week12-financial statement analysis
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8/12/2019 Week12-Financial Statement Analysis
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Copyright 2007 Prentice-Hall. All rights reserved 1
Financial StatementFinancial Statement
AnalysisAnalysis
(Week 12)
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Objective 1Objective 1
Explain the purpose of
financial statementanalysis
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PurposePurpose
To make informed decisions about acompany
Generally based on comparativefinancial data
!rom one year to the next
With another company
With the industry
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Objective 2Objective 2
erform a horiontal analysis of
comparative financial statements
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Horizontal AnalysisHorizontal Analysis
*ompares t$o financial statementsto determine dollar and percenta"echan"es
#etermine dollar chan"es
#etermine percenta"e chan"es + dollarchan"e divided by base period amount
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200! 200" #i$$erence
%even&es '4!2(000 '447(00 '44(400
'44(400 ) '447(00 * .0!!2( or !.!+
E1!11E1!11
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E1!11E1!11"#arley $#eron $a%is& 'ncorporated
Horizontal Analysis o( "omparative 'ncome Statement)ears Ended *ecember +1& 2,,- and 2,,.
'ncr/0*ecr/
2,,- 2,,. A$ 3
$otal revenues 4-2&,,, 45&6,, 4&,, -/-3E%penses7
"ost o( goods soldSelling 8 gen e%penses'nterest e%pense'ncome ta% e%pense
$otal e%penses9et income
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200! 200" #i$$erence
Cost o$,oods sold '242(000 '22(000 '1(000
'1(000 ) '22(000 * 0.070"( or 7.1+
E1!11E1!11
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E1!11E1!11"#arley $#eron $a%is& 'ncorporated
Horizontal Analysis o( "omparative 'ncome Statement)ears Ended *ecember +1& 2,,- and 2,,.
'ncr/0*ecr/
2,,- 2,,. A$ 3
$otal revenues 4-2&,,, 45&6,, 4&,, -/-3E%penses7
"ost o( goods sold 422&,,, 4226&,,, 416&,,, 5/1Selling 8 gen e%penses 115&6,, 111&6,,'nterest e%pense .&,,, :&,,,'ncome ta% e%pense :,&,, &,,
$otal e%penses 1.&,,, +.5&,,,9et income 4 5&,,, 4 6,&6,,
6&,,,
+&,,,6&,,,
+1&,,,1+&,,
:/
6,/,1+/:
./,22/1
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E1!11E1!11
,et income increased by a muchhi"her percenta"e than totalrevenues durin" 2--. because
revenues increased at a hi"her rate(./.0) than did total expenses(/-0)
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$rend Percentages$rend Percentages
ase year percenta"e is 1--0
Trend 0 +3ny year 4
ase year 4
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E1!12E1!12
)r : )r )r + )r 2 )r 1
9et sales 1,,3
9et income 1,,
et sales/ear 2 2(0052(045 * !"+
/ear 3 2(1252(045 * 104+/ear 4 2(1"52(045 * 107+/ear 5 2(4052(045 * 11"+
-.31,31,5311.3
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E1!12E1!12
)r : )r )r + )r 2 )r 1
9et Sales 11.3 1,53 1,3 -.3 1,,3
9et income 1,,
et incoe gre y 5+ d&ring the period(copared to 1"+ $or net sales
-.31,,31,31,:3
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Objective +Objective +
erform a vertical analysis of
financial statements and preparecommon5sie financial statements
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;ertical Analysis;ertical Analysis
&ho$s relationship of each item to abase amount on financial statements
%ncome statement each itemexpressed as percenta"e of net sales
alance sheet each item expressedas percenta"e of total assets
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E1!1+E1!1+
ercenta"es based on total assets6
*urrent assets6
1-'---789'--- + 22/20
:on"5term investments6
;2';--789'--- + 1-/0
roperty' plant' and e/-0
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E1!1+E1!1+
ercenta"es based on total assets6
*urrent liabilities6
>'---789'--- + 1>/.0
:on"5term debt6
1>>'---789'--- + =9/80
Total stockholders? e0
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E1!1+E1!1+'$'ES
$otal current liabilities 4 .5&,,, 15/-3>ong!term debt 155&,,, +6/
$otal liabilities 26&,,, :/+S$O"?HO>*ERS@ EB'$)
$otal stocC#olders@ e=uity 222&,,, :/5$otal liabilities 8 stocC#olders@ e=uity 4.6&,,, 1,,/,3
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"ommon!Size Statements"ommon!Size Statements
@eports only percenta"es
Aseful $hen benchmarkin" acompany a"ainst industry avera"es
or key competitors
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E1!1E1!1
ercenta"es based on total revenues6
*ost of "oods sold6
2--6 229'---788>'9-- + ;-/;0
2--.6 282'---78.2'--- + 8./20
&ellin" B General Expenses6
2--6 111'9--788>'9-- + 28/.0
2--.6 11>'9--78.2'--- + 2=/.0
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E1!1E1!1
ercenta"es based on total revenues6
%nterest Expense6
2--6 ;'---788>'9-- + 1/10
2--.6 '---78.2'--- + 1/90
%ncome Tax Expense6
2--6 88'8--788>'9-- + ./.0
2--.6 ;-'8--78.2'--- + 1-/20
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E1!1E1!1"#arley $#eron $a%is& 'ncorporated/
"omparative "ommon!Size 'ncome Statement
)ears Ended *ecember +1& 2,,- and 2,,.
