IDENTIFY operating and financial SWOT ASSESS value of company's current strategies MAKE changes and recommendations STATE

how its to advantageous for the company

Trend analysis

signals whether the company's financial health is likely to improve or deteriorate evaluate based on the following ratios

Leverage Ratios measure extent assets are financed with debt; Liquidity Ratios measure ability to pay its bills; Profitability Ratios measure ability to generate earnings; Efficiency Ratios measure ability to utilize its assets; Market Value Ratios measure market perception on firm's future prospects.

Trend Analysis in Tables

Performance Area Leverage: Debt % Tot Assets Interest Coverage
1.

1998

1997

1996

1995

Trend

25.7 269.7

33.2 395.8

28.9 318.4

30.6 195.4

Drop in leverage during 1998 Lower coverage during 1998

Debt-to-assets ratio.

Extent to which borrowed funds have been used to finance a company's investments.

Debt-to-Assets Ratio =
2.

Total Debt Total Assets

Debt-to-equity ratio. Balance between debt and equity in capital structure. Widely used leverage measure.
Debt-to-Equity Ratio = Total Debt Total Equity

3.

Times-covered ratio. Extent gross profit covers annual interest payments. If it declines to less than 1, unable to
meet its interest costs and is technically insolvent.:

Times-Covered Ratio =

Profit Before Interest and Tax Total Interest Charges

Liquidity: Current Ratio Quick Ratio

1.

2.3 1.0

2.6 1.3

2.8 1.6

2.2 1.3

Lower liquidity since 1996 Lower liquidity since 1996

Current ratio. Extent current liabilities are covered by current assets. At least 1, to not go bankrupt!
Current Ratio = Current Assets Current Liabilities

2.

Quick ratio.

Ability to pay current liabilities without relying on the sale of its inventories.

Quick Ratio =
Profitability: Profit Margin (%) Return on Assets (%) Return on Equity (%)
1.

Current Assets - Inventory Current Liabilities

23.1 19.3 26.0

27.7 24.0 36.0

24.7 21.7 30.6

22.0 20.4 29.4

Lower profitability during 1998 Lower ROA during 1998 Lower ROE during 1998

Gross profit margin. % of sales available to cover gen,

Gross Profit Margin =

admin expenses and other operating costs.

Sales Revenue - Cost of Goods Sold Sales Revenue

2.

Net profit margin. % of profit earned on sales.

Net Profit Margin = Net Income Sales Revenue

3.

Return on total assets. This ratio measures the profit earned on the employment of assets. It is defined as follows:
Net Income Available to Return on = Common Stockholders Total Assets Total Assets

4.

Return on stockholders' equity. % of profit earned on common stockholders' investment.

Net Income Available to Return on = Common Stockholders Stockholders' Equity Stockholders' Equity
3

Efficiency: Asset Turnover Receivables Turnover Inventory Turnover .835 7.5 5.7 .868 7.0 5.2 .878 6.1 4.4 .926 6.4 4.1 Lower efficiency since 1995 Increased efficiency since 1996 Increased efficiency since 1995

1.

Inventory turnover. # of times inventory is turned over. Determine whether you carry excess stock in inventory.
Inventory Turnover = Cost of Goods Sold Inventory

2.

Average Collection Period. Average time firm wait to receive its cash after sale. Measures effectiveness of
company's credit, billing, and collection procedures.

ACP =

Accounts Receivable Total Sales/360

Market Value: Price/Book Value 8.41 5.92 6.37 3.83 Good market perceptions

1.

Price-earnings ratio. Amount investors are willing to pay per dollar of profit.
Price-Earnings Ratio = Market Price per Share Earnings per Share

2.

Market to book value. Measures a company's expected future growth prospects.:

Market to Book Value = Market Price per Share Earnings per Share

To understand how the company's profitability, efficiency, and leverage are linked in its financial performance, evaluate its Du Pont system over time. ROA is determined by: Profitability (as measured in terms of profit margin) Efficiency (as measured in terms of asset turnover) ROE is determined by: ROA Financial leverage (as measured in terms of its equity multiplier The changes in the company's ROE are to be noted and explained through its profit margin, asset turnover, and equity multiplier over time. The objective is to identify the company's strong area that can be capitalized upon and/or its weak area that must be improved upon.
Ratio Profit Margin % (Net Income/Revenue) Asset Turnover (Revenue/Assets) Return on Assets % (Profit Margin* Asset Turnover) Equity Multiplier (Assets/Equity) Return on Equity % (ROA* Equity Multiplier) 1998 23.1 .835 19.3 1.35 26.0 1997 27.7 .868 24 1.50 36.0 1996 24.70 .878 21.7 1.41 30.6 1995 22.0 .926 20.4 1.44 29.4 Evaluation Drop in profitability during 1998 Lower efficiency since 1995 Drop in ROA during 1998 Decrease in leverage during 1998 Sharp decline in ROE during 1998

Tips from our beloved finance professor PROJECT your voice and address the entire BODYYY. SWEET TALK your clients. SHORTEN your sentence. Yes, shorten it a bit more. One last try. OK, Ill show you how. CONVINCE your clients. FRIGHTEN them a bit. MORE role playing. MOOOORE. Goal of presenting: FORCE them to make a decision. FORCE THEM.

Presentation Content
Agenda & POV Financial Analysis of the company Financial Projections Cash Requirements Current Structure Alternatives and Proposed Structure Our Limits: How far can we go?

Hope This Helps! <3 Look out for Volume 2!

Consolidated from the following sources: http://www.westga.edu/~bquest/2000/dowjones.html http://college.cengage.com/business/resources/casestudies/students/financial.htm