Financial Statement Analysis

Types of Analysis
• Horizontal Analysis
– Comparison Between the years
– Trend Percentages
• Vertical Analysis
– Common Size Statements
Common Size Analysis of

Income Statement Ratios :

•Operating Efficiency
•Overall Profitability

Balance Sheet Ratios :

•Liquidity Ratios,
•Solvency ratios

Cash Flow Ratios

•Debt Coverage = CFO / Total debt

•Interest Coverage = (CFO + Interest Paid + Taxes Paid )/ Interest paid
•Reinvestment = CFO / Cash paid for long term assets
•Debt Payment = CFO / cash paid for long term debt repayment
•Dividend Payment = CFO/ dividend paid
•Investing and Financing = CFO/ Cash outflows for investing and financing
activities
ACTIVITY RATIOS : How efficiently company performs day to day tasks
•Inventory Turnover,
•Day of Inventory in Hand (DOH)
•Receivables Turnover
•Days of Sales outstanding (DSO)
Turnover
•Payables Turnover
•Number of days of payables
•Working capital Turnover
•Fixed Asset Turnover
•Total Asset Turnover
•Operating Cycle
•Cash Cycle
COGS / Average Inventory
No. of days in period / Inventory Turnover
Credit Revenue / Average Receivables
No. of days in period / Receivable
Credit Purchases / Average Payables
No. of days in period / Payable Turnover
Revenue / Average Working capital
Revenue / Average Net Fixed Assets
Revenue / Average Total Assets
Day sales in Receivable + Day sales in
Inventory
Operating Cycle – Day sales in Payables
LIQUIDITY RATIOS : Measures company’s ability to meet short
term obligations.

•Current Ratio Current Assets / Current Liabilities

•Quick Ratio Cash + Short term marketable
investments + Receivables/ CL
•Cash Ratio Cash + Short term marketable
investments/CL
•Cash Flow Ratio Operating Cash Flow/ CL
•Defensive Interval Ratio Cash + Short term marketable
investments + Receivables/ Daily cash
expenditures
•Net working Capital Ratio Net Working Capital / Total Assets
Profitability Ratios : measures the company’s ability to generate
profits from its resources

•Gross Profit Margin Gross Profit / Revenue

•Net Profit Margin Net Income / Revenue
•Operating Profit Margin Operating Income/ Revenue
•Pretax Margin EBT / Revenue
•EBIDTA Margin EBIDTA/ Revenue
•ROA Net Income / Average Total Assets
•ROCE EBIT/ Short and long term debt and
Equity
•ROE Net Income/ Average Total Equity
•Return on Common Equity Net Income – Preferred Dividends/
Average
Common Equity
SOLVENCY RATIOS / LEVERAGE RATIOS
•Debt to Total Assets Ratio
•Debt to Capital Ratio
Equity
•Long Term Debt to Equity Ratio
•Debt to Equity Ratio
•Financial Leverage Ratio
•Interest Coverage Ratio
•Fixed Charge Coverage Ratio
•Cash Flow to Fixed Charges
•Degree of Financial Leverage
•Degree of Operating Leverage
Total debt / Total Assets
Total Debt / Total Debt + Total shareholders
Long Term Debt / Total Shareholders Equity
Total debt / Total Shareholders Equity
Average Total Assets/ Average Total Equity
EBIT / Interest Payments
EBIT + Lease Payments/ Interest Payments +
Lease Payments
(CFO + Fixed Charges +Tax Payments)/ Fixed
Payments
EBIT/ EBT or
% change in Net Income/ % Change in EBT
Contribution Margin/ EBIT or
% change in EBIT/ % Change in Sales
Valuation Ratios / Market : measures the quantity of an asset or flow associated with
ownership of a specified claim

P/E Ratio Price Per share / Earning per share

P/ EBIDTA Ratio Price Per share / EBIDTA per share
P/S Price Per share / Sales per share
P/ BV Market to Book Ratio Price Per share / Book Value per share
Book Value per share (Total shareholder Equity - Preferred Equity)/
No. of Common shares outstanding
Basic EPS (Net Income – Preference Dividends)/
Weighted average common shares
Diluted EPS (Net Income – Preference Dividends)/
Diluted weighted average common shares
Earnings Yield EPS/ MP per share

Dividend Yield Dividend per share (DPS)/ MP per share

Dividend per share Common Dividends Declared / Weighted average

No. of ordinary shares outstanding
Dividend pay out ratio Common share dividends/ Net income
attributable to common shares
Shareholder Return Change in Price + annual DPS/ Beginning MP

Retention Ratio (b) Net income attributable to common shareholders

( 1- Dividend Payout ratio) - Common share dividends/ Net Income
attributable to common shareholders
Sustainable Growth Rate b X ROE
 DU PONT Analysis

ROE
LEVERAGE/
ROA EQUITY
MULTIPLIER

Asset
Net Profit margin Turnov
er

Tax Interest EBIT

Burden Burden Margin