Professional Documents
Culture Documents
Financial Statement Analysis
Financial Statement Analysis
FINANCIAL
STATEMENT
ANALYSIS
17 - 2
C1
BASICS OF ANALYSIS
Application Involves
Reduces
of analytical transforming
uncertainty
tools data
C1
C2
Intracompany
Competitors
Industry
Guidelines
17 - 5
C2
TOOLS OF ANALYSIS
Horizontal Analysis
Comparing a company’s financial condition and
performance across time.
Vertical Analysis
Comparing a company’s financial condition and
performance to a base amount.
Ratio Analysis
Measurement of key relations between financial statement
items.
17 - 6
P1
HORIZONTAL ANALYSIS
17 - 7
P1
COMPARATIVE STATEMENTS
Calculate Change in Peso Amount
P1
COMPARATIVE STATEMENTS
Calculate Change as a Percent
HORIZONTAL ANALYSIS
17 - 10
1,498,
1,498, 000
000 –– 1,
1, 200,
200, 000
000 == 298,
298, 000
000
1,139,
1,139, 500
500 –– 1,
1, 230,
230, 500
500 == (91,
(91, 0000)
0000)
P1
TREND ANALYSIS
P1
TREND ANALYSIS
Adidas
Income Statement Information
Using 2009 as the base year we will get the following trend information:
Examples
Examples of of 2013
2013 Calculations
Calculations for
for Net
Net Sales:
Sales:
2009
2009 is
is base
base year.
year. Set
Set to
to 100%
100%
2013:
2013: (14,492
(14,492 ÷÷ 10,381)
10,381) ×× 100
100 == 139.6%
139.6%
17 - 14
P1
TREND ANALYSIS
P2
VERTICAL ANALYSIS
Common-Size Statements
P2 COMMON-SIZE
STATEMENT OF FINANCIAL POSITION
(1,587
(1,587 ÷÷ 11,599)
11,599) ×× 100
100 == 13.7%
13.7%
(1,670
(1,670 ÷÷ 11,651)
11,651) ×× 100
100 == 14.3%
14.3%
17 - 17
P2
(7,352
(7,352 ÷÷ 14,492)
14,492) ×× 100
100 == 50.7%
50.7%
17 - 18
RATIO ANALYSIS
Liquidity Solvency/leverage
Financial
Analysis
Profitability Efficiency
17 - 19
P3
P3
WORKING CAPITAL
Working capital represents current assets
financed from long-term capital sources that
do not require near-term repayment.
Current assets
– Current liabilities
= Working capital
More working capital suggests a strong liquidity
position and an ability to meet current obligations.
17 - 23
P3
CURRENT RATIO
Current Assets
Current Ratio =
Current Liabilities
P3
ACID-TEST RATIO
This ratio is like the current ratio but excludes current assets
such as inventories and prepaid expenses that may be
difficult to quickly convert into cash.
17 - 25
P3
Net sales
Accounts receivable =
turnover Average accounts receivable,
net
(Beginning acct. rec. + Ending acct. rec.)
Average accounts receivable =
2
P3
INVENTORY TURNOVER
Cost of goods sold
Inventory turnover =
Average inventory
P3
A short-term liquidity
measure used to quantify
the rate at which a company
pays off its suppliers.
17 - 28
P3
P3
P3
DAYS’ PURCHASES IN ACCOUNTS
PAYABLE
P3
P3
P3
SOLVENCY
Debt
Ratio
Equity
Ratio
Debt-to-Equity
Ratio
Times
Interest
Earned
17 - 34
P3
$8,000,000
$8,000,000 ÷÷ $12,000,000
$12,000,000 == 66.7%
66.7%
P3
DEBT-TO-EQUITY RATIO
Total liabilities
Debt-to-equity ratio =
Total equity
P3
P3
PROFITABILITY
Profit Return on
Margin Total Assets
Return on Ordinary
Shareholders’
Equity
17 - 38
P3
PROFIT MARGIN
Net profit
Profit margin =
Net sales
P3
P3
RETURN ON ORDINARY SHAREHOLDERS'
EQUITY
Net profit - Preference dividends
Return on ordinary shareholders'
Average ordinary shareholders'
equity =
equity
P3
MARKET PROSPECTS
Price-Earnings Dividend
Ratio Yield
17 - 42
P3
PRICE-EARNINGS RATIO
Market price per ordinary share
Price-earnings ratio =
Earnings per share
P3
DIVIDEND YIELD
Annual cash dividends per share
Dividend yield =
Market price per share
A1
ANALYSIS REPORTING
A good analysis report usually consists of six sections:
1. Executive summary
2. Analysis overview
3. Evidential matter
4. Assumptions
5. Key factors
6. Inferences
17 - 45
END OF CHAPTER 17