1. Fall-02 http://pluto.mscc.huji.ac.il/~mswiener/zvi.html Investments Zvi Wiener tel: 02-588-3049 mswiener@mscc.huji.ac.il Financial Statement Analysis BKM Ch 19

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

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