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Table of content
Financial Analysis
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Revenues
Expenses
The Money spent to generate revenue which includes: Cost of Goods Sold (COGS): The direct costs attributable to the production of the goods sold by a company Selling Expenses: Cash payments (or equivalent) for marketing services Administrative Expenses: Costs to the firm to cover items such as salaries Interest Expenses: Payments made to cover costs of financing Tax Expense: Payments made to the government to cover income taxes Depreciation Expense: Amount of asset usage (described in the next chapter) that is applied to this year
Net Income
The money earned by the company which includes: The sale of goods and services The interest earned Certain investment activities
Net Income is referred to as Profit or Earnings, when not negative and Loss when negative. It is the company revenues minus its expenses
Income Statement
For Period Ending XXX
Executive summary Net Sales $495,000 Gross Profit $370,000 Net Income $155,000 Details
Revenue
Gross sales Sales returns and allowances NET SALES
$500,000 -$5,000
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Comments
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$495,000
Cost of sales
Beginning inventory Goods purchased / manufactured Ending inventory Total Cost of Goods Sold Gross Profit
$45,000 $100,000 -$20,000
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Selling Expenses
Salaries and wages Advertising Depreciation Other Total Selling Expenses
$45,000 $10,000 $5,000 -$20,000
$40,000
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$130,000 $200,000
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Tax
Income Tax Expense
$45,000
Net Income
Table of content
Financial Analysis
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Asset
Current asset
Current liabilities
Fixed Assets
Long-term Liabilities
Intangible Assets
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Balance Sheet
Insert Date
Executive summary TOTAL ASSET $75,000 TOTAL LIABILITIES $50,000 TOTAL SHAREHOLDERS'S EQUITY $25,000 Details ASSETS
CURRENT ASSETS
Cash in Bank Inventory Accounts Receivables Prepaid Expenses Other TOTAL
$45,000 $0 $0 $10,000 $0
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$55,000
$50,000
FIXED ASSETS
Property, Plant and Equipement Furniture & Fixtures Leasehold Improvements Other TOTAL
$20,000 $0 $0 $0
LONG-TERM LIABILITIES
Bank Loans Payable (greater than 12 months) Less: Short-term Portion Notes Payable to Stockholders Other long-term debt (specify) TOTAL
$0 $0 $0 $0
$20,000
$0
OTHER ASSETS
Specify Specify Specify TOTAL TOTAL ASSET
$0 $0 $0
OTHER LIABILITIES
Specify Specify Specify TOTAL TOTAL LIABILITIES
$0 $0 $0
$0 $75,000
$0 $50,000
SHAREHOLDERS' EQUITY
Capital Stock Retained Earnings TOTAL TOTAL SHAREHOLDERS'S EQUITY TOTAL LIABILITIES & SHAREHOLDERS'S EQUITY
$10,000 $15,000
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Table of content
Financial Analysis
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Incoming
Cash sales Collections from accounts receivable Other cash receipts Total Incoming
$100,000 $50,000 $50,000
$200,000
$75,000
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Administration Marketing Operation Total Outgoing Variable Costs Change During Year Closing Cash Position
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Table of content
Financial Analysis
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There are 6 categories of financial ratios that can be used to analyse a companys performance
1.Efficiency ratios
2.Solvency ratios
3.Liquidity ratios
4.Profitabili ty ratios
5.Leverage ratios
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1.Efficiency ratios are are typically used to analyze how well a company uses its assets and liabilities internally
Ratio1 Formula2 Definition2 Result
How effectively is a company using its working capital (= current assets current liabilities) to generate sales
/ turnover ratio gives you the days outstanding average equals the value at the beginning of the year + the value at the end of the year divided by 2 Click here to download the editable PowerPoint
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2.Solvency ratios are used to analyze the degree of financial risk that a business faces at a certain point in time
Ratio Formula Definition Result
The amount of equity to support creditors in case of financial difficulties. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt
Debt ratio
It indicates how many times a company can cover its interest charges on a pretax basis
Cash ratio
The extent to which current liabilities are covered by the current assets that can be converted into cash and used almost instantly
Quick ratio
The extent to which current liabilities are covered by the current assets that can be converted into cash almost instantly
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3.Liquidity ratios are used to analyze a companys ability to meet its credit obligations at a certain point in time
Ratio
Formula
Definition
Result
Current ratio
Quick ratio
The extent to which current liabilities are covered by the current assets that can be converted into cash almost instantly
Cash ratio
The extent to which current liabilities are covered by the current assets that can be converted into cash and used almost instantly
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Return on sales
The amount of net income earned from each unit of sales. This ratio is also called net profit margin
Return on equity
(ROE)
The amount of net income earned per unit of asset used in the business
Return on Capital Employed (ROCE) Return on invested capital (ROIC) Return On Funds Employed
1The
The return a company is realizing from its capital employed, i.e. how efficient is the capital used to generate revenues How well does a company generate cash flow relative to its capital invested. A ratio >1 means that the company is creating value The net operating return the company generates relative to all funds invested. Funds employed = total liabilities
average equals the value at the beginning of the year + the value at the end of the year divided by 2
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5.Leverage ratios are used to analyze whether the use of borrowed funds generates increased earnings
Ratio
Formula
Definition
Result
The amount of equity to support creditors in case of financial difficulties. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt
Debt ratio
It indicates how many times a company can cover its interest charges on a pretax basis
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6.Return on investment ratios are used to analyze how much money shareholders are receiving compared to the money they have invested
Ratio
Formula
Definition
Result
Dividend Yield
Dividends per share / Current market price share Net income Dividends on preferred stocks / average outstanding shares
It shows how much a company pays out in dividends compared to its share price
The portion of a company's profit allocated to each outstanding share of common stock
Price / Earnings
A valuation ratio of a company's current share price compared to its earnings pershare
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Company Y
2%
Return on equity (%)
4%
8%
X%
Profitability ratios Return on net assets (%)
X%
X%
X%
Return on Capital Employed (%)
X%
X%
Return On Funds Employed (%)
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X%
X%
EVA by Stephen F
Sources of information
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