Income Statement 2012 2013 2014 2015 2016

Revenue
Credit Sales *
Cost of Goods Sold (COGS)
Gross Profit - - - - -
Marketing
Technology & Development
General, and administrative expense
Operating Income (EBITDA) - - - - -
Interest expense
Earning before tax (EBT) - - - - -
Taxes
Net income - - - - -

* If the figure of "Credit sales" is not available, enter the "Revenues" figure again

Balance Sheet 2012 2013 2014 2015 2016

Cash
Short Term Investments
Accounts Receivables - Trade, Net
Inventory
Other current Assets
Total Current Assets - - - - -
Property, plant, and equipment-total (net)
Total Assets - - - - -
Accounts Payable
Other current liabilities
Total Current Liabilities - - - - -
Total Debts
Total Liabilities - - - - -
Paid Capital
Total Equity
Total Common Shares Outstanding
2017 Liquidity Ratios Formula
Current ratio Current Assets / Current Liabilities
Acid test (Quick) ratio (Cash + short term investment + A/R) / CL
Cash ratio (Cash + short term investment) / CL
-
Activity Ratios Formula
Inventory turnover C.O.G.S / Average inventory
Days in inventory (DOH) 365 days / invetory turnover
- Receivables turnover Net credit sales / Average receivables
Days sales outstanding (DSO) 365 days / Receivables turnover
- Payables turnover Purchases / Average payables
Days Payable 365 days / Payables turnover
- Cash conversion cycle DOH + DSO - Days Payables
Fixed Assets turnover Revenues / Average Fixed Assets
Total Assets turnover Revenues / Average Total Assets

Solvency Ratios Formula

Debt - to - Assets ratio Total debt / Total Assets
2017 Debt - to - Capital ratio Total debt / Total Debt + Total owners' equity
Debt - to - Equity ratio Total debt / Total Owners' equity

Profitability Ratios Formula

Gross profit margin Gross profit / Revenue
- Operating profit margin Operating profit / Revenue
Net profit margin Net income / Revenue
- Return on Asset (ROA) Net income / Average Total assets
Return on Equity (ROE) Net income / Average Total Equity

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 2012 2013 2014 2015 2016 2017
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2012 2013 2014 2015 2016 2017

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 Ratios Definition Equation

Liquidity ratios A firm is financially liquid if it is able to pay its bills on time
(1) Current Ratio(CR) We measure the firm Current Assets/Current
ability to meet its Liabilities = xx times
short term obligation

Does the business

have enough current
assets to meet the
payment schedule of
current liabilities with
a margin of safety?

(2) Quick ratio measures immediate (Current

(Acid Test Ratio) liquidity that firm can Assets-Inventory)/Current
meet its short term Liabilities
obligations without = (Cash + Short term
relying upon the sale investment + A.R)/Current
of its inventories Liabilities = xx times

(3) Inventory turnover Measures how much COGS/Average Inventory =

inventory converted xx times
to sales during a time
period

(4) Days in inventory Measures the number 365/inventory turnover = xx

of days’ worth of days
inventory that a
company has on hand
at any given time.
(5) Receivable Measure how many Net Credit Sales / Average of
turnover times the company Receivable = xx times
transfers receivables
into cash during a
time period

(6) Average collection Measures the average 365/ Receivable turnover

period number of days it
takes the firm to
collects its receivables.

Profitability ratios Measure the income or operating success of a company for a given period of time.
(1) Net profit margin Measuring how the Net Income / Net Sales = xx
firm controlling costs %
and earning
reasonable profit
margin?

To evaluate
Management
performance

(2) Investment To evaluate Net Sales / Average

Turnover Management Investment = xx times
performance
(3) ROI( Return On Measures the firm Profit margin * Investment
Investment ) ability to turn assets Turnover = xx %
into profit.

To evaluate
Management
performance

(4)Dividence Per To evaluate EPS*Payout Ratio = (Net

Share(DPS) Stockholder Income / No.of
performance Shares)*Payout Ratio = $ x /
Share

(5)Book Value Per To evaluate Total shareholder equity /

Share(BVS) Stockholder No.Of shares
performance

Solvency ratios 1- Ability to pay the long term liabilities

2- Ability to satisfy the shareholder and creditors
Capital Structure
Debt % = Total Debt / Total Investment
Equity % = Total Equity / Total Investment

Leverage Measure the ability of total dept / total asset = xx

company to pay its %
loans to creditors
 Comment

o pay its bills on time

For each 1 $ as a current liabilities, the company can cover it by XX as a current assets
Case 1 : Accepted : CR > industry average
From shareholder standpoint, a high current ratio could mean that the firm has a lot
of money tied up in non-productive assets.
From creditor’s point of view, an encouraged indicator that the claims of short term
obligations are covered by assets that expected to be converted to cash fairly quickly.
Case 2 : Not Accepted : CR < industry average
The firm has a great risk in related to its ability to satisfy its short term obligations
which is critical indication for both creditors & shareholders.
Less than 1 mean that net working capital (current asset - current liabilities) is
negative, and this is unusual in a healthy firm, at least for most types of business

For each 1 $ as a current liabilities, the company can cover it by XX as a cash assets .
Case 1 :Accepted : Acid Test Ratio is high
A higher number is preferred because it suggests a company has a strong ability to
service short-term obligations.
In general, quick ratios between 0.5 and 1 are considered satisfactory, as long as the
collection of receivables is not expected to slow

Case2 : Not Accepted : Acid Test Ratio is Low

less than average indicate liquidity issues

In case of production company : The company can produce and sell all inventory in xx
times per year
In case of merchendising company : The company can purchase and sell all inventory
in xx times per year
In case of Service Company : No inventory

