Transcript Investments - Long Island University

Chapter 19
Financial Statement
Analysis
Overview
Purpose
 Tools Used
- Statements
- Ratio Analysis
 Limitations

Financial Statements
Balance Sheet
- Common Sized
- Trend or Indexed
 Income Statement
- Common Sized
- Trend or Indexed
 Statement of Cash Flows

Ratio Analysis



Purpose of Ratio Analysis
Uses
- Trend analysis
- Comparative analysis
- Combination
Use by External Analysts
- Important information for investment community
- Important for credit markets
Type of Financial Ratios
Liquidity Ratios
 Activity or Mgmt Efficiency Ratios
 Leverage Ratios
 Profitability Ratios
 Market Price Ratios

Liquidity Ratios
Current Ratio
Current Assets
Current Liabilities
Quick Ratio
Current Assets - Inventory
Current Liabilities
Activity or
Management Efficiency Ratios
Inventory Turnover
Sales or Cost of Goods Sold
Inventory
Total Asset Turnover
Sales
Total Assets
Activity or
Management Efficiency Ratios
Average Collection Period
Accounts Receivable
Sales Per Day
Days to Sell Inventory
Inventory
Sales Per Day
Leverage Ratios
Times Interest Earned
Earnings Before Int. & Taxes
Interest Expense
Fixed Charge Coverage Ratios
Lease Payments
Principal Repayments
Preferred Dividends
Leverage Ratios
Debt to Assets
Long Term Debt
Assets
Debt to Equity
Long Term Debt
Shareholders Equity
Profitability Ratios
Net Profit Margin %
Net Income
Sales
Return on Assets
Net Income
Total Assets
Profitability Ratios
Return on Equity
Net Income
Common Equity
Operating Margin After Depr.
Operating Profit
Sales
Market Price Ratios
Price to Earnings
Market Price of Stock
Earnings
Market-to-Book-Value
Market Price of Stock
Book Value Per Share
Decomposition of ROE
ROE =
Net Profit
Pretax Profit
Pretax Profit
EBIT
(1)
Tax
Burden
x
x
x
(2)
Interest
Burden
x
EBIT
Sales
(3)
x
x
Sales
Assets
x
Assets
Equity
(4) x (5)
x Margin x Turnover x Leverage
Comparability Problems
Accounting Differences
- Inventory Valuation
- Depreciation
 Inflation
 International Accounting Conventions
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