Kế toán doanh nghiệp - Chapter 13: Analyzing financial statements
In order to compare companies or to assess the status of a single company, analysts use two different forms of analysis. Time series analysis examines a single company’s financial performance over time. It is also important to compare the company with those of other companies in the same industry. Financial results are often affected by industry factors and economy-wide factors. By comparing one company’s financial performance with other companies in the same line of business, in the same time period, we get an indication of the relative performance of the companies.
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Chapter 13Analyzing Financial StatementsMcGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.Financial Statement AnalysisExamines a single company to identify trends over time. Financial statement analysis is based on comparisons.Time series analysisComparison with similar companiesProvides insights concerning a company’s relative performance.Component PercentagesExpress each item on a particular statement as a percentage of a single base amount.Total assets on the balance sheetNet sales on the income statementThe comparative income statements of Home Depot for 2012, 2011, and 2010 appear on the next slide. Prepare component percentage income statements where net sales equal 100%.Net Sales will be set to 100% and all other components will be expressed as a percentage of Net Sales.2012 Cost of Sales ÷ 2012 Net Sales$46,133 ÷ $70,395 = .655 or 65.5%2012 Gross Profit ÷ 2012 Net Sales$24,262 ÷ $70,390 = .345 or 34.5%2012 Selling, G&A ÷ 2012 Net Sales$16,028 ÷ $70,395 = .228 or 22.8%Net Sales will be set to 100% and all other components will be expressed as a percentage of Net Sales. Component Percentages Commonly Used Ratios The 2012 and 2011 balance sheets for Home Depot are presented next. We will be referring to these financial statements throughout the ratio analyses.Home DepotTest of Profitability ─ Return on EquityReturn on Equity $3,883($17,898 + $18,889) ÷ 2= = 21.1% Net Income Average Stockholders’ EquityReturn on Equity=This measure indicates how much income was earned for every dollar invested by the owners. Profitability is a primary measure of the overall success of a company. Test of Profitability ─ Return on AssetsReturn on AssetsNet Income + Interest Expense (net of tax)Average Total Assets=Return on Assets $3,883 + ($606 × (1 - .34)) ($40,518 + $40,125) ÷ 2= = 10.6%This ratio measures how well assets have been employed by the business. Many analysts consider this ratio as the best overall measure of a company’s profitability.Assume the corporate tax rate is 34%.TEST OF PROFITABILITY ─ FINANCIAL LEVERAGE PERCENTAGEFinancial Leverage Percentage Return on Equity – Return on Assets= 10.5% = 21.1% – 10.6%Financial leverage is the advantage or disadvantage that occurs as the result of earning a return on equity that is different from the return on assets. Test of Profitability ─ Earnings per Share (EPS)EPS $3,883 1,562== $2.49Earnings per share is probably the single most widely watched financial ratio.Average number of shares based on the number of shares at the beginning and end of the year. Net Income* Average Number of Shares Outstanding for the PeriodEPS =*If there are preferred dividends, the amount is subtracted from net income. Test of Profitability ─ Quality of IncomeA ratio higher than 1 indicates high-quality earnings.Quality of IncomeCash Flow from Operating Activities Net Income=$6,651 $3,883= 1.71Home Depot’s Quality of IncomeTest of Profitability ─ Profit MarginThis ratio tells us the percentage of each sales dollar, on average, that represents income. ProfitMargin Net Income Net Sales Revenue== 5.5%ProfitMargin$3,883$70,395=Test of Profitability ─ Fixed Asset TurnoverFixed Asset Turnover$70,395 ($24,448 + $25,060) ÷ 2== 2.84Fixed Asset TurnoverNet Sales Revenue Average Net Fixed Assets=This ratio measures a company’s ability to generate sales given an investment in fixed assets.Tests of Liquidity ─ Cash RatioCashRatioCash + Cash EquivalentsCurrent Liabilities==0.21 to 1CashRatio$1,987$9,376=This ratio measures the adequacy of available cash.Tests of liquidity focus on the relationship between current assets and current liabilities. Tests of Liquidity ─ Current RatioCurrentRatio Current Assets Current Liabilities=CurrentRatio$14,520 $9,376==1.55 to 1This ratio measures the abilityof the company to pay currentdebts as they become due.Tests of Liquidity ─ Quick Ratio (Acid Test) Quick Assets Current Liabilities=QuickRatio$3,232 $9,376=0.35 to 1=QuickRatioThis ratio is like the currentratio but measures the company’simmediate ability to pay debts.Tests of Liquidity ─ Receivable Turnover Net Credit Sales Average Net ReceivablesReceivable Turnover=Receivable Turnover $70,395($1,245 + $1,085) ÷ 2= 60.4 Times=This ratio measures how quickly a company collects its accounts receivable.Tests of Liquidity ─ Average Age of ReceivablesDays in Year Receivable TurnoverAverage Age of Receivables== 6.0 Days365 60.4Average Age of Receivables=This ratio measures the average number of days it takes to collect receivables.Tests of Liquidity ─ Inventory TurnoverCost of Goods Sold Average InventoryInventory Turnover=Inventory Turnover $46,133($10,325 + $10,625) ÷ 2= 4.4 Times=This ratio measures how quickly the company sells its inventory.Tests of Liquidity ─ Average Days’ Supply in InventoryDays in YearInventory TurnoverAverage Days’ Supply in Inventory== 83 Days365 4.4=Average Days’ Supply in InventoryThis ratio measures the average number of days it takes to sell the inventory.Tests of Liquidity ─ Accounts Payable Turnover RATIOCost of Goods Sold Average Accounts PayableAccounts Payable Turnover=This ratio measures how quickly the company pays its accounts payable. $46,133($4,856 + $4,717) ÷ 2= 9.6 Times=Accounts Payable TurnoverThis ratio indicates a margin of protection for creditors. Tests of Solvency ─ Times Interest Earned Net Interest Income Tax Income Expense Expense Interest ExpenseTimes Interest Earned=++$3,883 + $606 + $2,185 $606 Times Interest Earned= = 11.0 Times Tests of solvency measure a company’s ability to meet its long-term obligations.Cash Coverage=$6,651 + $580 + $1,865 $580 = 15.7This ratio compares the cash generated with the cash obligations of the period.Cash CoverageCash Flow from Operating Activities Before Interest and Taxes Paid Interest Paid=Tests of Solvency ─ Cash CoverageTests of Solvency ─ Debt-to-Equity RatioThis ratio measures the amount of liabilities that exists for each $1 invested by the owners. $22,620$17,898= 1.26=Debt-to-Equity RatioTotal LiabilitiesStockholders’ EquityDebt-to-Equity Ratio=Market Tests ─ Price/Earnings (P/E) RatioP/E Ratio =Current Market Price Per Share Earnings Per ShareP/E Ratio =$60 $2.49= 24.1This ratio measures the relationship between the current market price of the stock and its earnings per share.A recent price for Home Depot stock was $60 per share.Market tests relate the current market price of a share of stock to an indicator of the return that might accrue to the investor.Market Tests ─ Dividend Yield RatioDividendYield Dividends Per Share Market Price Per Share=DividendYield$1.16 $60== 1.9%This ratio is often used to compare the dividend-paying performance of different investment alternatives.Home Depot paid dividends of $1.16 per share when the market price was $60 per share.End of Chapter 13
