St.mgt
18
FINANCIAL ANALYSIS The financial statement of any organization shows the results of its operation and its position in business. It is a process which involves reclassification and summarization of information through the establishment of ratios and trends. The overall objective of financial statement analysis is the examination of a firm’s financial position. Vertical Analysis In vertical analysis of balance sheet the percentage of each item of statement is calculated to total and then the change in the percentages is checked with in years. In vertical analysis of profit and loss account /income statement percentage of each item of statement is calculated by dividing it on net sales. Horizontal Analysis Through this analysis we can check that what changes are occurred in the items of balance sheet and profit and loss account. Last year become base for next year. And change can be easily analyzed. Vertical Analysis of Balance Sheet PARTICULARS 2007 Percentage 2006 Percentage Assets Current assets Cash and cash 2074000 24.3% 2090000 23.69%
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FINANCIAL ANALYSIS
The financial statement of any organization shows the results of its operation and its position in business. It is a process which involves reclassification and summarization of information through the establishment of ratios and trends. The overall objective of financial statement analysis is the examination of a firm’s financial position.
Vertical Analysis
In vertical analysis of balance sheet the percentage of each item of statement is calculated to total and then the change in the percentages is checked with in years. In vertical analysis of profit and loss account /income statement percentage of each item of statement is calculated by dividing it on net sales.
Horizontal Analysis
Through this analysis we can check that what changes are occurred in the items of balance sheet and profit and loss account. Last year become base for next year. And change can be easily analyzed.
Vertical Analysis of Balance Sheet
PARTICULARS 2007 Percentage 2006 Percentage
Assets
Current assets
Cash and cash
equivalents
2074000 24.3% 2090000 23.69%
Short term
investment
570000 6.67% 952000 10.79%
Net receivables 156000 1.83% _ _
Inventory 1796000 21.0% 1696000 19.2%
Other current
assets
433000 5.07% 501000 5.68%
Total current 5029000 58.86% 5239000 59.4%
assets
Long term
investments
_ _ _ _
Property ,plant
and equipment
3197000 37.4% 3246000 36.8%
Goodwill _ _ _ _
Intangible assets _ _ _ _
Accumulated
amortization
_ _ _ _
Other assets 131000 1.5% 336000 3.8%
Deferred long
term assets
charges
187000 2.19% _ _
Total assets 8544000 8821000
Liabilities
Current liabilities
Accounts payable 1947000 22.79% 1942000 22.01%
Short/current long
term debt
325000 3.8% _ _
Other current
liabilities
_ _ _ _
Total current
liabilities
2272000 26.6% 1942000 22.01%
Long term debt 188000 2.2% 513000 5.8%
Other liabilities 910000 10.65% 941000 10.67%
Deferred long
term liability
_ _ _ _
charges
Minority interest _ _ _ _
Negative
goodwill
_ _ _ _
Total liabilities 3370000 39.4% 3396000 38.5%
Stockholder’s
equity
Misc stocks,
options, warrants
_ _ _ _
Redeemable
preferred stock
_ _ _ _
Preferred stock _ _ _ _
Common stock 55000 .64% 54000 .61%
Retained earnings 8646000 101.2% 8133000 92.2%
Treasury stock (6235000) (72.97) (5210000) (59.1%)
Capital surplus 2631000 30.79% 2402000 27.2%
Other SE 77000 0.90% 46000 0.52%
Total SE 5174000 60.56% 5425000 61.5%
Total liabilities
and SE
8544000 8821000
Vertical Analysis of Profit And Loss Account
PARTICULARS 2007 Percentage 2006 Percentage
Net sales 15943000 100% 16023000 100%
CGS and
occupancy
expense
10294000 64.57% 10154000 63.4%
Gross profit 5649000 35.43% 5869000 36.6%
Operating
expenses
4475000 28.1% 4124000 25.74%
Loss on early
retirement of debt
_ _ _ _
Interest expense 41000 0.26% 45000 0.28%
Interest income 131000 0.82% 93000 0.58%
Earning before
income taxes
1264000 7.93% 1793000 11.2%
Current income
taxes federal
450000 2.82% 657000 4.1%
Current income
taxes state
64000 0.40% 63000 0.39%
Current income
taxes foreign
50000 0.31% 45000 0.28%
Total current
income taxes
564000 3.54% 765000 4.7%
Deferred income
taxes (benefit)
federal
(77000) (0.48%) (44000) (0.27%)
Deferred income
taxes (benefit)
(8000) (.05%) 4000 .025
state
Deferred income
taxes (benefit)
foreign
7000 .04% (45000) (0.28%)
Total deferred
income taxes
(78000) (0.49%) (85000) (0.53%)
Income taxes 486000 3.05% 680000 4.24%
Net earnings
(loss)
778000 4.89% 1113000 6.95%
RATIO ANALYSIS
Ratio analysis includes method of interpreting financial ratios to access the performance of any organization. The basic input to ratio analysis is profit and loss account and balance sheet. Ratio analysis of any organization is in interest of its creditors, employees, shareholders and of its management as well. Both existing and prospective customer are interested in the ratio analysis of organization
Ratio analysis is a valuable aid to management in the discharge of its basic functions such as planning, forecasting, control etc. these ratios describe the relationship with the functioning of the business and helpful for controlling cost of goods manufactured. The great advantage of ratio analysis is that it reduces raw data of widely varying magnitude to a common comparative basis. Thus, ratio analysis is the most meaningful to compare financial information regarding a giving company.
