI / TA

28 %

19 %

22 %

36 %

To compare with your main competitors

(your performance is better or worse than them?)

types of financial ratios
Types of Financial Ratios
  • Liquidity
  • Asset Management (Efficiency)
  • Debt Management (Financial Leverage)
  • Profitability
  • Market Value
1 liquidity ratios
1. Liquidity Ratios

= Ability to pay current obligations (S-T debts; A/P, N/P)

By using current sources of cash (Current Assets)

  • Current ratio = CA ÷ CL

Example

You

Co1

Co2

Current ratio

1.20

1.00

0.70

Analysis

Good

Normal

Bad

  • Quick or acid-test ratio = (CA - Inventories) ÷ CL

Inventories are the least liquid current assets so exclude it out

2 asset management ratios
2. Asset Management Ratios

= Measure how efficient the assets can turn into sales

$$$ $$$

$$$$

$$$$

(Investment)

$ 1,000,000

(Sales)

$ 3,000,000

  • Meaning: investing $1 can generate sales $3
2 asset management ratios12
2. Asset Management Ratios
  • Inventory Turnover = COGS ÷ Inventory
  • Average collection period (ACP) = A/R x 365 ÷ S
  • Receivables Turnover = S ÷ A/R

Example: A/R = $100, Sales = $3,650

ACP = A/R x 365 ÷ S

ACP = $100 x 365 days ÷ $3,650

ACP = 10 days

0

10 days

  • Meaning:

Make sales today

Collect cash from customer

inventory turnover rate

Inventory

Turnover

Cost of Goods Sold

Average Inventory

=

Inventory

Turnover

$140,000

($10,000 + $12,000) ÷ 2

=

= 12.73 times

Inventory Turnover Rate

This ratio measures the number

of times merchandise inventory

is sold and replaced during the year.

average days sales in inventory

Average Sale Period

365 Days

Inventory Turnover

=

Average Sale Period

365 Days

12.73 Times

=

= 28.67 days

Average Days Sales In Inventory

This ratio measures how many days, on average, it takes to sell the inventory.

accounts receivable turnover rate

Accounts Receivable

Turnover

Net Sales

AverageAccounts Receivable

=

Accounts Receivable

Turnover

$500,000

($17,000 + $20,000) ÷ 2

=

= 27.03 times

Accounts Receivable Turnover Rate

This ratio measures how many times a company converts its receivables into cash each year.

number of days to collect receivables

Average Collection Period

365 Days

Accounts Receivable Turnover

=

Average Collection Period

365 Days

27.03 Times

=

= 13.50 days

Number of Days to Collect Receivables

This ratio measures, on average, how many days it takes to collect an account receivable.

2 asset management ratios17
2. Asset Management Ratios
  • Fixed Asset Turnover = Sales ÷ Fixed Assets
  • Total Asset Turnover = Sales ÷ Total Assets

Example

You

Co1

Co2

Sales

$ 3 m

$ 1 m

$ 1.4 m

Total Assets

$ 1 m

$ 1 m

$ 2 m

TATO

3.00

1.00

0.70

Analysis

Good

Normal

Bad

3 debt management ratios
3. Debt Management Ratios

= How much the firm has borrowed to make an investment

= Ability of a firm to meet total debt obligations (S-T & L-T)

  • Debt ratio = TL ÷ TA
  • Total Debt to Equity ratio = TL ÷ TE

Brown Co.

Green Co.

TL

TA

TL

TA

TA

$100,000

TL

$ 80,000

TA

$100,000

TL

$ 20,000

80 %

20 %

=

=

TE

$ 80,000

TL

TE

TL

TE

4x

0.25x

=

=

TE

$ 20,000

4 profitability ratios
4. Profitability Ratios

= Ability to earn profit generated from sales

= Ability to control costs, expenses

  • Gross Profit Margin
  • = Gross Profit / Sales
  • How many %profit left after paying cost of goods sold
  • Higher  good control of cost of goods sold
  • Lower  cost of goods sold are too high
4 profitability ratios cont
4. Profitability Ratios (cont.)
  • Operating Profit Margin
  • = EBIT / Sales
  • How many %profit left after paying cost of goods sold and operating expense
  • Higher  good control of both CGS and operating exp
  • Lower  CGS and operating expense are too high
4 profitability ratios cont21
4. Profitability Ratios (cont.)
  • Net Profit Margin (NPM) = NI to CS ÷ S

Ex :

Co. 1

Co. 2

Sales

100,000

100,000

- expenses

- 40,000

- 60,000

NI to CS

60,000

40,000

NPM

60 %

40 %

4 profitability ratios cont22
4. Profitability Ratios (cont.)
  • Return on Assets (ROA) = NI to CS ÷ TA

= How much is the profit from $ 1 total investment

Example :

Brown Co: TA = $100,000 NICS = $10,000

ROA =

10%

Green Co : TA = $100,000 NICS = $20,000

ROA =

20%

  • Return on Equity (ROE) = NI to CS ÷ CE

= How much is the profit from $ 1 owners’ investment

CE = Investment from Common Shareholders

= CS par + Paid in + RE

5 market value ratios
5. Market Value Ratios

= How much the investors value the firm in the market

= Tell you what investors think about the firm’s future

  • Price to earnings ratio (P/E) = Market price per share

Earnings per share

**Earnings per share = NI to CS ÷ # of Common Shares

= How much the investors are willing to pay for each $ 1 of earnings per share (EPS)

5 market value ratios cont
5. Market Value Ratios (cont.)
  • Dividend Yield (DY) = DPS

Market price per share

  • Dividend per share (DPS) = Dividends to CS

# of Common Shares

dividend yield

Dividend

Yield Ratio

Dividends Per Share

Market Price Per Share

=

Dividend

Yield Ratio

$1.50

$15.25

=

= 9.84%

Dividend Yield

Babson Builders pays an annual dividend of $1.50 per share of capital stock. The market price of the company’s capital stock was $15.25 at the end of 2007.

This ratio identifies the return, in terms of cash dividends, on the current market price of the stock.