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2. Using Boundless Presentations Boundless Teaching Platform Boundless empowers educators to engage their students with affordable, customizable textbooks and intuitive teaching tools. The free Boundless Teaching Platform gives educators the ability to customize textbooks in more than 20 subjects that align to hundreds of popular titles. Get started by using high quality Boundless books, or make switching to our platform easier by building from Boundless content pre-organized to match the assigned textbook. This platform gives educators the tools they need to assign readings and assessments, monitor student activity, and lead their classes with pre-made teaching resources. Get started now at: • The Appendix The appendix is for you to use to add depth and breadth to your lectures. You can simply drag and drop slides from the appendix into the main presentation to make for a richer lecture experience. http://boundless.com/teaching-platform • Free to edit, share, and copy Feel free to edit, share, and make as many copies of the Boundless presentations as you like. We encourage you to take these presentations and make them your own. If you have any questions or problems please email: educators@boundless.com Free to share, print, make copies and changes. Get yours at www.boundless.com

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4. Standardizing Financial Statements Analyzing Financial Statements Overview of Ratio Analysis Profitability Ratios Asset Management Ratios ] Liquidity Ratios Analyzing Financial Statements Free to share, print, make copies and changes. Get yours at www.boundless.com

5. Debt Management Ratios Analyzing Financial Statements(continued) Market Value Ratios The DuPont Equation, ROE, ROA, and Growth Using Financial Ratios for Analysis ] Considering Inflation's Distortionary Effects Analyzing Financial Statements Free to share, print, make copies and changes. Get yours at www.boundless.com

6. Other Distortions Analyzing Financial Statements(continued) ] Analyzing Financial Statements Free to share, print, make copies and changes. Get yours at www.boundless.com

7. Analyzing Financial Statements > Standardizing Financial Statements Standardizing Financial Statements • Balance Sheets • Income Statements Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/standardizing-financial-statements-37/

8. Analyzing Financial Statements > Overview of Ratio Analysis Overview of Ratio Analysis • Classification Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/overview-of-ratio-analysis-38/

9. Analyzing Financial Statements > Profitability Ratios Profitability Ratios • Operating Margin • Profit Margin • Return on Total Assets • Basic Earning Power (BEP) Ratio • Return on Common Equity Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/profitability-ratios-39/

10. Analyzing Financial Statements > Asset Management Ratios Asset Management Ratios • Inventory Turnover Ratio • Days Sales Outstanding • Fixed Assets Turnover Ratio • Total Assets Turnover Ratio Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/asset-management-ratios-40/

11. Analyzing Financial Statements > Liquidity Ratios Liquidity Ratios • Current Ratio • Quick Ratio (Acid-Test Ratio) Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/liquidity-ratios-41/

12. Analyzing Financial Statements > Debt Management Ratios Debt Management Ratios • Total Debt to Total Assets • Times-Interest-Earned Ratio Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/debt-management-ratios-42/

13. Analyzing Financial Statements > Market Value Ratios Market Value Ratios • Price/Earnings Ratio • Market/Book Ratio Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/market-value-ratios-43/

14. Analyzing Financial Statements > The DuPont Equation, ROE, ROA, and Growth The DuPont Equation, ROE, ROA, and Growth • The DuPont Equation • ROE and Potential Limitations • Assessing Internal Growth and Sustainability • Dividend Payments and Earnings Retention • Relationships between ROA, ROE, and Growth Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/the-dupont-equation-roe-roa-and-growth-44/

15. Analyzing Financial Statements > Using Financial Ratios for Analysis Using Financial Ratios for Analysis • Evaluating Financial Statements • Industry Comparisons • Benchmarking • Trend Analysis • Limitations of Financial Statement Analysis Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/using-financial-ratios-for-analysis-45/

16. Analyzing Financial Statements > Considering Inflation's Distortionary Effects Considering Inflation's Distortionary Effects • Impact of Inflation on Financial Statement Analysis • Disinflation • Deflation Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/considering-inflation-s-distortionary-effects-46/

17. Analyzing Financial Statements > Other Distortions Other Distortions • Discrepancies Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/other-distortions-47/

