GET RICH QUICK CO. Financial Statement Ratio Analysis: Profitability Long-Term Financial Position Short-Term Financial Position

Basics of FSA These ratios do not exist in a vacuum By themselves, they do not provide much meaning They need to be compared to something: –Trends over time –Key competitors –Industry averages

PROFITABILITY EARNINGS PER SHARE

Net Income – Preferred Dividends

PROFITABILITY EARNINGS PER SHARE Net Income – Preferred Dividends Number of Common Shares Outstanding

PROFITABILITY EARNINGS PER SHARE Net Income – Preferred Dividends Number of Common Shares Outstanding $180,000- 0

PROFITABILITY EARNINGS PER SHARE Net Income – Preferred Dividends Number of Common Shares Outstanding $180, ,000 shares

PROFITABILITY EARNINGS PER SHARE Net Income – Preferred Dividends Number of Common Shares Outstanding $180, = $ ,000 shares

PROFITABLITY PRICE/EARNINGS RATIO

Market Price per Share

PROFITABLITY PRICE/EARNINGS RATIO Market Price per Share Earnings per Share

PROFITABLITY PRICE/EARNINGS RATIO Market Price per Share Earnings per Share $18.00

PROFITABLITY PRICE/EARNINGS RATIO Market Price per Share Earnings per Share $18.00 $1.80

PROFITABLITY PRICE/EARNINGS RATIO Market Price per Share Earnings per Share $18.00 = 10 $1.80

PROFITABILITY RETURN ON ASSETS

(Income + Interest Exp.) X Sales Sales Assets

PROFITABILITY RETURN ON ASSETS (Income + Interest Exp.) X Sales Sales Assets (Operating Margin) X (Asset Turnover)

PROFITABILITY RETURN ON ASSETS (Income + Interest Exp.) X Sales Sales Assets (Profit Margin) X (Asset Turnover) ($180,000+30,000) $3,000,000

PROFITABILITY RETURN ON ASSETS (Income + Interest Exp.) X Sales Sales Assets (operating Margin) X (Asset Turnover) $180,000+30,000 X $3,000,000 = 13% $3,000,000 $1,620,000

PROFITABILITY RETURN ON EQUITY

Net Income

PROFITABILITY RETURN ON EQUITY Net Income Stockholders’ Equity

PROFITABILITY RETURN ON EQUITY Net Income Stockholders’ Equity $180,000

PROFITABILITY RETURN ON EQUITY Net Income Stockholders’ Equity $180,000 $1,080,000

PROFITABILITY RETURN ON EQUITY Net Income Stockholders’ Equity $180,000 = 16.7% $1,080,000

LONG-TERM FIN. CONDITION RATIO OF DEBT TO ASSETS

Liabilities

LONG-TERM FIN. CONDITION RATIO OF DEBT TO ASSETS Liabilities Assets

LONG-TERM FIN. CONDITION RATIO OF DEBT TO ASSETS Liabilities Assets $540,000

LONG-TERM FIN. CONDITION RATIO OF DEBT TO ASSETS Liabilities Assets $540,000 $1,620,000

LONG-TERM FIN. CONDITION RATIO OF DEBT TO ASSETS Liabilities Assets $540,000 = 33.3% $1,620,000

LONG-TERM FIN. CONDITION RATIO OF EQUITY TO ASSETS

Stockholders’ Equity

LONG-TERM FIN. CONDITION RATIO OF EQUITY TO ASSETS Stockholders’ Equity Assets

LONG-TERM FIN. CONDITION RATIO OF EQUITY TO ASSETS Stockholders’ Equity Assets $1,080,000

LONG-TERM FIN. CONDITION RATIO OF EQUITY TO ASSETS Stockholders’ Equity Assets $1,080,000 $1,620,000

LONG-TERM FIN. CONDITION RATIO OF EQUITY TO ASSETS Stockholders’ Equity Assets $1,080,000 = 66.7% $1,620,000

CURRENT FIN. CONDITION CURRENT RATIO

Current Assets

CURRENT FIN. CONDITION CURRENT RATIO Current Assets Current Liabilities

CURRENT FIN. CONDITION CURRENT RATIO Current Assets Current Liabilities $280,000

CURRENT FIN. CONDITION CURRENT RATIO Current Assets Current Liabilities $280,000 $40,000

CURRENT FIN. CONDITION CURRENT RATIO Current Assets Current Liabilities $280,000 = 7 $40,000

CURRENT FIN. CONDITION Quick Ratio

“Quick Assets”

CURRENT FIN. CONDITION Quick Ratio “Quick Assets” Current Liabilities

CURRENT FIN. CONDITION Quick Ratio “Quick Assets” Current Liabilities $200,000

CURRENT FIN. CONDITION Quick Ratio “Quick Assets” Current Liabilities $200,000 $40,000

CURRENT FIN. CONDITION Quick Ratio “Quick Assets” Current Liabilities $200,000 = 5 $40,000

CURRENT FIN. CONDITION Avg. Collection Period

Accounts Receivable

CURRENT FIN. CONDITION Avg. Collection Period Accounts Receivable Average “Daily Sales”

CURRENT FIN. CONDITION Avg. Collection Period Accounts Receivable Average “Daily Sales” $150,000

CURRENT FIN. CONDITION Avg. Collection Period Accounts Receivable Average “Daily Sales” $150,000 $3,000,000 /360 days (= $8,333)

CURRENT FIN. CONDITION Avg. Collection Period Accounts Receivable Average “Daily Sales” $150,000 = 18 days $3,000,000 /360 days (= $8,333)

CURRENT FIN. CONDITION Avg. Days Supply in Inventory

Inventory

CURRENT FIN. CONDITION Avg. Days Supply in Inventory Inventory Avg. “Daily Cost of Goods Sold”

CURRENT FIN. CONDITION Avg. Days Supply in Inventory Inventory Avg. “Daily Cost of Goods Sold” $80,000

CURRENT FIN. CONDITION Avg. Days Supply in Inventory Inventory Avg. “Daily Cost of Goods Sold” $80,000 $2,000,000/360 days (= $5,555)

CURRENT FIN. CONDITION Avg. Days Supply in Inventory Inventory Avg. “Daily Cost of Goods Sold” $80,000 = 14.4 days $2,000,000/360 days (= $5,555)

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