Escolar Documentos
Profissional Documentos
Cultura Documentos
Fi
Financial
i l Statement
S
Analysis
6-1
6-2
Understand
U
d t d the
th purpose off basic
b i financial
fi
i l statements
t t
t and
d their
th i
contents.
Explain why financial statement analysis is important to the firm
and
a
d to outs
outside
de supp
suppliers
e so
of cap
capital.
ta
Define, calculate, and categorize (according to liquidity, financial
leverage, coverage, activity, and profitability) the major financial
ratios and understand what they can tell us about the firm.
Define, calculate, and discuss a firms operating cycle and cash
cycle.
Use ratios to analyze a firm's health and then recommend
reasonable alternative courses of action to improve the health of
the firm.
Analyze a firms return on investment (i.e., earning power) and
return on equity using a DuPont approach.
Understand the limitations of financial ratio analysis.
Use trend analysis, common-size analysis, and index analysis to
gain additional insights into a firm's performance.
Financial
Statement Analysis
Financial
A
Statements
Balance
Sheet Ratios
Income
Trend
Analysis
Common-Size
6-3
Bondholders
-- Focus on the
long-term cash flow of the firm.
Shareholders
-- Focus on the
profitability and long-term health of
the
h firm.
fi
6-4
Control
Understand
-- Focus on understanding
how suppliers of funds analyze the firm.
6-5
Primary Types of
Financial Statements
Balance Sheet
Income Statement
6-6
$ 290
94
16
100
$ 500
530
a. Note, Assets =
Liabilities + Equity.
q y
b. What BW owed and
ownership position.
c Owed to suppliers for
c.
goods and services.
d. Unpaid wages,
200
salaries, etc.
729 e. Debts payable < 1 year.
210 f.
f Debts payable > 1 year
year.
$1,139 g. Original investment.
$2,169 h. Earnings reinvested.
Basket Wonders
Income Statement
Basket Wonders Statement of Earnings (in thousands)
for Year Ending December 31, 2007a
Net Sales
$ 2,211
Cost of Goods Sold b 1,599
Gross Profit $
612
SG&A Expenses c
402
EBITd
$
210
Interest Expensee
59
EBT f
$
151
Income Taxes
60
EATg
$
91
Cash Dividends
38
Increase in RE
$
53
6-9
a. Measures profitability
over a time period.
b. Received, or receivable,
from customers
customers.
c. Sales comm., adv.,
officers salaries, etc.
d Operating
d.
O
ti income.
i
e. Cost of borrowed funds.
a ab e income.
co e
f. Taxable
g. Amount earned for
shareholders.
Framework for
Financial Analysis
T
Trend
d / Seasonal
S
l Component
C
How much funding will be
required in the future?
1. Analysis of the funds
needs of the firm.
Is there a seasonal
component?
Framework for
Financial Analysis
Health of a Firm
1. Analysis of the funds
needs of the firm.
2. Analysis of the financial
condition and profitability
of the firm.
6-11
Financial Ratios
1.
2.
3.
4.
Individually
Over time
In combination
In comparison
Framework for
Financial Analysis
Examples:
Examples:
Volatility in sales
Volatility in costs
Proximity to break
break-even
even
point
6-12
Framework for
Financial Analysis
6-13
Determining
the
financing
needs of
tthe
e firm.
A Financial
Manager
mustt
consider all
three jointly
when
determining
g
the
financing
needs of the
firm.
Framework for
Financial Analysis
6-14
Determining
the
financing
needs of
tthe
e firm.
Negotiations
with
ith
suppliers of
capital.
p
U off Fi
Use
Financial
i l Ratios
R ti
A Financial Ratio is
an index
i d that
th t relates
l t
two accounting
b
and
d is
i
numbers
obtained by dividing
b by
b the
th
one number
other.
6-15
Types of
Comparisons
Internal
Comparisons
External
Comparisons
Examples:
Risk Management
g
Association
Dun & Bradstreet
Almanac of
Business and
Industrial
Financial Ratios
Li idit Ratios
Liquidity
R ti
Balance Sheet Ratios
Liquidity Ratios
Shows a firms
ability to cover its
current liabilities
with its current
assets.
6-17
Current
C
Current
tA
Assets
t
Current Liabilities
For Basket Wonders
December 31,
31 2007
$1,195 = 2.39
$500
Liquidity Ratio
Comparisons
Current Ratio
Year
BW
Industry
2007
2.39
2.15
2006
2.26
2.09
2005
1.91
2.01
R ti is
Ratio
i stronger
t
than
th the
th industry
i d t average.
