ANALYSIS OF FINANCIAL STATEMENTS OF

Presented by Ayesha
RATIO ANALYSIS
Liquidity ratios
Current ratio
Acid test / quick ratio
1. Current ratio = Current assets
Current liabilities
ADMs current ratio for 2004,
Shows a
= 658.5 =firms
1.09 ability
601.0 to cover its
current
liabilities with
its current
assets.
Interpretation:
For Rs.1 of current liability, ADM has
Rs.1.09 of current assets to pay its
bills.
2. Acid test / quick ratio = current assets
inventory
current
liabilities Shows a firms
ADMs acid test ratio for 2004,
ability to meet
= 658.5 - 296.1 current
601.0 liabilities with
its most liquid
= 0.60 assets.
Interpretation:
For Rs.1 of current liabilities, ADM
has Rs.0.60 of most current assets to
pay its bills.
 LEVERAGE/DEBT RATIOS
Debt to equity ratio
Debt to total assets ratio
Debt to total capitalization ratio
1. Debt to equity = Total debt
shareholders equity
ADMs debt to equity for 2004,
Shows the
= 676.0 = 0.90 extent to
746.4 which the
firm is
financed by
debt.

Interpretation:
For Rs.1 of shareholders equity,
ADM has Rs.0.90 of debt financing.
2. Debt to total assets = Total debt
Total assets
ADMs debt to Total Assets for 2004,
= 676.0 = 0.47
Shows the
1422.4
percentage of the
firms assets that
are supported by
debt financing.

Interpretation:
For Rs.1 of an asset, Rs.0.47 is
financed by debt.
3. Debt to total capitalization = long
term debt
total
capitalization Shows the
ADMs debt to Total capitalization for 2004,
relative
= 75.0 = 0.09 importance of
821.4 long-term debt to
the long-term
financing of the
firm.
Interpretation:
For Rs.1 of total capitalization,
Rs.0.09 is long term debt.
 COVERAGE RATIO
Interest coverage ratio
1. Interest coverage ratio = EBIT
interest
charges
ADMs interest coverage ratio for 2004,
= 237.3 = 11.98 Indicates a
19.8 firms ability
to cover its
interest
charges.
Interpretation:
For Rs.1 of interest charges, ADM has
Rs.11.98 of EBIT / cash to pay its
interest charges.
 ACTIVITY RATIOS
Receivable turnover ratio
Receivable turnover in days /
average collection period
Payable turnover ratio
Payable turnover in days
Inventory turnover ratio
Total assets turnover ratio
1. Receivable turnover = annual net
credit sales

Receivables
Indicates quality
ADMs receivable turnover for 2004,
of receivables
= 1843.7 = 5.75 and how
320.3 successful the
firm is in its
collections.
Interpretation:
ADM converts its receivables into
cash 5.75 times in a fiscal year.
2. Avg. collection period = 365
RT
ADMs avg. collection period for 2004,
= 365 = 63.47
5.75 Average number
of days that
receivables are
outstanding.
(or RT in days)
Interpretation:
ADM converts its receivables into
cash within 63.47 days.
3. Payable turnover = annual net credit
purchases
Payables

ADMs Payable TurnoverIndicates

for 2004,the
= 1516.5 = 2.52 promptness of
601.0 payment to
suppliers by the
firm.

Interpretation:
ADM make payments against its all
payables 2.52 times in a fiscal year.
4. Payable Turnover in days = 365
PT
ADMs payable turnover in days for 2004,
= 365 = 144.84
2.52 Average number
of days that
payables are
outstanding.

Interpretation:
ADM make payments against its all
payables in 144.84 days.
5. Inventory turnover = Cost of goods
sold
Inventory
ADMs inventory turnover Indicates
for 2004,the
= 1516.5 = 5.12 effectiveness of
296.1 the inventory
management
practices of the
firm.
Interpretation:
ADM converts its inventory into
finished goods 5.12 times in fiscal
year.
6. Total assets turnover = net sales
total assets
ADMs total Assets turnover for 2004,
= 1843.7 = 1.29
1422.4 Indicates the
overall
effectiveness of the
firm in utilizing its
assets to generate
sales.
Interpretation:
For Rs.1 investment in an asset, it
contributes Rs.1.29 towards ADMs
sales.
 PROFITABILITY RATIOS
Gross profit margin ratio
Net profit margin ratio
Return on investment ratio
Return on equity ratio
1. Gross profit margin = Gross profit
net sales
ADMs gross profit margin for 2004,
= 327.2 = 0.17 Indicates the
1843.7 efficiency of
operations and
firm pricing
policies.

Interpretation:
For Rs.1 of net sales, ADMs gross
profit margin is Rs.0.17
2. Net profit margin = net profit after
taxes
net sales
ADMs net profit marginIndicates
for 2004,the firms
= 199 = 0.107 profitability after
1843.7 taking account of
all expenses and
income taxes.

