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Financial Statement Analysis

This document defines and provides formulas for various financial analysis techniques including: - Horizontal and vertical analysis to examine percentage changes and percentages of totals - Liquidity ratios like current and quick ratios to assess ability to meet short-term obligations - Efficiency ratios like receivable and inventory turnover to evaluate use of working capital - Solvency and leverage ratios like debt ratio to analyze financial risk - Profitability ratios like return on assets and sales to measure performance - Marketability ratios like P/E ratio and dividend yield to assess stock value - Stability ratios like book value per share to evaluate long-term financial health Formulas are provided for calculating each type of ratio based on financial statement accounts.

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300 views3 pages

Financial Statement Analysis

This document defines and provides formulas for various financial analysis techniques including: - Horizontal and vertical analysis to examine percentage changes and percentages of totals - Liquidity ratios like current and quick ratios to assess ability to meet short-term obligations - Efficiency ratios like receivable and inventory turnover to evaluate use of working capital - Solvency and leverage ratios like debt ratio to analyze financial risk - Profitability ratios like return on assets and sales to measure performance - Marketability ratios like P/E ratio and dividend yield to assess stock value - Stability ratios like book value per share to evaluate long-term financial health Formulas are provided for calculating each type of ratio based on financial statement accounts.

Uploaded by

glcpa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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HORIZONTAL ANALYSIS

Percentage Change = Most recent value – Base period value


Base Period Value

VERTICAL ANALYSIS
Total Asset=100%
Net sales=100%

FINANCIAL RATIOS (RELATIONSHIP)


Basic Rule
BS Amount, 12-31-20 IS Amount, 12-31-20
BS Amount, 12-31-20 IS Amount, 12-31-20

IS Amount, 12-31-20
(BS Amount, 1-1-20 + BS Amount, 12-31-20) / 2

Sales and purchase---not stated if made in cash or on credit, assumption


- Turnover (on Credit)
- Cash flow ratio (in Cash)

Operating year (360 days unless specified otherwise)

Liquidity
1. Current Ratio = Current Assets 10= 2.0 10=0.50
Current Liabilities 5 20

2. Quick/Acid Test Ratio = Quick Assets (Cash, Current Receivable and marketable securities)
Current Liabilities

3. Working Capital = Current Assets - Current Liabilities

Efficiency (working capital)


1. Receivable Turnover = Net Credit Sales 1000/20=50x
Average Receivables

2. Average age of Receivables = 360 days or Average Receivable


Receivable Turnover (Net Credit Sales/ 360 days)

3. Inventory Turnover = Cost of goods sold


Average Inventory

4. Average age of Inventory = 360 days or Average Inventory


Inventory Turnover (Cost of goods sold/ 360 days)

5. Normal Operating Cycle = Average age of Receivables + Average age of Inventory


6. Trade Payables Turnover =Net Credit Purchases
Average Trade Payables

7. Average age of Trade Payables = 360 days or Average Trade Payable


Trade Payables Turnover (Net Credit Purchases/ 360 days)

8. Cash Conversion Cycle = Average age of Receivables + Average age of Inventory - Average age of Trade
Payables

Solvency
and
Leverage
1. Debt
Ratio =

Liabilities/ Asset

2. Equity
Ratio =

Equity/ Asset

3. Debt to Equity = Liabilities/ Capital

4. Times interest earned = EBIT/ Interest Expense

Net Sales – COGS = GP – Ae – Me = EBIT - Interest Expense = EBT - Tax Expense = Net Income
ex. 50/5= 10x

Profitability
1. Return on Sales = Income/ Net Sales (vertical analysis)

2. Return on Assets = Income/ Average Assets

3. Return on Equity = Income/ Average Equity

4. Earnings per share = Net Income- Preferred Dividends


Wtd. Ave. Common Outstanding Shares

Dupont model

1 10 5 1
x x =
10 5 2 2 or 0.5

Marketability

1. Price earnings = Price per share/ EPS


2. Dividend Yield = Dividend per share/ Price per share

3. Dividend Payout = Dividend per share/ EPS 2/10=20%

4. Retention Ratio = EPS- DPS 10-2/10 8/10=80%


EPS

Stability

1. Book value per share = Common Shareholders’ Equity/ Common Outstanding Shares

2. Fixed Assets to Total Equity = Fixed assets/ total Equity

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