6-18
Li idit Ratios
Liquidity
R ti
Balance Sheet Ratios
Liquidity Ratios
Shows a firms
ability to meet
current liabilities
with its most liquid
assets.
6-19
Acid--Test (Quick)
Acid
C
Current
tA
Assets
t - Inv
I
Current Liabilities
For Basket Wonders
December 31,
31 2007
$1,195 - $696 = 1.00
$500
Liquidity Ratio
Comparisons
Acid--Test Ratio
Acid
Year
BW
Industry
2007
1.00
1.25
2006
1.04
1.23
2005
1.11
1.25
R ti is
Ratio
i weaker
k than
th the
th industry
i d t average.
6-20
BW
2.39
1.00
Industry
2.15
1.25
6-21
R atio Valu
ue
2.5
2.3
2.1
1.9
1.7
1.5
2005
6-22
BW
Industry
2006
Analysis Year
2007
R atio Val ue
1.5
1.3
08
0.8
0.5
2005
6-23
BW
Industry
1.0
2006
Analysis Year
2007
6-24
Fi
Financial
i l Leverage
L
Ratios
R ti
Balance Sheet Ratios
Financial Leverage
Ratios
Shows th
Sh
the extent
t t to
t
which the firm is
fi
financed
d by
b debt.
d bt
6-25
Debt--to
Debt
to--Equity
T t l Debt
Total
D bt
Shareholders Equity
For Basket Wonders
December 31,
31 2007
$1,030 = .90
$1,139
Financial Leverage
Ratio Comparisons
Debt--to
Debt
to--Equity Ratio
6-26
Year
BW
Industry
2007
.90
.90
2006
.88
.90
2005
.81
.89
Fi
Financial
i l Leverage
L
Ratios
R ti
Balance Sheet Ratios
Financial Leverage
Ratios
Shows the p
percentage
g
of the firms assets
pp
by
y
that are supported
debt financing.
6-27
Debt--to
Debt
to--Total
Total--Assets
T t l Debt
Total
D bt
Total Assets
For Basket Wonders
December 31,
31 2007
$1,030 = .47
$2,169
Financial Leverage
Ratio Comparisons
Debt--to
Debt
to--Total
Total--Asset Ratio
6-28
Year
BW
Industry
2007
.47
.47
2006
.47
.47
2005
.45
.47
Fi
Financial
i l Leverage
L
Ratios
R ti
Balance Sheet Ratios
Financial Leverage
Ratios
Shows the relative
importance of long-term
debt to the long-term
fi
financing
i off the
th firm.
fi
6-29
Total Capitalization
(i.e., LT-Debt + Equity)
Long-term Debt
LongTotal Capitalization
p
For Basket Wonders
December 31, 2007
$530 = .32
$1,669
Financial Leverage
Ratio Comparisons
Total Capitalization Ratio
Year
BW
Industry
2007
.32
.30
2006
.32
.31
2005
.37
.32
C
Coverage
R
Ratios
ti
Income Statement
Ratios
Coverage Ratios
Indicates a firms
ability to cover
g
interest charges.
6-31
Interest Coverage
EBIT
Interest Charges
For Basket Wonders
December 31,
31 2007
$210 = 3.56
$59
Coverage
Ratio Comparisons
Interest Coverage Ratio
Year
BW
Industry
2007
3.56
5.19
2006
4.35
5.02
2005
10.30
4.66
R atio Vaalue
11.0
9.0
7.0
BW
Industry
5.0
3.0
2005
2006
Analysis Year
6-33
2007
6-34
A ti it Ratios
Activity
R ti
Income Statement /
Balance Sheet
Ratios
Activity Ratios
Indicates quality of
receivables and how
successful the firm is in
its collections.
6-35
Receivable Turnover
(Assume all sales are credit sales.)
A
Annual
lN
Nett C
Credit
dit S
Sales
l
Receivables
For Basket Wonders
December 31,
31 2007
$2,211 = 5.61
$394
A ti it Ratios
Activity
R ti
Income Statement /
Balance Sheet
Ratios
Activity Ratios
Average number of days
that receivables are
outstanding.
(or RT in days)
6-36
A C
Avg
Collection
ll ti Period
P i d
Days in the Year
Receivable Turnover
For Basket Wonders
December 31, 2007
365
5.61
= 65 days
Activity
Ratio Comparisons
Average Collection Period
6-37
Year
BW
Industry
2007
65.0
65.7
2006
71.1
66.3
2005
83.6
69.2
A ti it Ratios
Activity
R ti
Income Statement /
Balance Sheet
Ratios
Activity Ratios
Indicates the
promptness of payment
to suppliers by the firm.
firm
6-38
A ti it Ratios
Activity
R ti
Income Statement /
Balance Sheet
Ratios
Activity Ratios
Average number of days
that payables are
outstanding
outstanding.
