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003-Ratios & State - Analysis
003-Ratios & State - Analysis
3-2
Chapter Outline
o Cash Flow and Financial Statements: A Closer Look
o Standardized Financial Statements o Ratio Analysis o The Du Pont Identity o Using Financial Statement Information
3-3
Other CA Total CA
Net FA
303 2,256
3,138
1,995 843
2,556
1,775 1,091
2,167
Total Assets
5,394
5,394
5,033
Expenses
Depreciation EBIT Interest Expense Taxable Income Taxes Net Income EPS Dividends per share 3.61 1.08
(1,740)
(116) 1,138 (7) 1,131 (442) 689
o Uses
Cash outflow occurs when we buy something
Financing Activity includes changes in notes payable, long-term debt, and equity accounts, as well as dividends
3-7
Investment Activity Sale of Fixed Assets Net Cash from Investments 104 104
o Useful in comparison of firms of unequal size or to compare a company through time as it grows.
o Common-Size Balance Sheets
Compute all accounts as a percent of total assets
2013
% 12.9 17.7 5.6 5.6 41.8
2012
% 58 992 361 264 1.2 19.7 7.17 5.24
Accounts
S-T Debt A/P N/P Other CL Total CL
2013
% 307 26 1662 1995 5.7 0.5 30.8 37
2012
% 303 119 1353 1775 6.0 2.4 26.9 35.3
Fixed Assets
L-T Debt
843
15.6
1091
21.7
Net Fixed
Asset Total
3138
5394
58.2
100
3358 66.7
5033 100
Common Stock
Tot Liab&Equity
2556
5394
47.6
100
2167
5033
43
100
EBIT
Interest Expense Taxable Income Taxes Net Income
1,138
(7) 1,131 (442) 689
22.8
0.0 22.6 8.8 13.8
2013
2012
Diff
A/P
N/P
307
26
303
119
4
-93
1.3
-78 22.8 12.4
Other CL
Total CL
1662
1995
1353
1775
309
220
L-T Debt L-T Debt Common Stock Tot Liab&Equity 843 2556 5394 1091 2167 5033 (248) 389 361 -22.7 18 7.2
Ratio Analysis
o Ratios allow for better comparison through time or between companies
o As we look at each ratio, ask yourself what the ratio is trying to measure and why that information is important o Ratios are used both internally and externally
3-15
o Debt/Equity = TD / TE
(5,394 2,556) / 2,556 = 1.11 times
ROE = 29.49%
ROA = 16.66%
EM = 1.77
PM = 6.97%
x
Sales = 1,204.35 Sales = 1,204.35
TAT = 2.39
NI = 83.96
TA = 503.96
Sales = 1,204.35
COGS = - 841.87
SG&A = - 227.04
Cash = 225.27
Inventory = 91.91
Interest = - (3.67)
Taxes = - 55.15
Other CA = 22.16
o External uses
Creditors
Suppliers Customers
Stockholders
3-28
Benchmarking
o Ratios are not very helpful by themselves; they need to be compared to something
o Time-Trend Analysis
Used to see how the firms performance is changing through time Internal and external uses
Potential Problems
o There is not a unique underlying theory. For example, there is no way to know which ratios are most relevant
o Benchmarking is difficult for diversified firms
o Globalization and international competition makes comparison more difficult because of differences in accounting regulations, but convergence observed
o Varying accounting procedures, i.e. FIFO vs. LIFO o Different fiscal years o Extraordinary events
Some qualitative factors that analysts should consider when judging the future financial performance of firms.
o Are the companys revenues tied to a single customer? o To what extent are the companys revenues tied to a single product? o To what extent does the company rely on a single supplier? o What percentage of the companys business is generated overseas? o etc
If it is an increase in Work-in-progress inventory, it may signal that managers expect an increase in sales,
If it is a build up in raw materials, it could suggest manufacturing/procurement inefficiencies; consequently an increase in COGS, lower margins.