Fourth Edition 1 Financial Statement Analysis. Fourth Edition 2 Outline 1.Financial statements 1.Income statement and margin analysis 2.Ratio analysis.

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Presentation transcript:

Fourth Edition 1 Financial Statement Analysis

Fourth Edition 2 Outline 1.Financial statements 1.Income statement and margin analysis 2.Ratio analysis 3.DuPont Analysis 4.Applications

Fourth Edition 3 Income Statement – Measure of profitability over a period of time Structure

Fourth Edition 4 Income Statement –Margin /Common Size Analysis Gross Margin Operating Margin –Research and Development –Sales and Administrative Tax rate Profit Margin –Trend analysis Margin comparison Growth rate –Compare with peers –Forecasting

Fourth Edition 5 Financial Statements Balance Sheet –Snap shot of financial conditions –Common Sized –Trend and peers Statement of Cash Flows

Fourth Edition 6 Type of Financial Ratios Liquidity Ratios Activity or Mgmt Efficiency Ratios (turn over ratios) Leverage Ratios (debt ratios) Profitability Ratios Market Price Ratios

Fourth Edition 7 Liquidity Ratios Current Ratio Current Assets Current Liabilities Quick Ratio Current Assets - Inventory Current Liabilities

Fourth Edition 8 Activity or Management Efficiency Ratios Inventory Turnover Sales or Cost of Goods Sold Inventory Total Asset Turnover Sales Total Assets

Fourth Edition 9 Activity or Management Efficiency Ratios Average Collection Period Accounts Receivable Sales Per Day Days to Sell Inventory Inventory Sales Per Day

Fourth Edition 10 Leverage Ratios Times Interest Earned Earnings Before Int. & Taxes Interest Expense Fixed Charge Coverage Ratios Lease Payments Principal Repayments Preferred Dividends

Fourth Edition 11 Leverage Ratios Debt to Assets Long Term Debt Assets Debt to Equity Long Term Debt Shareholders Equity

Fourth Edition 12 Profitability Ratios Net Profit Margin % Net Income Sales Return on Assets Net Income Total Assets

Fourth Edition 13 Profitability Ratios Return on Equity Net Income Common Equity Operating Margin After Depreciation Operating Profit Sales

Fourth Edition 14 Market Price Ratios Price to Earnings Market Price of Stock Earnings Market-to-Book-Value Market Price of Stock Book Value Per Share

Fourth Edition 15 DuPont Analysis ROE=PM*TATO*EM Prefer company that improves in all three components PM=Tax burden*Interest burden*OpertingMargin NI/S=(NI/EBT)*(EBT/EBIT)*(EBIT/S) NI/S=(NI/EBIT)*(EBIT/Gross Profit)*(Gross Profit/Sales)