Escolar Documentos
Profissional Documentos
Cultura Documentos
Analysis
CHARLES H. GIBSON
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website for classroom use.
Chapter
8
Profitability
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for
use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for
classroom use.
Profitability Measures
The primary financial analysis of profit ratios
should include only those items of income
arising from normal operations
Excludes
Discontinued operations
Extraordinary items
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Net Sales
Average Total Assets
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Return on Assets
Measures the ability to utilize assets to create
profits
Average total assets
For internal analysis use month-end amounts
For external analysis use beginning and ending
amounts
If necessary, consistent use of end-of-year amounts,
instead of averages
Net Income Before Noncontrolling
Return on Assets =
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Noncontrolling Interest
Noncontrolling Interest
Net sales
Net Sales
Average Total Assets
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Construction in progress
Long-term investments
Intangibles
Other assets
Operating Income
Net Sales
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Net Sales
Average Operating Assets
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
= Income
On
Asset
Margin Turnover
Operating Assets
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Possible distortions
Old fixed assets
Labor-intensive industry
Sales to Fixed Assets =
Net Sales
Average Net Fixed Assets
(Exclude Construction in Progress)
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Noncontrolling Interest
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Measures
return to
providers of
Assets
All funds
Investment
Total equity
Typical result
Lowest (includes all assets)
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Measures
return to
providers of
Common equity
Typical result
Highest
Common shareholders absorb
greatest degree of risk
Requires that return to preferred
shareholders exceed funds paid to
preferred shareholders
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Beginning Inventory
+ Purchases of Inventory
Ending Inventory
Gross Profit
Net Sales
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Segment Reporting
Operating segments
Separate financial information is available
Evaluated by the chief operating decision maker
Requires information about
Countries in which the firm earns revenues and holds assets
Major customers
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Segment ReportingContinued
Disclosures
The way the operating segments are determined
Products and services by the operating segments
Differences between the measurements used in
reporting segment and firms general-purpose
financial information
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Comprehensive Income
Items not included in net income
Reported as a separate component of
shareholders equity
Foreign currency translation adjustments
Unrealized holding gains and losses from availablefor-sale marketable securities
Changes to stockholders equity resulting from
additional minimum pension liability adjustments
Unrealized gains and losses from derivative
instruments
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Comprehensive IncomeContinued
Traditional profitability analysis includes items
related to net income
Items of accumulated other comprehensive income
are excluded from analysis
Return on assets
Return on investment
Return on total equity
Return on common equity
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Interim Reports
Unaudited financial reports covering fiscal
periods of less than one year
SEC requires limited financial data be provided on
Form 10-Q
Certain quarterly information is disclosed in notes to
the annual report
Interim reports are an integral part of the annual
report