18. Appendix Free to share, print, make copies and changes. Get yours at www.boundless.com

19. Analyzing Financial Statements Key terms • accounting irregularityAn intentional misrepresentation of accounting data. • assetSomething or someone of any value; any portion of one's property or effects so considered. • assetSomething or someone of any value; any portion of one's property or effects so considered. • average collection period365 divided by the receivables turnover ratio • balance sheetA summary of a person's or organization's assets, liabilities and equity as of a specific date. • benchmarkA standard by which something is evaluated or measured. • business cycleThe term business cycle (or economic cycle) refers to economy-wide fluctuations in production or economic activity over several months or years. • business cycleA long-term fluctuation in economic activity between growth and recession. • competitive advantagesomething that places a company or a person above the competition • current ratiocurrent assets divided by current liabilities • days in inventorythe average value of inventory divided by the average cost of goods sold per day • debt to total assets ratioafter tax income divided by liabilities Free to share, print, make copies and changes. Get yours at www.boundless.com

20. Analyzing Financial Statements • deflationary spiralA deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price. Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause. • discrepanciesAccidental misrepresentations of accounting data. • earnings managementA euphemism, such as creative accounting, to refer to fraudulent accounting practices that manipulate reporting of income, assets or liabilities with the intent to influence interpretations of the income statements. • EBITEarnings before interest and taxes. A measure of a business's profitability. • equityOwnership, especially in terms of net monetary value, of a business. • equityOwnership, especially in terms of net monetary value, of a business. • Financial Accounting Standards Boardprivate, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States in the public's interest • forecastAn estimation of a future condition. • fundamental analysisAn analysis of a business with the goal of financial projections in terms of income statement, financial statements and health, management and competitive advantages, and competitors and markets. • goodwillGoodwill is an accounting concept meaning the value of an asset owned that is intangible but has a quantifiable "prudent value" in a business for example a reputation the firm enjoyed with its clients. • gross profitThe difference between net sales and the cost of goods sold. • historical cost basisUnder this type of accounting, assets and liabilities are recorded at their values when first acquired. They are not then generally restated for changes in values. Costs recorded in the Income Statement are based on the historical cost of items sold or used, rather than their replacement costs. Free to share, print, make copies and changes. Get yours at www.boundless.com

21. Analyzing Financial Statements • holding costIn business management, holding cost is money spent to keep and maintain a stock of goods in storage. • hyperinflationIn economics, this occurs when a country experiences very high, accelerating, and perceptibly "unstoppable" rates of inflation. In such a condition, the general price level within an economy rapidly increases as the currency quickly loses real value. • IASInternational Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. • inflationAn increase in the general level of prices or in the cost of living. • intangible assetIntangible assets are defined as identifiable non-monetary assets that cannot be seen, touched, or physically measured, and are created through time and effort, and are identifiable as a separate asset. • liquidityAvailability of cash over short term: ability to service short-term debt. • liquidity trapA liquidity trap is a situation in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. • metricA measure for something; a means of deriving a quantitative measurement or approximation for otherwise qualitative phenomena. • net incomeGross profit minus operating expenses and taxes. • net profitThe gross revenue minus all expenses. • Non-operating incomeNon-operating income, in accounting and finance, is gains or losses from sources not related to the typical activities of the business or organization. Non-operating income can include gains or losses from investments, property or asset sales, currency exchange, and other atypical gains or losses. • operating incomeRevenue - operating expenses. (Does not include other expenses such as taxes and depreciation). Free to share, print, make copies and changes. Get yours at www.boundless.com

22. Analyzing Financial Statements • outstanding checka check that has been written but has not yet been deposited in the receiver's bank account • outstanding sharesShares outstanding are all the shares of a corporation that have been authorized, issued and purchased by investors and are held by them. • profit marginsProfit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue. • quantitativelyWith respect to quantity rather than quality. • ratioA number representing a comparison between two things. • ratioA number representing a comparison between two things. • ratio analysisthe use of quantitative techniques on values taken from an enterprise's financial statements • recessionA period of reduced economic activity. • retentionThe act of retaining; something retained • retention ratioretained earnings divided by net income • Return on AssetsA measure of a company's profitability. Calculated by dividing the net income for an accounting period by the average of the total assets the business held during that same period. • return on common stockholders' equitya fiscal year's net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage Free to share, print, make copies and changes. Get yours at www.boundless.com

