Quản trị Kinh doanh - Chapter 17: Analysis of financial statements

Analysis of Financial StatementsChapter 17PowerPoint Editor: Beth Kane, MBA, CPACopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 17-C1: Purpose of Analysis 2Application of analytical toolsInvolves transforming dataReduces uncertaintyBasics of AnalysisFinancial statement analysis helps users make better decisions.Internal UsersManagersOfficersInternal AuditorsExternal UsersShareholdersLendersCustomersC 13Building Blocks of AnalysisC 1Liquidity and efficiencySolvencyMarket prospectsProfitability4Information for AnalysisC 1Income StatementBalance Sheet Statement of Stockholders’ EquityStatement of Cash FlowsNotes to the Financial Statements5 17-C2: Standards for Comparisons 6 Intracompany Competitors Industry GuidelinesStandards for ComparisonC 2When we interpret our analysis, it is essential to compare the results we obtained to other standards or benchmarks. 7Horizontal AnalysisComparing a company’s financial condition and performance across time.Tools of AnalysisVertical AnalysisComparing a company’s financial condition and performance to a base amount.Ratio AnalysisMeasurement of key relations between financial statement items.C 28 17-P1: Comparative Statements 9Horizontal AnalysisP 1Horizontal analysis refers to examination of financial statement data across time. Horizontal analysis refers to examination of financial statement data across time. 10Comparative StatementsCalculate Change in Dollar AmountDollarchangeAnalysis period amountBase periodamount=–When measuring the amount of the change in dollar amounts, compare the analysis period balance to the base period balance. The analysis period is usually the current year while the base period is usually the prior year. P 111Comparative StatementsCalculate Change as a PercentPercentchangeDollar change Base period amount100=×P 1When calculating the change as a percentage, divide the amount of the dollar change by the base period amount, and then multiply by 100 to convert to a percentage. 12Horizontal AnalysisP 113Horizontal AnalysisP 114Trend AnalysisTrend analysis is used to reveal patterns in data covering successive periods.Trendpercent Analysis period amount Base period amount100=×P 115Using 2009 as the base year we will get the following trend information:P 1Trend Analysis16Trend AnalysisWe can use the trend percentages to construct a graph so we can see the trend over time.P 117NEED-TO-KNOWCompute trend percents for the following accounts, using 20X1 as the base year (round percents to wholenumbers). State whether the situation as revealed by the trends appears to be favorable or unfavorable foreach account.($ in millions)20X420X320X220X1Sales$500$350$250$200Cost of goods sold40017510050Sales trend percents250%175%125%100%$500/$200$350/$200$250/$200$200/$200Cost of goods sold trend percents800%350%200%100%$400/$50$175/$50$100/$50$50/$50P 118 17-P2: Common-Size Statements 19Vertical AnalysisCommon-Size StatementsCommon-size percentAnalysis amountBase amount100=×Financial Statement Base AmountBalance Sheet Total AssetsIncome Statement RevenuesP 220Common-Size Balance SheetP 221Common-Size Income StatementP 222Common-Size GraphicsP 2Common-Size Graphic ofAsset ComponentsCommon-Size Graphic ofIncome Statement23NEED-TO-KNOWExpress the following comparative income statements in common-size percents and assess whether or notthis company’s situation has improved in the most recent year (round percents to whole numbers).($ in millions)20X220X1Sales$800$500Total expenses560400Net income$240$100Common-size percentsSales100%100%($800/$800)($500/$500)Total expenses70%80%($560/$800)($400/$500)Net income30%20%($240/$800)($100/$500)Each item is expressed as a % of current year’s salesP 224 17-P3: Ratio Analysis 25Ratio AnalysisP 3Liquidity and efficiencySolvencyMarket prospectsProfitability26Current RatioAcid-test RatioAccounts Receivable TurnoverInventory TurnoverDays’ Sales UncollectedDays’ Sales in InventoryTotal Asset TurnoverLiquidity and EfficiencyP 327Working CapitalWorking capital represents current assets financed from long-term capital sources that do not require near-term repayment.  Current assets– Current liabilities= Working capital  More working capital suggests a strong liquidity position and an ability to meet current obligations.P 328This ratio measures the short-term debt-paying ability of the company. A higher current ratio suggests a strong liquidity position.Current RatioCurrent ratio =Current assetsCurrent liabilitiesP 329This ratio is like the current ratio but excludes current assets such as inventories and prepaid expenses that may be difficult to quickly convert into cash. Acid-Test RatioAcid-test ratio = Cash + Short-term investments + Current receivablesCurrent liabilitiesReferred to as Quick AssetsP 330This ratio measures how many times a company converts its receivables into cash each year.Accounts Receivable TurnoverAccounts receivable = turnoverNet salesAverage accounts receivable, netAverage accounts receivable = (Beginning acct. rec. + Ending