Case 1: Accepted : High Inventory turnover ratio or Inventory turnover > Industry
Average
A high ratio indicates inventory is selling quickly and that little unused inventory is
being stored which implies either strong sales and / or large discounts

If this have a very high value, we should check the storage area, may be it is not that
big which lead to a small inventory value

Case 2: Not Accepted : Low Inventory turnover ratio or Inventory turnover < Industry
Average
If the ratio is low, indicates inventory is selling slowly which implies weak sales or low
product quality

The company has ability to sell all inventory items during xx days on average

Just in case I have more details in the case about inventory items, I can prepare
inventory analysis by item, so this is a limitation in the case

Case 1: Accepted:
A less number of days indicate inventory is selling quickly

Case 2: Not Accepted :

A more number of days indicate inventory is selling slow
 The company has ability to sell and collect all receivable balances xx times / year

Case 1: Accepted :
A higher ratio indicates a shorter time between making a sale and collecting the cash.

If it exceed than 10, then you should check only the client satisfaction, because
collecting the money with this high ratio may cause to client dissatisfaction.

Case 2: : Not Accepted :

Low ratio mean long time of collecting cash

The company has ability to collect all receivable balances xx days

Case 1: Accepted :
The goal as a business is to keep the number of days your accounts receivable are
outstanding as low as possible. After all, you need the cash to build your company
(increase cash flow), not finance your customers!

Case 2: Not Accepted:

A more number of days indicate collection is slow

cess of a company for a given period of time.

Each $100 as a net sales generate $ x as a return

Case 1: Accepted :
Higher percentage is much preferred

Case 2: Not Accepted:

if this % is low this could be because our selling price is low or we are not controlling
well our cost

For each $1 as an investment(asset invested) generate $ x as a net sales

Case 1:
for high turnover industry --> look for investment turnover,

Case 2:
for low turnover industry --> look for profit margin
 Each $100 as an investment (asset invested) generate $ x as a return

Case 1 :
Higher percentage is much preferred

Case 2:
If percentage is low, it means there’s poor management performance due to utilizing
its assets in a inadequate way

Each shareholder

If the DPS trend decrease but the total investment trend is increased so the company
take the expansion strategy, this strategy can be a thread to the company because not
all people can read this situation accurately so the company need to announce such
strategy and assume that the stockholders are not expert . The announcement should
say : " The company has an investment agenda in the future with a direction to
expansion and to be regular in annual meeting or company news"

If the DPS Tread decrease and the BVS Trend increase, this means that the company is
growing .

If the DPS Tread decrease and the BVS trend decrease, this means that the company is
not stable and this is a big threat .

es
d creditors

Each $100 as total asset have been financed by $xx .

 Recommended Actions or Note

In case of CR < Industry AVG, CR can be improved by increasing

current assets or by decreasing current liabilities:
• Paying down debt
• Acquiring a long-term loan (payable in more than 1 year’s time)
• Selling a fixed asset
• Putting profits back into the business

Note:-
If Current ratio = 1 to 1.4 ........ Bad
If Current ratio = 1.5 to 2 ...…… Slightly bad to Good
If Current ratio > 2 .…….. Strong situation

A ratio of 1:1 means that the company can pay its bills without
having to sell inventory

It is a good indication of purchasing and production efficiency

You might expect a company with a fast moving goods inventory,

such as a grocery store, to have a very high Inventory Turnover
Ratio. Conversely, a furniture store might have a low Inventory
Turnover Ratio

This could be conducted for each product in the company, and for
the products that had extra Day’s of inventory, we could make
some sales promotion to increase the Inventory turnover
Sometimes the problem is not with inventory as the inventory
turnover is quick but may be the liquidity problem is due to cash
collection

You may need to step up your collection department ad here

interfere the HR department for hiring new candidates in
collection department or tighten your credit policies such as
offering facilites for the early payments .

Receivable turnover give us an indicator to evaluate collection

management in the firm.

Important for company performance evaluation.

This could be conducted on different customers and check which

of them take extra period in collection period and decrease the
period of payment for them.

If the trend of net profit margin is increasing and at the same time
we have a problem in the inventory so the company has a
problem in pricing .

Profit margin has to be within the industry average , not much

higher or much lower UNLESS the company in the growth phase .

the profit margin is not that important, because the price is

guided by the market price, and also by time companies can’t
decrease the cost

Industry Average here is the most important to compare with.

The industry type here is governs the investment tyurnover
FMCG(Fast-Moving Consumer Goods) companies have a higher
investment turnover but Patent companies have a lower
investment turnover
Trend analysis is useful to compare to ROI

ROI can be FAKE ratio or factor as the management will work to

decrese the average investment(working capital + non current
assets) i.e. decrease the non currect assets such as not replacing
the equipment so the eqipment is depreciated so it value will
decrease , in this case the ROI is high but is not good for company
as the management work to improve his image only and not
replacing the equipment , we can detect this FAKE ROI from
Balance sheet ( see the equipment value for last three years, it will
be decreased so it is indication for FAKE ROI)

If the industry type imposes high profit share rather than high
turnover , then the company has two strategies :
(1) Cost Management strategy
(2)

we cut current liabilities from the total assets, because there is

certain part of the assets is not used in investment and used to
pay current liabilities for this we subtract current liabilities.

Increase % of Equity : Minimize risk , increase cost of capital

Increase % of Debt : Increase Risk, minimize cost of capital

In the case, if the company has many risks so we need to select

the capital structure that with high % of equity to minimize the
risk