HORIZONTAL ANALYSIS

Percentage Change = Most recent value – Base period value

Base Period Value

VERTICAL ANALYSIS
Total Asset=100%
Net sales=100%

FINANCIAL RATIOS (RELATIONSHIP)

Basic Rule
BS Amount, 12-31-20 IS Amount, 12-31-20
BS Amount, 12-31-20 IS Amount, 12-31-20

IS Amount, 12-31-20
(BS Amount, 1-1-20 + BS Amount, 12-31-20) / 2

Sales and purchase---not stated if made in cash or on credit, assumption

- Turnover (on Credit)
- Cash flow ratio (in Cash)

Operating year (360 days unless specified otherwise)

Liquidity
1. Current Ratio = Current Assets 10= 2.0 10=0.50
Current Liabilities 5 20

2. Quick/Acid Test Ratio = Quick Assets (Cash, Current Receivable and marketable securities)
Current Liabilities

3. Working Capital = Current Assets - Current Liabilities

Efficiency (working capital)

1. Receivable Turnover = Net Credit Sales 1000/20=50x
Average Receivables

2. Average age of Receivables = 360 days or Average Receivable

Receivable Turnover (Net Credit Sales/ 360 days)

3. Inventory Turnover = Cost of goods sold

Average Inventory

4. Average age of Inventory = 360 days or Average Inventory

Inventory Turnover (Cost of goods sold/ 360 days)

5. Normal Operating Cycle = Average age of Receivables + Average age of Inventory

6. Trade Payables Turnover = Net Credit Purchases
Average Trade Payables

7. Average age of Trade Payables = 360 days or Average Trade Payable

Trade Payables Turnover (Net Credit Purchases/ 360 days)

8. Cash Conversion Cycle = Average age of Receivables + Average age of Inventory - Average age of Trade
Payables

Solvency and Leverage

1. Debt Ratio = Liabilities/ Asset

2. Equity Ratio = Equity/ Asset

3. Debt to Equity = Liabilities/ Capital

4. Times interest earned = EBIT/ Interest Expense

Net Sales – COGS = GP – Ae – Me = EBIT - Interest Expense = EBT - Tax Expense = Net Income
ex. 50/5= 10x

Profitability
1. Return on Sales = Income/ Net Sales (vertical analysis)

2. Return on Assets = Income/ Average Assets

3. Return on Equity = Income/ Average Equity

4. Earnings per share = Net Income- Preferred Dividends

Wtd. Ave. Common Outstanding Shares

Dupont model

1 10 5 1
x x =
10 5 2 2 or 0.5
Marketability

1. Price earnings = Price per share/ EPS

2. Dividend Yield = Dividend per share/ Price per share

3. Dividend Payout = Dividend per share/ EPS 2/10=20%

4. Retention Ratio = EPS- DPS 10-2/10 8/10=80%

EPS

Stability

1. Book value per share = Common Shareholders’ Equity/ Common Outstanding Shares

2. Fixed Assets to Total Equity = Fixed assets/ total Equity