2,,- 2,,.
$otal revenues 1,,/,3 1,,/,3E%penses7
"ost o( goods sold -/2 :,/:
Selling and general e%penses 2+/- 2/-
'nterest e%pense 1/6 1/1
'ncome ta% e%pense 1,/2 -/-
$otal e%pense ./- .6/
9et income 1:/13 1+/63
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Objective Objective
*ompute commonly used
financial ratios
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C&rrent assets C&rrent liailities
>i=uidity Ratios>i=uidity Ratios
Workin" capital measure ofamount of current asset remainin"after all current liabilities have been
paid
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C&rrent assets
C&rrent liailities
>i=uidity Ratios>i=uidity Ratios
*urrent ratio measures ability topay current assets $ith currentliabilities
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&ic6 assetsC&rrent liailities
>i=uidity Ratios>i=uidity Ratios
Cuick ratio (acid test ratio) if theentity could pay all its currentliabilities if they came due
immediatelyCuick assets 5 cash' short5term
investments' net current receivables
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et incoe
et sales
Pro(itabilityPro(itability
@ate of return on net sales (profitmar"in) percenta"e of each salesdollar that is earned as net income
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et incoe 8nterest e9pense:Average total assets
Pro(itabilityPro(itability
@ate of return on total assets ho$successful the business is in usin"assets to earn a profit
:Average total assets *; 2
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et incoe Pre$erred dividends
:Average coon stoc6holders? e@&ity
Pro(itabilityPro(itability
@ate of return on commonstockholders? e
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Pro(itabilityPro(itability
Tradin" on the e
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et incoe Pre$erred dividends
&er o$ shares o$ coon stoc6 o&tstanding
Pro(itabilityPro(itability
Earnin"s per share of common stock income "enerated by one share ofstock
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E1!15E1!15
0rate o( return on net sales0rate o( return on net sales
'12(000'21(000
4.+
et incoeet sales
200"
'17(000'237(000
7.2+
2007
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E1!15E1!15
0rate o( return on total assets0rate o( return on total assets
'12(00032(000;'320(0002!2(000>2
14.4+
200"
'17(00015(000;'2!2(0002"2(000>2
11.1+
2007
et incoe 8nterest e9pense:Average total assets
E1 15E1 15
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E1!15E1!150rate o( return on common stocC#olders@0rate o( return on common stocC#olders@
e=uity e=uity
'12(000-4(000;'14"(000140(000>2
5.+
200"
'17(000-4(000;'140(000132(000>2
!.+
2007
et incoe Pre$erred dividends:Average coon stoc6holders? e@&ity
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E1!15E1!15
0earnings per s#are 0earnings per s#are
'12(000-4(00025(000
'0.32
200"
'17(000-4(00025(000
'0.52
2007
et incoe Pre$erred dividends&er o$ shares o$ coon stoc6 o&tstanding
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E1!15E1!15
The company?s operatin"performance deteriorated overalldurin" 2--/ 3ll profitability
measures' except rate of return ontotal assets decreased
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Cost o$ goods soldAverage inventory:
Asset BtilizationAsset Btilization
%nventory turnover ho$ manytimes a year the company sells itsavera"e level of inventory
:Average inventory *;2
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et credit salesAverage net acco&nts receivale:
Asset BtilizationAsset Btilization
3ccounts receivable turnover ho$
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Average net acco&nts receivaleBne days? sales:
Asset BtilizationAsset Btilization
#ays? sales in receivables ho$many days? sales remain uncollectedin accounts receivable
:Bne days? sales * et sales 35
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C&rrent assetsC&rrent liailities
E1!1:E1!1:
0current ratio0current ratio
'175(000'"7(500
2.0
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E1!1:E1!1:
0=uicC ratio0=uicC ratio
'27(000 '22(000 '54(000'"7(500
1.2
&ic6 assetsC&rrent liailities
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E1!1:E1!1:
