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Financial Statement Analysis

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  1. Financial Statement Analysis

  2. Outline • Financial statements • Income statement and margin analysis • Ratio analysis • DuPont Analysis • Applications

  3. Income Statement • Measure of profitability over a period of time • Structure

  4. Income Statement • Margin /Common Size Analysis • Gross Margin • Operating Margin • Research and Development • Sales and Administrative • Tax rate • Profit Margin • Trend analysis • Margin comparison • Growth rate • Compare with peers • Forecasting

  5. Financial Statements • Balance Sheet • Snap shot of financial conditions • Common Sized • Trend and peers • Statement of Cash Flows

  6. Type of Financial Ratios • Liquidity Ratios • Activity or Mgmt Efficiency Ratios (turn over ratios) • Leverage Ratios (debt ratios) • Profitability Ratios • Market Price Ratios

  7. Liquidity Ratios Current Ratio Current Assets Current Liabilities Quick Ratio Current Assets - Inventory Current Liabilities

  8. Activity or Management Efficiency Ratios Inventory Turnover Sales or Cost of Goods Sold Inventory Total Asset Turnover Sales Total Assets

  9. Activity or Management Efficiency Ratios Average Collection Period Accounts Receivable Sales Per Day Days to Sell Inventory Inventory Sales Per Day

  10. Leverage Ratios Times Interest Earned Earnings Before Int. & Taxes Interest Expense Fixed Charge Coverage Ratios Lease Payments Principal Repayments Preferred Dividends

  11. Leverage Ratios Debt to Assets Long Term Debt Assets Debt to Equity Long Term Debt Shareholders Equity

  12. Profitability Ratios Net Profit Margin % Net Income Sales Return on Assets Net Income Total Assets

  13. Profitability Ratios Return on Equity Net Income Common Equity Operating Margin After Depreciation Operating Profit Sales

  14. Market Price Ratios Price to Earnings Market Price of Stock Earnings Market-to-Book-Value Market Price of Stock Book Value Per Share

  15. DuPont Analysis • ROE=PM*TATO*EM • Prefer company that improves in all three components • PM=Tax burden*Interest burden*OpertingMargin • NI/S=(NI/EBT)*(EBT/EBIT)*(EBIT/S) • NI/S=(NI/EBIT)*(EBIT/Gross Profit)*(Gross Profit/Sales)