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ANALYSIS
Ratio and DuPont Analysis
FINANCIAL STATEMENTS
• Income Statement
• Statement of Financial Position or Balance Sheet
• The Statement of Cash Flows
INCOME STATEMENT
• An income statement is a summary of the revenues and
expenses of a business over a period of time, usually either
one month, three months or one year.
• Summarizes the results of the firm’s operating and financing
decisions during that time.
• Operating decisions of the company apply to production
and marketing such as sales/revenues, cost of goods sold
(COGS), administrative and general expenses (advertising,
office salaries).
BALANCE SHEET
• A summary of the assets, liabilities, and equity of a business at a
particular point in time, usually the end of the firm’s fiscal year.
• Liquidity Ratios
• Leverage Ratios
• Activity Ratios
• Profitability Ratios
LIQUIDITY RATIOS
Current Assets
Current Ratio =
Current Liabilities
• It is the relationship between the current assets and current
liabilities of a concern.
CURRENT RATIO
• measures how many times over a company could pay its current
interest payment with its available earnings.
• The lower a company’s interest coverage ratio is, the more its
debt expenses burden the company.
• Moreover, an interest coverage ratio below 1 indicates the
company is not generating sufficient revenues to satisfy its interest
expenses.
ACTIVITY RATIO
• Also called efficiency ratios
• Evaluates how well a company uses its assets and liabilities
to generate sales and maximize profits.
• Key efficiency ratios are the following:
• asset turnover ratio
• Receivables turnover
• inventory turnover
• days' sales in inventory.
ASSET TURNOVER RATIO
Sales
Asset Turnover =
Average Total Assets