Fall-02 Investments Zvi Wiener tel: Financial Statement Analysis BKM Ch 19

Zvi WienerBKM Ch 19 slide 2 Purpose Tools Used Statements Ratio Analysis Limitations Overview Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 3 Balance Sheet Common Sized Trend or Indexed Income Statement Common Sized Trend or Indexed Statement of Cash Flows Financial Statements Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 4 Purpose of Ratio Analysis Uses Trend analysis Comparative analysis Combination Use by External Analysts Important information for investment community Important for credit markets Ratio Analysis Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 5 Liquidity Ratios Activity or Mgmt Efficiency Ratios Leverage Ratios Profitability Ratios Market Price Ratios Type of Financial Ratios Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 6 Current Ratio Current Assets Current Liabilities Quick Ratio Current Assets - Inventory Current Liabilities Liquidity Ratios Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 7 Inventory Turnover Sales or Cost of Goods Sold Inventory Total Asset Turnover Sales Total Assets Activity or Management Efficiency Ratios Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 8 Average Collection Period Accounts Receivable Sales Per Day Days to Sell Inventory Inventory Sales Per Day Activity or Management Efficiency Ratios Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 9 Times Interest Earned Earnings Before Int. & Taxes Interest Expense Fixed Charge Coverage Ratios Lease Payments Principal Repayments Preferred Dividends Leverage Ratios Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 10 Debt to Assets Long Term Debt Assets Debt to Equity Long Term Debt Shareholders Equity Leverage Ratios Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 11 Net Profit Margin % Net Income Sales Return on Assets Net Income Total Assets Profitability Ratios Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 12 Return on Equity Net Income Common Equity Operating Margin After Depr. Operating Profit Sales Profitability Ratios Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 13 Price to Earnings Market Price of Stock Earnings Market-to-Book-Value Market Price of Stock Book Value Per Share Market Price Ratios Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 14 ROE = Net Profit Pretax Profit x EBIT x Sales Assets xx Equity (1) x (2) x (3) x (4) x (5) x Margin x Turnover x Leverage Tax Burden Interest Burden Decomposition of ROE Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 15 Accounting Differences Inventory Valuation Depreciation Inflation International Accounting Conventions Comparability Problems Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 16 International Accounting Differences Reserves – many other countries allow more flexibility in use of reserves. Depreciation – US allows separate tax and reporting presentations. Intangibles – treatment varies widely. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

Zvi WienerBKM Ch 19 slide 17 Home Assignment Required: Read chapter 19 in BKM closely follow financial news!