Analysis Of Financial Statements

taufikur@ugm.ac.id

Ratio Analysis
Evaluate Financial Statements
Analyze firms performance Comparing firms performance with that other firms in the same industry Evaluating trends in the firms financial position over time

Predict Future Earning and Dividends

Investors view Managements view

Liquidity Ratio Asset Management Ratio Debt Management Ratio Profitability Ratio Market Value Ratio

Balance Sheet: Assets

Cash AR Inventories Total CA Gross FA Less: Deprec. Net FA Total assets

2010E 85,632 878,000 1,716,480 2,680,112 1,197,160 380,120 817,040 3,497,152

2009 7,282 632,160 1,287,360 1,926,802 1,202,950 263,160 939,790 2,866,592

Liabilities and Equity

2010E 2009 Accounts payable 436,800 524,160 Notes payable 600,000 720,000 Accruals 408,000 489,600 Total CL 1,444,800 1,733,760 Long-term debt 500,000 1,000,000 Common stock 1,680,936 460,000 Retained earnings (128,584) (327,168) Total equity 1,552,352 132,832 Total L & E 3,497,152 2,866,592

Income Statement
2010E 2009 7,035,600 5,834,400 5,728,000 5,728,000 680,000 680,000 627,600 (573,600) 116,960 116,960 510,640 (690,560) 88,000 176,000 422,640 (866,560) 169,056 (346,624) 253,584 (519,936)

Sales COGS Other expenses EBITDA Depreciation EBIT Interest exp. EBT Taxes (40%) Net income

Other Data
2010E Shares out. EPS DPS Stock price Lease pmts 250,000 $1.014 $0.220 $12.17 $40,000 2009 100,000 ($5.199) $0.110 $2.25 $40,000

Ratio Analysis
Evaluate Financial Statements Analyze firms performance Comparing firms performance with that other firms in the same industry Evaluating trends in the firms financial position over time Liquidity Ratios Ability to Meet Short-term Obligations:
The Current Ratio = Current Assets : Current Liabilities Quick, or Acid test, ratio = current assets-Inventories current liabilities

Liquidity Ratios
$2,680 CA CR10 = CL = $1,445 = 1.85x. CA - Inv. QR10 = CL $2,680 $1,716 = = 0.67x. $1,445

Ratio Analysis Asset Management Ratio

Evaluating Inventories The Inventory Turnover Ratio = Sales : Inventories Evaluating Receivables The Days Sales Outstanding (DSO) = Receivable : (Annual sales:360) Evaluating Fixed Assets Fixed Assets Turnover Ratio = Sales : Net Fixed Assets Evaluating Total Assets Total Assets Turnover Ratio = Sales : Total Assets

Asset Management Ratio

Inv. turnover = Sales Inventories $7,036 = 4.10x. $1,716

Receivables DSO = Average sales per day Receivables $878 = Sales/360 = $7,036/360 = 44.9.

Asset Management Ratio

Fixed assets Sales = turnover Net fixed assets = $7,036 = 8.61x. $817
Total assets = turnover Sales Total assets $7,036 = 2.01x. = $3,497

Calculate the debt ratio, Time Interest Earned Ratio, and EBITDA coverage ratios.

Total debt Debt ratio = Total assets = $1,445 + $500 = 55.6%. $3,497 EBIT TIE = Int. expense = $510.6 = 5.8x. $88

EBITDA coverage = EBITDA + Lease payments (in cash) Interest Lease Loan expense + pmt. + repayments $510.6 + $117.0 + $40 = $88 + $40 + $0 = 5.2x.

Ratio Analysis Profitability Ratio

Profit Margin on Sales = Net income for common stockholder : Sales Basic Earning Power (BEP) = EBIT : Total Assets

Return on Total Assets (ROA) = Net income for common stockholder : Total Assets
Return on Common Equity (ROE) = Net income for common stockholder : Common Equity

Profitability Ratio
NI $253.6 P.M. = Sales = $7,036 = 3.6%.

EBIT BEP = Total assets

= $510.6 = 14.6%. $3,497

Profitability Ratio
ROA

Net income = Total assets

= $253.6 = 7.3%. $3,497

Net income ROE = Common equity

= $253.6 = 16.3%. $1,552

Ratio Analysis Market Value Ratio|

Price Earning Ratio (P/E) = Price per share : Earning per share Price/Cash Flow Ratio = Price per share : Cash flow per share Market/Book Ratio = Market price per share : Book value per share Book value per share = Common equity Shares outstanding

Market Value Ratio|

Price = $12.17. NI $253.6 EPS = Shares out. = 250 = $1.01. Price per share $12.17 P/E = = $1.01 = 12x. EPS

Market Value Ratio

NI + Depr. CF per share = Shares out. = $253.6 + $117.0 = $1.48. 250 Price per share P/CF = Cash flow per share $12.17 = $1.48 = 8.21x.

Market Value Ratio

Com. equity BVPS = Shares out. $1,552 = $6.21. = 250 Mkt. price per share M/B = Book value per share $12.17 = $6.21 = 1.96x.

Tying The Ratios Together: The Du Pont Chart

The Du Pont system focuses on: Expense control (Profit Margin) Asset utilization (Total Asset Turnover) Debt utilization (Equity Multiplier = Total Asset:Common Equity ) Look at Figure 3-2 Du Pont Equation:

ROA = PM x TATO = (NI/Sales) x (Sales/TA) Extended Du Pont Equation: ROE = ROA x Equity Multiplier = (NI/Sales) x (Sales/TA) x (TA/Common Eq)

Du Pont Chart
ROE 16.4 % (Extended Du Pont Equation) ROA 7.3 % (Du Pont Equation) Asset/Equity 2.25X (equity multiplier)

Multiplied by

PM 3.6%

Multiplied by

Total Assets Turnover 2.01X

Sales $ 7,036

Divided into Subtracted from Interest + preferred Dividend $143

NI $253.6

Sales $7,036

Divided into

Total Assets $3,497

Total Costs $4500

Sales $ 7,036

Fixed Assets $817

Added Current Assets $2,680 to Cash + Marketable Securities $86

Other Operating Costs $4080

Depreciation $117

Taxes $160 Account Receivable $878 Inventories $1,716