Analysis of Financial Statements

ANALYSIS OF FINANCIAL STATEMENTS

Working capital = Total current assets – Total current liabilities

Total current assets

Current ratio =
Total current liabilities

Total quick assets

Quick ratio =
Total current liabilities

Quick assets = Total current assets – Inventory – Prepaid expenses

Total shareholders’ equity x 100

Equity ratio =
Total assets

Total liabilities
Debt ratio =
Total assets

Total liabilities x 100

Debt to equity ratio =
Total shareholders’ equity

Net credit sales

Accounts receivable turnover in times =
Average accounts receivable

365
Accounts receivable turnover in days =
Receivable turnover in times

Accounts receivable (beg) + Accounts receivable (end)

Average receivable =
2

Cost of goods sold

Inventory turnover in times =
Average inventory

365
Inventory turnover in days =
Inventory turnover in times

Inventory (beg) + Inventory (end)

Average inventory =
2

Operating cycle = Inventory turnover in days + Receivable turnover in days

Net profit
Earnings per share =
Average number of shares

Market price per share

Price earnings ratio =
Earnings per share

Earnings per share X 100

Earnings ratio =
Market price per share

Cash dividend declared

Dividend per share =
Number of ordinary shares

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Analysis of Financial Statements
Chapter # 6

Dividend per share X 100

Dividend yield =
Market price per share

Net income X 100

Net income percentage =
Net sales

Gross profit X 100

Gross profit percentage =
Net sales

Cost of goods sold X 100

Cost of goods sold percentage =
Net sales

Operating expenses X 100

Operating expenses percentage =
Net sales

Net profit X 100

Rate of return on assets =
Average total assets

Net sales X 100

Assets turnover =
Average total assets

Total assets (beg) + Total assets (end)

Average assets =
2

Net income X 100

Rate of return on shareholders’ equity =
Total shareholders’ equity

Total Shareholders’ equity

Book value per share =
Number of shares

Profit before interest and tax X 100

Return on capital employed =
Capital employed

Capital employed = Total assets – Total current liabilities

Share capital
Number of shares =
Par value of share

Share capital = Shareholders’ equity – Retained earnings

Shareholders’ equity = Total assets – Total liabilities

OR
Shareholders’ equity = Share capital + Retained earnings + Share premium +
Reserves

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