Outline

Financial Statement Analysis National Chengchi University

Financial Statement Analysis

National Chengchi University

Outline
1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

2007.5.29

National Chengchi University

Financial Statement Analysis

Outline

Financial Statement Analysis National Chengchi University Outline

1 Outline

1. 2. 3. 4.

Horizontal Analysis Vertical Analysis Ratio Analysis Other Evaluation Tools

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

National Chengchi University

Financial Statement Analysis

Outline

1. Horizontal Analysis

Horizontal Analysis

Financial Statement Analysis National Chengchi University Outline

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

percentage change = trend % =

Any year $ Base year $

Dollar amount of change Baseyear amount

National Chengchi University

Financial Statement Analysis

Outline

2. Vertical Analysis

Vertical Analysis

Financial Statement Analysis National Chengchi University Outline

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

vertical analysis % = benchmarking

Each income statement item Net sales

common-size statement

National Chengchi University

Financial Statement Analysis

Outline

3. Ratio Analysis

Using Ratios to Make Decisions

Financial Statement Analysis National Chengchi University Outline

Measuring ability to pay current liabilities Measuring ability to sell inventory and collect

receivables
Measuring ability to pay long-term debt Measuring protablity Analyzing stock as in investment

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

National Chengchi University

Financial Statement Analysis

Outline

3. Ratio Analysis

Measuring Ability to Pay Current Liabilities

Financial Statement Analysis National Chengchi University Outline

Working Capital = Current Assets Current Liabilities Current Ratio = Current Assets Current Liabilities Acid-test (Quick) Ratio = (Cash + Short-term

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

investments + Net Current Receivables) Current Liabilities

National Chengchi University

Financial Statement Analysis

Outline

3. Ratio Analysis

Measuring Ability to Sell Inventory and Collect Receivables

Financial Statement Analysis National Chengchi University Outline

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

Inventory Turnover = Account Receivable

Cost of Goods Sold Average Inventory Net Credit Sales (AR) Turnover = Average Net AR

Days Sales in Average AR

Average Net AR One Day s Sales

365 AR Turnover

National Chengchi University

Financial Statement Analysis

Outline

3. Ratio Analysis

Measuring Ability to Pay Long-Term Debt

Financial Statement Analysis National Chengchi University Outline

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

Debt Ratio = Total Liabilities Total Assets Times-Interest-Earned Ratio = Income From

Operations (or EBIT) Interest Expense

National Chengchi University

Financial Statement Analysis

Outline

3. Ratio Analysis

Measuring Protablity

Financial Statement Analysis National Chengchi University

Return on (net) Sales = Net Income Net Sales Return on Assets = (Net Income + Interest Expense)

Outline
1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

Avereage Total Assets

Return on Equity = (Net Income Preferred

Dividends) Avereage Common Stockholders Equity

Earnings per Share (EPS) = (Net Income Preferred

Dividends) Weighted-Avereage Common Stock Outstandings

National Chengchi University

Financial Statement Analysis

Outline

3. Ratio Analysis

Analyzing Stock as in Investment

Financial Statement Analysis National Chengchi University Outline

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

Price/Earnings Ratio (P/E Ratio) = Market Price over

Share of Common Stcok EPS

Dividend Yiled = (Dividend per Share) Market Price

per Share
Book Value per Share of Common Stock = (Total

Stockholders Equity Preferred Equity) Number of Shares of Common Stock Outstanding

National Chengchi University

Financial Statement Analysis

Outline

4. Other Evaluation Tools

Economic Value Added (EVA )

Financial Statement Analysis National Chengchi University Outline

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

EVA

= Net Income + interest Expense - Capital

Charge
Capital Charge = (Note Payable + Bond Payable +

Stockholders Equity) Cost of Capital

National Chengchi University

Financial Statement Analysis

Outline

4. Other Evaluation Tools

Red Flags in Financial Statement Analysis

1

Financial Statement Analysis National Chengchi University Outline

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

Earnings Problems
1 2

Have income from continuing operations and net income decreased signicantly for several years? Have income turned into a loss?

2 3 4 5 6

Decreased Cash Flow Too Much Debt Inability to Collect Receivables Buildup of Inventories Strange Movements among Sales, Inventory, and Reveivable

National Chengchi University

Financial Statement Analysis

Outline

4. Other Evaluation Tools

Analyzing Nonnancial Data

Financial Statement Analysis National Chengchi University Outline

1. Horizontal Analysis 2. Vertical Analysis 3. Ratio Analysis 4. Other Evaluation Tools

1 2 3

Presidents Letter to the Stockholders Management Discussion and Analysis (MD&A) Auditor Report

National Chengchi University

Financial Statement Analysis