6-39
PT in Days
D
Days
iin the
th Year
Y
Payable Turnover
For Basket Wonders
December 31,
31 2007
365
16.5
= 22.1 days
Activity
Ratio Comparisons
Payable Turnover in Days
Year
BW
Industry
2007
22.1
46.7
2006
25.4
51.1
2005
43.5
48.5
Is this good?
A ti it Ratios
Activity
R ti
Income Statement /
Balance Sheet
Ratios
Activity Ratios
Indicates the
effectiveness of the
inventory management
practices of the firm.
6-41
Inventory Turnover
Cost
C t off G
Goods
d Sold
S ld
Inventory
For Basket Wonders
December 31,
31 2007
$1,599 = 2.30
$696
Activity
Ratio Comparisons
Inventory Turnover Ratio
Year
BW
Industry
2007
2.30
3.45
2006
2.44
3.76
2005
2.64
3.69
Ratio V
Value
4.0
3.5
30
3.0
BW
Industry
2.5
2.0
2005
2006
Analysis Year
6-43
2007
A ti it Ratios
Activity
R ti
Income Statement /
Balance Sheet
Ratios
Activity Ratios
Indicates the overall
effectiveness of the firm
in utilizing its assets to
generate sales.
6-44
Activity
Ratio Comparisons
Total Asset Turnover Ratio
Year
BW
Industry
2007
1.02
1.17
2006
1.03
1.14
2005
1.01
1.13
Profitability
Ratio Comparisons
Gross Profit Margin
Year
BW
Industry
2007
27.7%
31.1%
2006
28.7
30.8
2005
31.3
27.6
BW h
has a weak
kG
Gross P
Profit
fit Margin.
M
i
6-47
35.0
32.5
30 0
30.0
BW
Industry
27.5
25.0
2005
2006
Analysis Year
6-48
2007
Profitability
Ratio Comparisons
Net Profit Margin
Year
BW
Industry
2007
4.1%
8.2%
2006
4.9
8.1
2005
9.0
7.6
BW h
has a poor N
Nett P
Profit
fit Margin.
M
i
6-50
10
9
8
7
BW
Industry
6
5
4
2005
2006
Analysis Year
6-51
2007
Return on Investment
N tP
Net
Profit
fit after
ft T
Taxes
Total Assets
For Basket Wonders
December 31,
31 2007
$91 = .042
$2,160
Profitability
Ratio Comparisons
Return on Investment
Year
BW
Industry
2007
4.2%
9.8%
2006
5.0
9.1
2005
9.1
10.8
BW has
h a poor Return
R t
on Investment.
I
t
t
6-53
Return on Investment
Trend Analysis Comparison
Trend Analysis of Return on Investment
12
10
8
BW
Industry
6
4
2005
2006
Analysis Year
6-54
2007
Return on Equity
N tP
Net
Profit
fit after
ft T
Taxes
Shareholders Equity
For Basket Wonders
December 31,
31 2007
$91 = .08
$1,139
Profitability
Ratio Comparisons
Return on Equity
Year
BW
Industry
2007
8.0%
17.9%
2006
9.4
17.2
2005
16.6
20.4
BW h
has a poor R
Return
t
on E
Equity.
it
6-56
Return on Equity
y -Trend Analysis Comparison
Trend Analysis of Return on Equity
21.0
17.5
14 0
14.0
BW
Industry
10.5
7.0
2005
2006
Analysis Year
6-57
2007
ROI2007
Return on Equity
y and
the Du Pont Approach
Return On Equity = Net profit margin X
Total asset turnover X
Equity Multiplier
Total Assets
Equity Multiplier =
Shareholders Equity
ROE2007
ROEIndustry = .082
082 x 1.17
1 17 x 1.88
1 88 = .179
179
6-59
Th profitability
The
fit bilit ratios
ti for
f BW have
h
ALL
been falling since 2005. Each has been
b l
below
the
th industry
i d t averages for
f th
the pastt
three years.
6-60
S
Summary
off Ratio
R ti Analyses
A l
6-61
Selling general
Selling,
general, and
administrative costs may be too
high
high.
C
CommonCommon
-size
i Analysis
A l i
An analysis of percentage
financial statements where all
balance sheet items are divided
by total assets and all income
statement items are divided by
nett sales
l or revenues.
