1. BAGIAN 3 The Analysis of Financial Statements

2. 2(C) 2004 Prentice Hall, Inc. The Analysis of Financial Statements This chapter will develop tools and techniques for the interpretation of financial information

3. Tools and Techniques Common-size financial statements Financial ratios Trend analysis Structural analysis These include: Most important: Common sense and judgment

4. Common-Size Financial Statements Express each account on the balance sheet as a percentage of total assets and each account on the income statement as a percentage of net sales

5. Key Financial Ratios Standardize financial data in terms of mathematical relationships expressed in the form of percentages or times

6. Liquidity Ratios: Short-Term Solvency Measures ability to meet short-term cash needs Current Ratio

7. Liquidity Ratios: Short-Term Solvency Continued Measures ability to meet short-term cash needs more rigorously Quick or Acid-Test Ratio

8. Liquidity Ratios: Short-Term Solvency Continued Focuses on ability of the firm to generate operating cash flows as a source of liquidity Cash Flow Liquidity Ratio *Cash flow from operating activities

9. Liquidity Ratios: Short-Term Solvency Continued Helps gauge liquidity of accounts receivable (ability to collect cash from customers) Average Collection Period

10. Liquidity Ratios: Short-Term Solvency Continued Is the average number of days it takes to sell inventory to customers Days Inventory Held

11. Liquidity Ratios: Short-Term Solvency Continued Is the average number of days it takes to pay accounts payables in cash Days Payable Outstanding

12. Activity Ratios: Assets Liquidity, Asset Management Efficiency Another measure of efficiency of firm’s collection and credit policies Accounts Receivable Turnover

13. Activity Ratios: Assets Liquidity, Asset Management Efficiency Con’t Measures efficiency of inventory management Inventory Turnover

14. Activity Ratios: Assets Liquidity, Asset Management Efficiency Con’t Another measure of efficiency of inventory management Payables Turnover

15. Activity Ratios: Assets Liquidity, Asset Management Efficiency Con’t Assesses effectiveness in generating sales from investment in fixed assets Fixed Asset Turnover

16. Activity Ratios: Assets Liquidity, Asset Management Efficiency Con’t Assesses effectiveness in generating sales from investment in total assets Total Asset Turnover

17. Leverage Ratios: Debt Financing and Coverage Measures the extent of firm’s financing with debt Debt Ratio

18. Leverage Ratios: Debt Financing and Coverage Con’t. Measures the extent of firm’s financing with long- term debt Long-term Debt to Total Capitalization

19. Leverage Ratios: Debt Financing and Coverage Con’t Measures the extent of firm’s financing with debt Debt to Equity

20. Leverage Ratios: Debt Financing and Coverage Con’t Indicates how well operating earnings cover fixed interest charges Times Interest Earned

21. Leverage Ratios: Debt Financing and Coverage Con’t Broader measure of how well operating earnings cover fixed charges Fixed Charge Coverage

22. Leverage Ratios: Debt Financing and Coverage Con’t Measures firm’s ability to cover capital expenditures, long-term debt payments and dividends each year Cash Flow Adequacy