Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Statement...
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Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Statement Financial Statement Analysis Analysis Chapter 14 McGraw-Hill/Irwin
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Transcript of Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Statement...
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Financial Statement Financial Statement AnalysisAnalysis
Chapter 14
McGraw-Hill/Irwin
14-2
Dollar & Percentage
Changes
Trend Percentages
Component Percentages Ratios
Tools of AnalysisTools of Analysis
14-3
Past performance topresent perform ance.
O ther com panies toyour com pany.
Along w ith dollar and percentage changes,trend percentages, and com ponent percentages,
ratios can be used to compare:
A ratio is a sim ple m athematical expressionof the relationship betw een one item and another.
RatiosRatios
14-4
Current Assets – Current Liabilities = Working Capital
Current Assets – Current Liabilities = Working Capital
Working CapitalWorking Capital
14-5
CurrentRatio
Current Assets Current Liabilities
=
This ratio measures the short-term debt-paying ability of the company.
This ratio measures the short-term debt-paying ability of the company.
Current RatioCurrent Ratio
14-6
Quick assets are cash, marketable securities, and receivables.
Quick assets are cash, marketable securities, and receivables.
This ratio excludes current assets such as inventories and prepaid
assets that may be difficult to quickly convert into cash.
This ratio excludes current assets such as inventories and prepaid
assets that may be difficult to quickly convert into cash.
Quick AssetsCurrent Liabilities
=QuickRatio
Quick RatioQuick Ratio
14-7
An income statement can be prepared in either a multiple-step or single-step format.
An income statement can be prepared in either a multiple-step or single-step format.
The single-step formatis simpler. The multiple-step
format provides more detailed information.
The single-step formatis simpler. The multiple-step
format provides more detailed information.
Measures of ProfitabilityMeasures of Profitability
14-8
Babson Builders, Inc.Income Statement
For the Year Ended 12/31/09
Revenues and gains: Sales, net 785,250$ Interest income 62,187 Gain on sale of plant assets 24,600 Total revenues and gains 872,037$
Expenses and losses: Cost of goods sold 351,800$ Selling Expenses 197,350 General and Admin. Exp. 78,500 Depreciation 17,500 Interest 27,000 Income taxes 62,500 Loss: sale of investment 9,000 Total expenses & losses 743,650 Operating income 128,387$
Proper Heading
Expenses& Losses
Revenues & Gains
Income Statement (Single-Income Statement (Single-Step)Step)
Remember to compute
EPS.
Remember to compute
EPS.
14-9
Proper Heading
Gross Margin
Operating Expenses
Non-operating Items
Remember to compute
EPS.
Remember to compute
EPS.
Income Statement Income Statement (Multiple-Step)(Multiple-Step)
14-10
Earnings Per ShareEarnings Per Share
Net Income – Preferred DividendsAverage Shares of Capital Stock Outstanding
= EPS
14-11
Price-Earnings RatioPrice-Earnings Ratio
Current Market Price of one Share of StockEarnings Per Share = P/E
The measure shows us the relationship between earning of the company and the market price of its stock.
The measure shows us the relationship between earning of the company and the market price of its stock.
14-12
This ratio is generally consideredThis ratio is generally consideredthe best overall measure of athe best overall measure of a
company’s profitability.company’s profitability.
This ratio is generally consideredThis ratio is generally consideredthe best overall measure of athe best overall measure of a
company’s profitability.company’s profitability.
Return On Assets (ROA)Return On Assets (ROA)
14-13
This measure indicates how well the company employed the owners’
investments to earn income.
This measure indicates how well the company employed the owners’
investments to earn income.
Return On Equity (ROE)Return On Equity (ROE)
14-14
Dividend YieldDividend Yield
This ratio identifies the return, in terms of cash dividends, on the
current market price of the stock.
This ratio identifies the return, in terms of cash dividends, on the
current market price of the stock.
DividendYield Ratio
Dividends Per Share Market Price Per Share
=
14-15
Accounts Receivable Accounts Receivable Turnover RateTurnover Rate
This ratio measures how many times a company converts its
receivables into cash each year.
This ratio measures how many times a company converts its
receivables into cash each year.
Net SalesAverage Accounts Receivable
Accounts ReceivableTurnover
=
Days to Collect = 365 / Turn
14-16
Inventory Turnover RateInventory Turnover Rate
This ratio measures the number of times merchandise inventory is sold and replaced
during the year.
This ratio measures the number of times merchandise inventory is sold and replaced
during the year.
Cost of Goods SoldAverage Inventory
InventoryTurnover
=
Days to Sell = 365 / Turn
14-17
Operating CycleOperating Cycle
Cash
InventoryAccounts
Receivable
1. Purchase of Merchandise
2. Sale of merchandise on account
3. C
olle
ctio
n of
acco
unts
rece
ivabl
e
14-18
A measure of creditor’s long-term risk.
The smaller the percentage of assets that are financed by debt, the smaller
the risk for creditors.
A measure of creditor’s long-term risk.
The smaller the percentage of assets that are financed by debt, the smaller
the risk for creditors.
Debt RatioDebt Ratio
Total Liabilities / Total Assets
14-19
Interest Coverage RatioInterest Coverage Ratio
This is the most common measure of the ability of a firm’s operations to provide protection
to the long-term creditor.
This is the most common measure of the ability of a firm’s operations to provide protection
to the long-term creditor.