6-62
2006
2007
2005
2006
2007
Cash
AR
Inv
Other CA
148
283
322
10
100
410
616
14
90
394
696
15
12.10
12
10
23.14
26.33
0.82
4.89
4
89
20.06
30.14
0.68
4.15
4
15
18.17
32.09
0.69
Tot CA
Net FA
LT Inv
Other LT
763
349
0
111
1,140
631
50
223
1,195
701
50
223
62.39
28.54
0.00
9.08
55.77
30.87
2.45
10.91
55.09
32.32
2.31
10.28
1 223
1,223
2 044
2,044
2 169
2,169
100 0
100.0
100 0
100.0
100 0
100.0
Tot Assets
6-63
2005
Common-Size (%)
6-64
2005
2006
2007
Common-Size (%)
2005
2006
2007
Note Pay
Acct Pay
Accr Tax
Other Accr
290
81
13
15
295
94
16
100
290
94
16
100
23.71
23
71
6.62
1.06
1.23
14.43
14
43
4.60
0.78
4.89
13.37
13
37
4.33
0.74
4.61
Tot CL
LT Debt
Equity
399
150
674
505
453
1,086
500
530
1,139
32.62
12.26
55.11
24.71
22.16
53.13
23.05
24.44
52.51
Tot L+E
1,223
2,044
2,169
100.0
100.0
100.0
6-65
2006
2007
Common-Size (%)
2005
2006
2007
1,235
1
235
849
2,106
2
106
1,501
2,211
2
211
1,599
100.0
100
0
68.7
100.0
100
0
71.3
100.0
100
0
72.3
Gross Profit
Adm.
386
180
605
383
612
402
31.3
14.6
28.7
18.2
27.7
18.2
EBIT
Int Exp
206
20
222
51
210
59
16.7
16
1.6
10.5
24
2.4
9.5
27
2.7
EBT
186
171
151
15.1
8.1
6.8
EAT
112
103
91
9.1
4.9
4.1
Cash Div
50
50
50
4.0
2.4
2.3
I d Analyses
Index
A l
An analysis of percentage financial
statements where all balance sheet
or income statement figures for a
base year equal 100.0 (percent) and
subsequent
q
financial statement
items are expressed as percentages
of their values in the base year.
6-66
Basket Wonders
Indexed Balance Sheets
Regular (thousands of $)
Assets
2006
2007
2005
2006
2007
Cash
AR
Inv
Other CA
148
283
322
10
100
410
616
14
90
394
696
15
100.0
100
0
100.0
100.0
100.0
67.6
67
6
144.9
191.3
140.0
60.8
60
8
139.2
216.1
150.0
Tot CA
Net FA
LT Inv
Other LT
763
349
0
111
1,140
631
50
223
1,195
701
50
223
100.0
100.0
100.0
100.0
149.4
180.8
inf.
200.9
156.6
200.9
inf.
200.9
1 223
1,223
2 044
2,044
2 169
2,169
100 0
100.0
16 1
167.1
1 4
177.4
Tot Assets
6-67
2005
Indexed (%)
Basket Wonders
Indexed Balance Sheets
Regular (thousands of $)
Liab+Equity
6-68
2005
2006
2007
290
94
16
100
Indexed (%)
2005
2006
2007
100.0
100
0
100.0
100.0
100.0
101.7
101
7
116.0
123.1
666.7
100.0
100
0
116.0
123.1
666.7
Note Pay
Acct Pay
Accr Tax
Other Accr
290
81
13
15
295
94
16
100
Tot CL
LT Debt
Equity
399
150
674
505
453
1,086
500 100.0
530 100.0
1,139 100.0
126.6
302.0
161.1
125.3
353.3
169.0
Tot L+E
1,223
2,044
2,169 100.0
167.1
177.4
6-69
2006
2007
Indexed (%)
2005
2006
2007
1,235
1
235
849
2,106
2
106
1,501
2,211
2
211
1,599
100.0
100
0
100.0
170.5
170
5
176.8
179.0
179
0
188.3
Gross Profit
Adm.
386
180
605
383
612
402
100.0
100.0
156.7
212.8
158.5
223.3
EBIT
Int Exp
206
20
222
51
210
59
100.0
100 0
100.0
107.8
255 0
255.0
101.9
295 0
295.0
EBT
186
171
151
100.0
91.9
81.2
EAT
112
103
91
100.0
92.0
81.3
Cash Div
50
50
50
100.0
100.0
100.0