acct. rec.)2P 331This ratio measures the number of times merchandise is sold and replaced during the year.Inventory TurnoverInventory turnover = Cost of goods soldAverage inventoryAverage inventory = (Beginning inventory + Ending inventory)2P 332Provides insight into how frequently a company collects its accounts receivable.Days’ Sales Uncollected Day's sales = uncollectedAccounts receivable, net× 365Net salesP 333Days’ Sales in InventoryDay's sales in = InventoryEnding inventory× 365Cost of goods soldThis ratio is a useful measure in evaluating inventory liquidity. If a product is demanded by customers, this formula estimates how long it takes to sell the inventory.P 334Total Asset TurnoverTotal asset turnover = Net salesAverage total assetsAverage assets = (Beginning assets + Ending assets)2This ratio reflects a company’s ability to use its assets to generate sales. It is an important indication of operating efficiency.P 335DebtRatioEquityRatioPledged Assets to Secured LiabilitiesTimes Interest EarnedSolvencyP 336Debt and Equity Ratios In MillionsAmount RatioTotal liabilities $ 83,45140.3% [Debt ratio]Total equity 123,549  59.7% [Equity ratio]Total liabilities and equity $ 207,000  100.0%      $83,451 ÷ $207,000 = 40.3%The debt ratio expresses total liabilities as a percent of total assets. The equity ratio provides complementary information by expressing total equity as a percent of total assets.P 337Debt-to-Equity RatioDebt-to-equity ratio = Total liabilities Total equity This ratio measures what portion of a company’s assets are contributed by creditors. A larger debt-to-equity ratio implies less opportunity to expand through use of debt financing.P 338Times Interest EarnedTimes interest earned = Income before interest and taxes Interest expense This is the most common measure of the ability of a company’s operations to provide protection to long-term creditors. Net income+Interest expense+Income taxes=Income before interest and taxes  P 339Profit MarginReturn on Total AssetsReturn on Common Stockholders’ EquityProfitabilityP 340Profit MarginProfit margin = Net income Net sales This ratio describes a company’s ability to earn net income from each sales dollar.P 341Return on total asset = Net income Average total assets Return on Total AssetsReturn on total assets measures how well assets have been employed by the company’s management.P 342Return on Common Stockholders’ EquityReturn on common stockholders' equity = Net income - Preferred dividends Average common stockholders' equity This measure indicates how well the company employed the stockholders’ equity to earn net income.P 343Price-Earnings RatioDividend YieldMarket ProspectsP 344Price-Earnings RatioPrice-earnings ratio = Market price per common share Earnings per share This measure is often used by investors as a general guideline in gauging stock values. Generally, the higher the price-earnings ratio, the more opportunity a company has for growth.P 345Dividend YieldDividend yield = Annual cash dividends per share Market price per share This ratio identifies the return, in terms of cash dividends, on the current market price per share of the company’s common stock.P 346Summary of RatiosP 347NEED-TO-KNOWFor each ratio listed, identify whether the change in ratio value from 20X1 to 20X2 is regarded as favorable orunfavorable.20X220X1Change1. Profit margin ratio6%8%UnfavorableLower % of net income in each sales dollar2. Debt ratio50%70%FavorableFewer assets are claimed by creditors3. Gross margin ratio40%36%FavorableHigher % of gross margin in each sales dollar4. Accounts receivable turnover8.89.4UnfavorableLess efficiency in collection5. Basic earnings per share $2.10$2.00FavorableHigher net income per common share6. Inventory turnover3.64.0UnfavorableLess efficient inventory managementP 348Global ViewHorizontal and Vertical AnalysisHorizontal and vertical analyses help eliminate many differences between U.S. GAAP and IFRS when analyzing and interpreting financial statements. However, when fundamental differences in reporting regimes impact financial statements, the user must exercise caution when drawing conclusions. Ratio AnalysisRatio analysis of financial statements also helps eliminate differences between U.S. GAAP and IFRS. Importantly, the use of ratio analysis is fine, with some possible changes in interpretation depending on what is and what is not included in certain accounting measures across U.S. GAAP and IFRS. Care must be taken in drawing inferences from a comparison of ratios across reporting regimes.49 17-A1: Analysis Reporting 50Analysis ReportingA1Executive SummaryAnalysis OverviewEvidential MatterAssumptionsKey FactorsInferencesThe purpose of financial statement analyses is to reduce uncertainty in business decisions through a rigorous and sound evaluation. A financial statement analysis report directly addresses the building blocks of analysis and documents the reasoning. 51 17-A2: Sustainable Income 52Net IncomeAppendix 17A: Sustainable IncomeDiscontinuedSegmentsExtraordinaryItemsContinuingOperationsA 253End of Chapter 1754