Financial Statement Analysis Acct 592 July 8, 2003.

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Presentation transcript:

Financial Statement Analysis Acct 592 July 8, 2003

Nike Case Continued…

Statement of Cash Flows Grid Direction of Chg. In Acct. During Year IncreaseDecrease Type of Account Asset -+ Liability +- ► Sign (+ or -) indicated in grid is the adjustment to net income for the year in the operating section on the SCFs

Chapter 3 Introduction to Profitability and Risk Analysis

Using ROA and its components Return on Assets ROA = Profit Margin πM = Asset Turnover ATO =

MultiStep Income Statement Net Sales - COGS Gross Profit - Operating Expenses (SG&A) Operating Income +/- Other Revenues and Expenses Income before Taxes - Provision for Taxes Net Income (Income from Cont. Operations)

MultiStep IS – Cont. ….. - Provision for taxes Income from Continuing Operations +/- Discontinued operations (net of tax) +/- Extraordinary items (net of tax) +/- Changes in acct. principles (net of tax) Net Income

Liquidity Accounts receivable turnover Inventory turnover Accounts payable turnover Current ratio Quick ratio

Solvency Long-term Debt Ratio Debt to Equity Ratio Liabilities to Assets Ratio Interest Coverage Ratio (accrual and cash flow) Operating Cash Flows to Liabilities

Profitability & the B/S ROA → ROC ROPS ROCE Note that this is not an equality but rather an allocation to each source of capital

Now, decompose ROCE Common Capital ROCE = ROA x Earnings x Structure Leverage Leverage

EPS, Appendix 3.1 Basic vs. Diluted (Complex) EPS