1. RVS Institute of Management Studies FINANCIAL REPORTING AND ANALYSIS
Unit - 4
Session:9

2. CONTENTS Common Size Statements Balance Sheet Ratios Liquidity Ratios
Solvency Ratios

3. Common Size Statements
Common size balance sheet is an statement in which each account is expressed as a percentage of the value of total assets/liabilities.
This type of financial statement can be used to allow for easy analysis between companies or between time periods of a company.

4. Common Size Statements

5. Common Size Statements

6. Common Size Statements
Look at the following companies. Prepare a common size income statement for them.

7. Balance sheet ratios Liquidity Solvency
A company’s ability to meet its short-term financial commitments.
Assessment focus: The company’s ability to convert assets to cash and to pay for operating needs.
Solvency
A company’s ability to meet its financial obligations over the longer term.
Assessment focus: The company’s financial structure and its ability to pay long-term financing obligations.

8. Balance sheet ratios Liquidity Ratios Ratio Calculation Current
Current assets ÷ Current liabilities
Quick (acid test)
(Cash + Marketable securities + Receivables) ÷ Current liabilities
Cash
(Cash + Marketable securities) ÷ Current liabilities

9. Balance sheet ratios Solvency Ratios Ratio Calculation
Long-term debt to equity
Total long-term debt  Total equity
Debt to equity
Total debt  Total equity
Total debt (also known as debt to assets)
Total debt  Total assets
Debt to capital
Total debt  (Total debt + Total equity)
Financial leverage
Total assets  Total equity

10. Thank You