Times Interest Earned
Income before Interest and Income TaxesInterest Expense
=
14-20
31-Dec-12 31-Dec-11 31-Dec-10
5,089,000 3,711,000 1,974,000
1,364,000 860,000 493,000
3,725,000 2,851,000 1,481,000
Research Development 1,399,000 388,000 144,000
Selling General and Administrative 1,788,000 707,000 305,000
538,000 1,756,000 1,032,000
Total Other Income/Expenses Net 7,000 -19,000 -2,000
Earnings Before Interest And Taxes 545,000 1,737,000 1,030,000
Interest Expense 51,000 42,000 22,000
Income Before Tax 494,000 1,695,000 1,008,000
Income Tax Expense 441,000 695,000 402,000
Minority Interest -21,000 -332,000 -234,000
Net Income From Continuing Ops 32,000 668,000 372,000
32,000 668,000 372,000
Gross Profit
Operating Expenses
Income Statement
Period Ending
Total Revenue
Cost of Revenue
Net Income
Operating Income or Loss
Facebook, Inc.
14-21
31-Dec-12 31-Dec-11 31-Dec-10
Cash And Cash Equivalents 2,384,000 1,512,000 1,785,000
Short Term Investments 7,242,000 2,396,000 -
Net Receivables 1,170,000 547,000 373,000
Inventory - - -
Other Current Assets 471,000 149,000 88,000
11,267,000 4,604,000 2,246,000
- - -
2,391,000 1,475,000 574,000
- - -
1,388,000 162,000 96,000
- - -
57,000 90,000 74,000
- - -
15,103,000 6,331,000 2,990,000
P roperty P lant and Equipment
Goodwill
Intangible Assets
Accumulated Amortization
Period Ending
Assets
Current Assets
Balance Sheet
Other Assets
Deferred Long Term Asset Charges
Total Assets
Total Current Assets
Long Term Investments
14-22
Accounts P ayable 488,000 359,000 166,000
Short/Current Long Term Debt 534,000 450,000 181,000
Other Current Liabilities 30,000 90,000 42,000
1,052,000 899,000 389,000
1,991,000 398,000 367,000
305,000 135,000 72,000
- - -
- - -
- - -
3,348,000 1,432,000 828,000
- - -
- - -
- 615,000 615,000
- - -
1,659,000 1,606,000 606,000
- - -
10,094,000 2,684,000 947,000
2,000 -6,000 -6,000
11,755,000 4,899,000 2,162,000
Misc Stocks Options Warrants
Redeemable P referred Stock
P referred Stock
Common Stock
Minority Interest
Negative Goodwill
Total Liabilities
Stockholders' Equity
Current Liabilities
Total Current Liabilities
Long Term Debt
Other Liabilities
Capital Surplus
Other Stockholder Equity
Total Stockholder Equity
Retained Earnings
Treasury Stock
Deferred Long Term Liability Charges
Liabilities
14-23
Dollar and Percentage Dollar and Percentage ChangesChanges
Dollar Change:
Analysis Period Amount
Base PeriodAmount
DollarChange = –
Percentage Change:
Dollar Change Base PeriodAmount
PercentChange = ÷
14-24
Dollar and Percentage Dollar and Percentage ChangesChanges
31-Dec-12 31-Dec-11 31-Dec-10
Dollar Change % ChangeCash And Cash Equivalents 2,384,000 1,512,000 1,785,000 872000 58%Short Term Investments 7,242,000 2,396,000 - 4846000 202%Net Receivables 1,170,000 547,000 373,000 623000 114%Inventory - - - Other Current Assets 471,000 149,000 88,000 322000 216%
11,267,000 4,604,000 2,246,000 6663000 145%
Using 2012 and 2011 data
Period Ending
Assets
Current Assets
Balance Sheet
Total Current Assets
14-25
Trend PercentagesTrend Percentages
Trend analysis is used to reveal patterns in data covering successive periods.
Trend analysis is used to reveal patterns in data covering successive periods.
TrendPercentages
Analysis Period Amount Base Period Amount
=
14-26
Trend PercentagesTrend Percentages
Base Year 2010
31-Dec-12 31-Dec-11 31-Dec-10
5,089,000 3,711,000 1,974,000
1,364,000 860,000 493,000
3,725,000 2,851,000 1,481,000 Gross Profit
Income Statement
Period Ending
Total Revenue
Cost of Revenue
Facebook, Inc.
31-Dec-12 31-Dec-11 31-Dec-10
258% 188% 100%
277% 174% 100%
252% 193% 100%
Total Revenue
Cost of Revenue
Gross Profit
GO
14-27
Component /Common Sized Component /Common Sized PercentagesPercentages
Examines the relative size of each item in the financial statements compared to
the base amount.
Component Percentage
Analysis Amount
Base Amount=
Financial Statement Base Amount
Balance Sheet Total Assets
Income Statement Revenues
Financial Statement Base Amount
Balance Sheet Total Assets
Income Statement Revenues
14-28
Component 31-Dec-12 Percent
5,089,000 100.0%1,364,000 26.8%
3,725,000 73.2%
Research Development 1,399,000 27.5%Selling General and Administrative
1,788,000 35.1%
538,000 10.6%Total Other Income/Expenses Net
7,000 0.1%Earnings Before Interest And Taxes
545,000 10.7%Interest Expense 51,000 1.0%Income Before Tax 494,000 9.7%Income Tax Expense 441,000 8.7%Minority Interest -21,000 -0.4%Net Income From Continuing Ops
32,000 0.6%
32,000 0.6%
On the income statement, everything is a percent of revenue
On the balance sheet, everything is a percent of total assets
Net Income
Gross Profit
Operating Expenses
Operating Income or Loss
Facebook, Inc. Income Statement
Period Ending
Total Revenue
Cost of Revenue
14-29