23. Analyzing Financial Statements • sentimentA general thought, feeling, or sense. • shareholderOne who owns shares of stock. • stock splitTo issue a higher number of new shares to replace old shares. This effectively increases the number of shares outstanding without changing the market capitalization of the company. • sustainable growth ratethe optimal growth from a financial perspective assuming a given strategy with clear defined financial frame conditions/ limitations • time value of moneyThe value of money, figuring in a given amount of interest, earned over a given amount of time. • Treasury billsTreasury bills (or T-Bills) mature in one year or less. Like zero-coupon bonds, they do not pay interest prior to maturity; instead they are sold at a discount of the par value to create a positive yield to maturity. • valuationThe process of estimating the market value of a financial asset or liability. • valuationThe process of estimating the market value of a financial asset or liability. • valuationThe process of estimating the market value of a financial asset or liability. • working capital managementDecisions relating to working capital and short term financing are referred to as working capital management [19]. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. Free to share, print, make copies and changes. Get yours at www.boundless.com

24. Analyzing Financial Statements ROE Broken Down This is an expression of return on equity decomposed into its various factors. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."DuPont analysis."GNU FDLhttp://en.wikipedia.org/wiki/DuPont_analysisView on Boundless.com

25. Analyzing Financial Statements Assets Asset turnover measures the efficiency of a company's use of its assets in generating sales revenue or sales income to the company. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."Flickr Search: asset%20turnover."CC BYhttp://www.flickr.com/search/?q=asset%20turnoverView on Boundless.com

26. Analyzing Financial Statements Basic Earnings Power Ratio BEP is calculated as the ratio of Earnings Before Interest and Taxes to Total Assets. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Financial ratio."GNU FDLhttp://en.wikipedia.org/wiki/Financial_ratioView on Boundless.com

27. Analyzing Financial Statements Earnings Per Share EPS is equal to profit divided by the weighted average of common shares. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Earnings per share."GNU FDLhttp://en.wikipedia.org/wiki/Earnings_per_shareView on Boundless.com

28. Analyzing Financial Statements Putting Numbers in Order Evaluating financial statements involves getting the numbers in order and then using these figures to perform ratio analysis. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."1952-1979 М р т з п в."CC BYhttp://commons.wikimedia.org/wiki/File:1952-1979_%D0%9C%D0%B0%D0%BB%D1%82%D0%B5%D1%88%D0%BA%D0%B0_%D1%80%D0%B5%D0%B3%D0%B8%D1%81%D1%82%D0%B0%D1%80%D1%81%D0%BA%D0%B0_%D1%82%D0%B0%D0%B1%D0%BB%D0%B8%D1%87%D0%BA%D0%B0_%D0%B7%D0%B0_%D0%BF%D1%80%D0%B8%D0%B2%D0%B0%D1%82%D0%BD%D0%B8_%D0%B2%D0%BE%D0%B7%D0%B8%D0%BB%D0%B0.jpgView on Boundless.com

29. Analyzing Financial Statements Benchmarking Measures Performance Results are the paramount concern to a transactional leader. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia."Performance ratings."CC BY-SAhttp://commons.wikimedia.org/wiki/File:Performance_ratings.pngView on Boundless.com

30. Analyzing Financial Statements Cash Cash is the most liquid asset in a business. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | cash money | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/22344831@N04/3141765730/sizes/m/in/photostream/View on Boundless.com

31. Analyzing Financial Statements Operating margin formula The operating margin is found by dividing net operating income by total revenue. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Operating margin."GNU FDLhttp://en.wikipedia.org/wiki/Operating_marginView on Boundless.com

32. Analyzing Financial Statements Return on Equity The return on equity is a ratio of net income to equity. It is a measure of how effective the equity is at generating income. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Return on assets Du Pont."GNU FDLhttp://en.wikipedia.org/wiki/Return_on_assets_Du_PontView on Boundless.com

33. Analyzing Financial Statements Debt Debt ratio is an index of a business operation. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | Wipe our Debt | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/59937401@N07/7214450550/sizes/m/in/photostream/View on Boundless.com

34. Analyzing Financial Statements Turn Tables Turn tables should help you remember turnover. Fixed-asset turnover indicates how well the business is using its fixed assets to generate sales. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | Turn Tables | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/peterhess/2386274743/sizes/m/in/photostream/View on Boundless.com

35. Analyzing Financial Statements Gross Profit Margin The percentage of gross profit earned on the company's sales. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikibooks."GCSE Business Studies/Ratio Analysis."CC BY-SA 3.0http://en.wikibooks.org/wiki/GCSE_Business_Studies/Ratio_AnalysisView on Boundless.com