Liquidity Ratios
Current Ratio
Formula:
Current ratio= Current assets Current liabilities
Year 2006 Year 2007
Current assets 5029000
Current liabilities 2272000
Current ratio 2.21 times
Interpretation
Quick Ratio
Formula:
Current ratio= Current assets-inventory Current liabilities
Interpretation
Solvency ratiosDebt Ratio
Formula:
Debt Ratio=Total liabilities Total assets
Year 2006 Year 2007
current assets-inventory 3233000
Current liabilities 2272000
Current ratio 1.4 times
Year 2006 Year 2007
Total liabilities3370000
Total assets 8544000
Debt ratio 0.39 times
Interpretation
Long term Debt Ratio
Formula:
Debt Ratio=Total liabilities Total assets
Interpretation
Time interest earned ratioFormula
Time interest earned ratio=Earning before interest and taxes Interest
Year 2006 Year 2007
LTD188000
LTD+TE 5362000
Debt ratio 0.035 times
Interpretation
Asset management/turnover ratios
Total asset turnover
Formula: Total asset turnover= Sales Total Assets
Interpretation
Inventory turnover
Formula: Total asset turnover= CGS Inventory
Year 2006 Year 2007
Earning before interest and taxes
1174000
Interest 41000
Time interest earned ratio
28.63 times
Year 2006 Year 2007
Sales 15943000
Total assets 8544000
Total asset turnover1.86 times
Interpretation
Profit ratiosPROFIT MARGIN
Formula:
Profit margin= Net Income sales
Interpretation
Return on assets
Formula:
Return on assets= Net Income Total assets
Year 2006 Year 2007
CGS10294000
Inventory 1796000
Inventory turnover5.73 times
Year 2006 Year 2007Net Income
778000
Sales 15943000
Profit margin 4.88%
Interpretation
Return on equity
Formula
Return on common equity= Net Income Total Equity
Interpretation
Earning per share
Formula
Earning per share= Earning available for common stock holder No. of shares of common stock outstanding
Year 2006 Year 2007Net Income
778000
Total assets 8544000
ROA 9.1%
Year 2006 Year 2007Net Income
778000
TOTAL Equity 5174000
ROE 15.04%
Interpretation
Projected income statement of 2008
Year 2006 Year 2007Earning available for common stock holder
778000
No. of shares of common stock outstanding
813870
EPS 0.95$
Projected balance sheet of 2008
PARTICULARS 2008
PARTICULARS 2008
Net sales 15863285
CGS and occupancy expense 10073185
Gross profit 5790100
Operating expenses 4855874
Loss on early retirement of debt _
Interest expense 37355
Interest income 184527
Earning before income taxes 891120
Current income taxes federal 308250
Current income taxes state 64102
Current income taxes foreign 55555
Total current income taxes 415668
Deferred income taxes (benefit)
federal
19250
Deferred income taxes (benefit) state -
Deferred income taxes (benefit)
foreign
1092
Total deferred income taxes (71604)
Income taxes 374790
Net earnings (loss) 1350607
Assets
Current assets
Cash and cash equivalents 2058122
Short term investment 341282
Net receivables 159000
Inventory 1901896
Other current assets 374229
Total current assets 4834529
Long term investments _
Property ,plant and equipment 3148739
Goodwill _
Intangible assets _
Accumulated amortization _
Other assets 51074
Deferred long term assets charges 189500
Total assets 8223842
Liabilities
Current liabilities
Accounts payable 1995675
Short/current long term debt 327000
Other current liabilities _
Total current liabilities 2658076
Long term debt 68897
Other liabilities 880021
Deferred long term liability charges _
Minority interest _
Negative goodwill _
Total liabilities 14342984
Stockholder’s equity
Misc stocks, options, warrants _
Redeemable preferred stock _
Preferred stock _
Common stock 560186
Retained earnings 9191358
Treasury stock (5008345)
Capital surplus 2471731
Other SE 128891
Total SE 7753922
Total liabilities and SE 8223842
