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Basket Wonders’
Wonders’ Balance
Balance
Sheet
Sheet (Asset
(Asset Side)
Side)
Basket Wonders Balance Sheet (thousands) Dec. 31, 2007a
Cash and C.E. $ 90 a. How the firm stands on
Acct. Rec.c 394 a specific date.
Inventories 696 Prepaid Exp d b. What BW owned.
5 Accum Tax Prepay c. Amounts owed by
10 customers.
Current Assetse d. Future expense items
$1,195 Fixed Assets (@Cost) f
already paid.
1030 Less: Acc. Depr. g
e. Cash/likely convertible
(329) Net Fix. Assets $ 701
to cash within 1 year.
Investment, LT 50 Other
Assets, LT 223 Total
f. Original amount paid.
Assets b $2,169 g. Acc. deductions for
1 wear and tear.
Basket
Basket Wonders’
Wonders’ Balance
Balance
Sheet
Sheet (Liability
(Liability Side)
Side)
Basket Wonders Balance Sheet (thousands) Dec. 31, 2007
Notes Payable $ 290 a. Note, Assets =
Acct. Payablec 94 Liabilities + Equity.
Accrued Taxes d 16 Other b. What BW owed and
Accrued Liab. d 100 ownership position.
Current Liab. e $ 500 c. Owed to suppliers for
Long-Term Debt f 530 goods and services.
Shareholders’ Equity d. Unpaid wages, salaries,
Com. Stock ($1 par) g 200 etc.
Add Pd in Capital g 729 e. Debts payable < 1 year.
Retained Earnings h 210 f. Debts payable > 1 year.
Total Equity $1,139 g. Original investment.
2
Total Liab/Equitya,b $2,169 h. Earnings reinvested.
Basket
Basket Wonders’
Wonders’
Income
Income Statement
Statement
Basket Wonders Statement of Earnings (in thousands)
for Year Ending December 31, 2007a
Net Sales $ 2,211 a. Measures profitability
Cost of Goods Sold b 1,599 over a time period.
Gross Profit $ 612 b. Received, or receivable,
SG&A Expenses c 402 from customers.
EBITd $ c. Sales comm., adv.,
210 Interest Expensee officers’ salaries, etc.
59 EBT f $ d. Operating income.
151 Income Taxes e. Cost of borrowed funds.
60 EATg $ 91 f. Taxable income.
Cash Dividends 38 g. Amount earned for
3
Increase in RE $ 53 shareholders.
Use
Use of
of Financial
Financial Ratios
Ratios
4
External
External Comparisons
Comparisons and
and
Sources
Sources of
of Industry
Industry Ratios
Ratios
This involves
comparing the ratios
of one firm with those
of similar firms or with
industry averages.
Similarity is important
as one should
compare “apples to
5
apples.”
Liquidity
Liquidity Ratios
Ratios
Balance Sheet Ratios Current
Current Assets
Liquidity Ratios Current Liabilities
Total Debt
Financial Leverage Shareholders’ Equity
Ratios
For Basket Wonders
December 31, 2007
Shows the extent to
which the firm is $1,030 = .90
financed by debt. $1,139
10
Financial
Financial Leverage
Leverage
Ratio
Ratio Comparisons
Comparisons
Debt-to-Equity Ratio
Year BW Industry
2007 .90 .90
2006 .88 .90
2005 .81 .89
BW has average debt utilization
11
relative to the industry average.
Financial
Financial Leverage
Leverage Ratios
Ratios
Balance Sheet Ratios Debt-to-Total-Assets
Total Debt
Financial Leverage Total Assets
Ratios
For Basket Wonders
Shows the percentage December 31, 2007
of the firm’s assets
that are supported by $1,030 = .47
debt financing. $2,169
12
Financial
Financial Leverage
Leverage
Ratio
Ratio Comparisons
Comparisons
Debt-to-Total-Asset Ratio
Year BW Industry
2007 .47 .47
2006 .47 .47
2005 .45 .47
BW has average debt utilization
13
relative to the industry average.
Coverage
Coverage Ratios
Ratios
Income Statement Interest Coverage
Ratios
EBIT
Interest Charges
Coverage Ratios
For Basket Wonders
Indicates a firm’s December 31, 2007
ability to cover
interest charges. $210 = 3.56
$59
14
Coverage
Coverage
Ratio
Ratio Comparisons
Comparisons
Interest Coverage Ratio
Year BW Industry
2007 3.56 5.19
2006 4.35 5.02
2005 10.30 4.66
BW has below average interest coverage
15
relative to the industry average.
Activity
Activity Ratios
Ratios
Income Statement / Receivable Turnover
(Assume all sales are credit sales.)
Balance Sheet
Ratios Annual Net Credit Sales
Receivables
Activity Ratios
For Basket Wonders
Indicates quality of December 31, 2007
receivables and how
successful the firm is in $2,211 = 5.61
its collections. $394
16
Activity
Activity Ratios
Ratios
Income Statement / Avg Collection Period
Balance Sheet
Days in the Year
Ratios
Receivable Turnover