36. Analyzing Financial Statements Dividend Payout Ratio The dividend payout ratio is equal to dividend payments divided by net income for the same period. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Dividend payout ratio."GNU FDLhttp://en.wikipedia.org/wiki/Dividend_payout_ratioView on Boundless.com

37. Analyzing Financial Statements Example Balance Sheet Retained earnings can be found on the balance sheet, under the owners' (or shareholders') equity section. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | y2cary3n6mng-q6hnvf-balance-sheet | Flickr - Photo Sharing!."CC BY-SAhttp://www.flickr.com/photos/sampjb/7690684984/sizes/m/in/photostream/View on Boundless.com

38. Analyzing Financial Statements US historical inflation rates Annual inflation (in blue) and deflation (in green) rates in the United States from 1666 to 2004 Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Deflation."GNU FDLhttp://en.wikipedia.org/wiki/DeflationView on Boundless.com

39. Analyzing Financial Statements Trend Analysis Determining the popularity and demand for specific subject over time through trend analysis. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia.CC BY-SAhttp://upload.wikimedia.org/wikipedia/commons/3/39/WikiProject_Trend_analysis_topic_oriented_creation_trends.pngView on Boundless.com

40. Analyzing Financial Statements Disinflation Disinflation is a decrease in the rate of inflation as illustrated in the yellow region of this graph. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Disinflation graph."CC BY-SAhttp://en.wikipedia.org/wiki/File:Disinflation_graph.pngView on Boundless.com

41. Analyzing Financial Statements Return On Assets Return on assets is equal to net income divided by total assets. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Return on assets."GNU FDLhttp://en.wikipedia.org/wiki/Return_on_assetsView on Boundless.com

42. Analyzing Financial Statements Business analysis and profitability Financial ratio analysis allows an observer to put the data provided by a company in context. This allows the observer to gauge the strength of different aspects of the company's operations. Free to share, print, make copies and changes. Get yours at www.boundless.com Pixabay."Achievement, Bar, Business, Chart - Free image - 18134."Public domainhttp://pixabay.com/en/achievement-bar-business-chart-18134/View on Boundless.com

43. Analyzing Financial Statements Revenue Growth and Profitability ROA, ROS and ROE tend to rise with revenue growth to a certain extent. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Sustainable growth rate."GNU FDLhttp://en.wikipedia.org/wiki/Sustainable_growth_rateView on Boundless.com

44. Analyzing Financial Statements Free to share, print, make copies and changes. Get yours at www.boundless.com Wikispaces."SU3FINANCE - Chapter 17 - Financial Modeling and Pro Forma Analysis."CC BY-SAhttp://su3finance.wikispaces.com/Chapter+17+-+Financial+Modeling+and+Pro+Forma+AnalysisView on Boundless.com

45. Analyzing Financial Statements Free to share, print, make copies and changes. Get yours at www.boundless.com Wikispaces."SU3FINANCE - Chapter 17 - Financial Modeling and Pro Forma Analysis."CC BY-SAhttp://su3finance.wikispaces.com/Chapter+17+-+Financial+Modeling+and+Pro+Forma+AnalysisView on Boundless.com

46. Analyzing Financial Statements Return On Equity ROE is equal to after-tax net income divided by total shareholder equity. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia."Return on equity."GNU FDLhttp://en.wikipedia.org/wiki/Return_on_equityView on Boundless.com

47. Analyzing Financial Statements Income statement GAAP and IRS accounting can differ. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | y2cary3n6mng-5ha51l-income-statement-example | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/sampjb/7690678408/sizes/m/in/photostream/View on Boundless.com

48. Analyzing Financial Statements Interest Interest rates of working capital financing can be largely affected by discount rate, WACC and cost of capital. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | Interest Rates | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/68751915@N05/6870875029/sizes/m/in/photostream/View on Boundless.com

49. Analyzing Financial Statements Inventory A low turnover rate may point to overstocking, obsolescence, or deficiencies in the product line or marketing effort. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | June 8-14, 2011 | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/osseous/5903703724/sizes/m/in/photostream/View on Boundless.com

50. Analyzing Financial Statements Liquidity High liquidity means a company has the ability to meet its short-term obligations. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr."All sizes | money making strategy | Flickr - Photo Sharing!."CC BYhttp://www.flickr.com/photos/40989691@N08/5246534468/sizes/s/in/photostream/View on Boundless.com