Interpretation:
For Rs.1 of net sales, ADMs net
profit margin is Rs.0.10
3. Return on investment/Asset = net
profit after taxes

total assets Indicates the

profitability on
ADMs ROI for 2004,
the assets of the
= 199 = 0.139 firm (after all
1422.4 expenses and
taxes).
Interpretation:
For Rs.1 investment in assets,
generates Rs.0.139 net profit after
taxes.
4. Return on equity = net profit after
taxes
shareholders
equity Indicates the
ADMs ROE for 2004, profitability to the
= 199 = 0.26 shareholders of
the firm (after all
746.4
expenses and
taxes).
Interpretation:
For Rs.1 of shareholder equity,
Rs.0.26
net profit after taxes is generated.
COMMON SIZE ANALYSIS

Percentage analysis
we find percentage change in each
item of financial statement.
Divide each item of balance sheet by
total assets and each item of income
statement by total sales.
 COMMON SIZE ANALYSIS OF BALANCE
SHEETS LEFT SIDE
Regular (in millions) common size (%)
Assets 2002 2003 2004 2002 2003 2004

Cash 1.8 2.9 42.1 0.227 0.25 2.95

ST inv. - - - - - -
Other CA 228.7 180.4 320.3 28.93 16.07 22.51
Inventory - 131.3 296.1 - 11.70 20.81
Total CA 230.5 314.6 658.5 29.16 28.04 46.29
6
Net FA 559.8 807.3 763.9 70.83 71.95 53.70
LT inv. - - - - - -
Total 790.3 1121. 1422. 100.0 100.0 100.0
assets 9 4 0 0 0
 COMMON SIZE ANALYSIS OF BALANCE
SHEETS RIGHT SIDE
Regular (in millions) Common size (%)
Liabilities
and equity 2002 2003 2004 2002 2003 2004

Cur. 223.8 479.4 601.0 28.3 42.7 42.3

liabilities
Tot. fixed 75.5 40.6 75.0 9.6 3.6 5.3
liab.
Total 299.3 520.8 676.0 37.9 46.4 47.5
liabilities
Sh. equity 491.0 602.1 746.4 62.1 53.6 52.5

Tot. Capital 566.5 642.7 821.4 71.7 57.3 57.7

Tot. 790.3 1121. 1422. 100.0 100.0 100.0

liab+equity 9 4 0 0 0
 COMMON SIZE ANALYSIS OF ADMS INCOME STATEMENT

Regular (in millions) Common size( %)

Items
2002 2003 2004 2002 2003 2004
Net sales 1328. 1351. 1843. 100.0 100.0 100.0
1 0 7 0 0 0
COGS 1003. 1091. 1516. 75.53 80.75 82.25
2 0 5
Gross 324.9 260.0 327.2 24.46 19.24 17.74
profit 1
Oth. exp 1082. 1158. 1614. 81.48 85.74 87.56
2 4 5
Oper. 250.8 205.3 237.3 18.88 15.19 12.87
profit
Fin. exp 33.9 25.1 19.8 2.55 1.85 1.07
EBT 216.9 180.2 217.5 16.33 13.33 11.79
Tax 12.4 13.7 18.5 0.93 1.01 1.00
EAT 204.5 166.5 199.0 15.39 12.32 10.79
INDEX ANALYSIS
Percentage analysis
Set a standard (base year) with which
to compare.
INDEX ANALYSIS OF BALANCE SHEETS LEFT
SIDE

Regular (in millions) Indexed (%)

Assets
2002 2003 2004 2002 2003 2004
Cash 1.8 2.9 42.1 100.0 161.1 2338.
8
ST inv. - - - 100.0 - -
Other 228.7 180.4 320.3 100.0 78.88 140.0
CA 5
Inventor - 131.3 296.1 100.0 Inf. inf.
y
Total CA 230.5 314.6 658.5 100.0 136.4 285.6
Net FA 559.8 807.3 763.9 100.0 144.2 136.4
1
LT inv. - - - 100.0 - -
Tot. 790.3 1121. 1422.4 100.0 141.9 179.9
assets 9 5
INDEX ANALYSIS OF BALANCE
SHEETSRegular
RIGHT (in SIDE Indexed (%)
Liabilities millions)
and equity 2002 2003 2004 2002 2003 2004

Cur. 223.8 479.4 601.0 100.0 214.2 268.5

liabilities
Tot. fixed 75.5 40.6 75.0 100.0 53.7 99.33
liab.
Total 299.3 520.0 676.0 100.0 173.7 225.8
liabilities
Sh. equity 491.0 602.1 746.4 100.0 122.6 152.0

Tot. Capital 566.5 642.7 821.4 100.0 113.4 144.9

Tot. 790.3 1121. 1422. 100.0 141.9 179.9

liab+equity 9 4 5 8
INDEX ANALYSIS OF ADMS INCOME
STATEMENT
Regular (in Common size( %)
Items millions)
2002 2003 2004 2002 2003 2004
Net sales 1328. 1351. 1843. 100.0 101.7 138.8
1 0 7
COGS 1003. 1091. 1516. 100.0 108.7 151.1
2 0 5
Gross profit 324.9 260.0 327.2 100.0 80.0 100.7
1
Oth. exp 1082. 1158. 1614. 100.0 107.0 149.1
2 4 5
Oper. profit 250.8 205.3 237.3 100.0 81.8 94.6
Fin. exp 33.9 25.1 19.8 100.0 74.0 58.4
EBT 216.9 180.2 217.5 100.0 83.0 100.2
Tax 12.4 13.7 18.5 100.0 110.4 149.1
EAT 204.5 166.5 199.0 100.0 81.4 97.3