0inventory turnover0inventory turnover
'331(700;;'42(000 5(000> 2>
.2 ties
Cost o$ goods soldAverage inventory:
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E1!1:E1!1:0accounts receivable turnover0accounts receivable turnover
'554("00;;'72(000 54(000> 2>
"." ties
et credit salesAverage net acco&nts receivale:
E1 1 0d @ l i
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E1!1: 0days@ sales inE1!1: 0days@ sales in
receivablesreceivables
;;'72(000 54(000> 2>;'554("0035>
41.4 days
Average net acco&nts receivaleBne days? sales:
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otal liailitiesotal assets
*ebt Btilization*ebt Btilization
#ebt ratio proportion of company?sassets financed $ith debt
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8ncoe $ro operations:8nterest e9pense
*ebt Btilization*ebt Btilization
Times5interest5earned (interestcovera"e) ho$ many timesoperatin" income covers interest
expense
:8ncoe $ro operations *8ncoe e$ore incoe ta9 D interest e9pense
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2,,.74+2&,,,D+:&,,,D1+,&,,,D+,&,,,D1:&,,,
2/:422,&.,,
2,,574:&,,,D12&,,,D+6,&,,,D12&,,,
2/+42:&6,,
E1!16E1!16
0current ratio0current ratio
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2,,.74+2&,,,D+:&,,,D1+,&,,,
/.-422,&.,,
2,,574:&,,,D12&,,,
/5642:&6,,
E1!16E1!16
0=uicC ratio0=uicC ratio
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2,,.7422,&.,, D 2&2,,
/24:.,&,,,
2,,5742:&6,, D 2-&,,
/-4:6,&,,,
E1!16E1!16
0debt ratio0debt ratio
E1 16E1 16
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2,,.741.:&,,,
/42&,,,
2,,57415-&,,,
/14&,,,
E1!16E1!16
0times!interest!earned0times!interest!earned
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E1!16E1!16
&ummary6 The company?s ability topay its current liabilities' lon"5termdebt' and interest expense has
improved durin" 2--
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Ear6et price per share=PF
StocC 'nvestmentsStocC 'nvestments
rice7earnin"s ratio the marketprice of 41 of earnin"s
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#ividend per shareEar6et price per share
StocC 'nvestmentsStocC 'nvestments
#ividend yield percenta"e of astock?s market value that is returnedannually as dividends
E1 1.E1 1.
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E1!1.E1!1.
0priceearnings ratio 0priceearnings ratio
'15.1";'"7(000-1"(000>100(000
22.0
200"
'11.3;'"3(000-1"(000>100(000
17.!
2007
Ear6et price per share=PF
E1 1.E1 1.
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E1!1.E1!1.
0dividend yield 0dividend yield
;'4"(0001"(000>100(000'15.1"
.020
200"
;'4"(000-1"(000>100(000'11.3
.02
2007
#ividend per shareEar6et price per share
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Objective :Objective :
easure economic valueadded
Economic ;alue AddedEconomic ;alue Added
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Economic ;alue AddedEconomic ;alue Added
0E;AG0E;AG
easures $hether a business?soperations have increased itsstockholder $ealth
et incoe 8nterest e9pense Capital charge
Economic ;alue AddedEconomic ;alue Added
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Economic ;alue AddedEconomic ;alue Added
0E;AG0E;AG
*apital char"e amountstockholders and lenders char"e acompany for the use of their money
otes
payale
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Economic ;alue AddedEconomic ;alue Added
0E;AG0E;AG
ositive EF3G5 increase instockholder $ealth
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E1!1-E1!1-
randy itts Winery
=GA *'100(000 42(000 41(!04 * '100(0!
Capital Charge;'14(200 335(000> 9 12+ * '41(!04
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E1!1-E1!1-
Henna ,iston !ashions
=GA *'12(000 32(000 25(040 * '1"(!0
Capital Charge;'12(000 301(000> 9 "+ * '25(040
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Objective 6Objective 6
Atilie non5financial data inanalyin" financial
statements
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9on(inancial *ata9on(inancial *ata
resident?s letter to the stockholders
ana"ement discussion and analysis
3uditor report
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han6 /o&han6 /o&
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