Analysis of Financial Statements

Analysis of financial statements

Evaluate past performance and financial position Predict future performance

Standards of comparison
General rule of thumb indicators
Past performance of the company Industry standards

Sources of information
Company reports
Stock exchanges Business periodicals Information services

Quality of companys earnings

Accounting methods and estimates used Extraordinary items Prior period adjustments Discontinued operations Changes in accounting policies Income from non operating sources

Techniques of Financial Statement Analysis

Horizontal Analysis Trend analysis Vertical Analysis Ratio Analysis

The DuPont System

Method to breakdown ROE into:
ROA and Equity Multiplier

ROA is further broken down as:

Profit Margin and Asset Turnover

Helps to identify sources of strength and weakness in current performance Helps to focus attention on value drivers

The DuPont System

ROE ROA Profit Margin Equity Multiplier

Total Asset Turnover

The DuPont System

ROE ROA Profit Margin Equity Multiplier

Total Asset Turnover

ROE ROA Equity Multiplier Net Income Total Assets Total Assets Common Equity

The DuPont System

ROE ROA Profit Margin Equity Multiplier

Total Asset Turnover

ROA Profit Margin Total Asset Turnover Net Income Sales Sales Total Assets

The DuPont System

ROE ROA Profit Margin Equity Multiplier

Total Asset Turnover

ROE Profit Margin Total Asset Turnover Equity Multiplier Net Income Sales Total Assets Sales Total Assets Common Equity

The DuPont System: Dell

ROE Net Income Sales Total Assets Sales Total Assets Common Equity Profit Margin Total Asset Turnover Equity Multiplier ROA Equity Multiplier

$1,666.00 $25,265.00 $11,471.00 ROE $25,265.00 $11,471.00 $5,308.00 0.0659 2.2025 2.1611 0.1452 2.1611 31.39%