week12-financial statement analysis

8/12/2019 Week12-Financial Statement Analysis

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Copyright 2007 Prentice-Hall. All rights reserved 1

Financial StatementFinancial Statement

AnalysisAnalysis

(Week 12)


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Objective 1Objective 1

Explain the purpose of

financial statementanalysis


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PurposePurpose

To make informed decisions about acompany

Generally based on comparativefinancial data

!rom one year to the next

With another company

With the industry


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erform a horiontal analysis of

comparative financial statements


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Copyright 2007 Prentice-Hall. All rights reserved

Horizontal AnalysisHorizontal Analysis

*ompares t$o financial statementsto determine dollar and percenta"echan"es

#etermine dollar chan"es

#etermine percenta"e chan"es + dollarchan"e divided by base period amount


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200! 200" #i$$erence

%even&es '4!2(000 '447(00 '44(400

'44(400 ) '447(00 * .0!!2( or !.!+

E1!11E1!11


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E1!11E1!11"#arley $#eron $a%is& 'ncorporated

Horizontal Analysis o( "omparative 'ncome Statement)ears Ended *ecember +1& 2,,- and 2,,.

'ncr/0*ecr/

2,,- 2,,. A$ 3

$otal revenues 4-2&,,, 45&6,, 4&,, -/-3E%penses7

"ost o( goods soldSelling 8 gen e%penses'nterest e%pense'ncome ta% e%pense

$otal e%penses9et income


9/65Copyright 2007 Prentice-Hall. All rights reserved !

200! 200" #i$$erence

Cost o$,oods sold '242(000 '22(000 '1(000

'1(000 ) '22(000 * 0.070"( or 7.1+

E1!11E1!11



E1!11E1!11"#arley $#eron $a%is& 'ncorporated

Horizontal Analysis o( "omparative 'ncome Statement)ears Ended *ecember +1& 2,,- and 2,,.

'ncr/0*ecr/

2,,- 2,,. A$ 3

$otal revenues 4-2&,,, 45&6,, 4&,, -/-3E%penses7

"ost o( goods sold 422&,,, 4226&,,, 416&,,, 5/1Selling 8 gen e%penses 115&6,, 111&6,,'nterest e%pense .&,,, :&,,,'ncome ta% e%pense :,&,, &,,

$otal e%penses 1.&,,, +.5&,,,9et income 4 5&,,, 4 6,&6,,

6&,,,

+&,,,6&,,,

+1&,,,1+&,,

:/

6,/,1+/:

./,22/1



E1!11E1!11

,et income increased by a muchhi"her percenta"e than totalrevenues durin" 2--. because

revenues increased at a hi"her rate(./.0) than did total expenses(/-0)



$rend Percentages$rend Percentages

ase year percenta"e is 1--0

Trend 0 +3ny year 4

ase year 4



E1!12E1!12

)r : )r )r + )r 2 )r 1

9et sales 1,,3

9et income 1,,

et sales/ear 2 2(0052(045 * !"+

/ear 3 2(1252(045 * 104+/ear 4 2(1"52(045 * 107+/ear 5 2(4052(045 * 11"+

-.31,31,5311.3



E1!12E1!12

)r : )r )r + )r 2 )r 1

9et Sales 11.3 1,53 1,3 -.3 1,,3

9et income 1,,

et incoe gre y 5+ d&ring the period(copared to 1"+ $or net sales

-.31,,31,31,:3



Objective +Objective +

erform a vertical analysis of

financial statements and preparecommon5sie financial statements



;ertical Analysis;ertical Analysis

&ho$s relationship of each item to abase amount on financial statements

%ncome statement each itemexpressed as percenta"e of net sales

alance sheet each item expressedas percenta"e of total assets



E1!1+E1!1+

ercenta"es based on total assets6

*urrent assets6

1-'---789'--- + 22/20

:on"5term investments6

;2';--789'--- + 1-/0

roperty' plant' and e/-0


18/65Copyright 2007 Prentice-Hall. All rights reserved 1"

E1!1+E1!1+

ercenta"es based on total assets6

*urrent liabilities6

>'---789'--- + 1>/.0

:on"5term debt6

1>>'---789'--- + =9/80

Total stockholders? e0


19/65Copyright 2007 Prentice-Hall. All rights reserved 1!

E1!1+E1!1+'$'ES

$otal current liabilities 4 .5&,,, 15/-3>ong!term debt 155&,,, +6/

$otal liabilities 26&,,, :/+S$O"?HO>*ERS@ EB'$)

$otal stocC#olders@ e=uity 222&,,, :/5$otal liabilities 8 stocC#olders@ e=uity 4.6&,,, 1,,/,3



"ommon!Size Statements"ommon!Size Statements

@eports only percenta"es

Aseful $hen benchmarkin" acompany a"ainst industry avera"es

or key competitors



E1!1E1!1

ercenta"es based on total revenues6

*ost of "oods sold6

2--6 229'---788>'9-- + ;-/;0

2--.6 282'---78.2'--- + 8./20

&ellin" B General Expenses6

2--6 111'9--788>'9-- + 28/.0

2--.6 11>'9--78.2'--- + 2=/.0



E1!1E1!1

ercenta"es based on total revenues6

%nterest Expense6

2--6 ;'---788>'9-- + 1/10

2--.6 '---78.2'--- + 1/90

%ncome Tax Expense6

2--6 88'8--788>'9-- + ./.0

2--.6 ;-'8--78.2'--- + 1-/20



E1!1E1!1"#arley $#eron $a%is& 'ncorporated/

"omparative "ommon!Size 'ncome Statement

)ears Ended *ecember +1& 2,,- and 2,,.

2,,- 2,,.

$otal revenues 1,,/,3 1,,/,3E%penses7

"ost o( goods sold -/2 :,/:

Selling and general e%penses 2+/- 2/-

'nterest e%pense 1/6 1/1

'ncome ta% e%pense 1,/2 -/-

$otal e%pense ./- .6/

9et income 1:/13 1+/63



Objective Objective

*ompute commonly used

financial ratios



C&rrent assets C&rrent liailities

>i=uidity Ratios>i=uidity Ratios

Workin" capital measure ofamount of current asset remainin"after all current liabilities have been

paid


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C&rrent assets

C&rrent liailities


*urrent ratio measures ability topay current assets $ith currentliabilities


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&ic6 assetsC&rrent liailities


Cuick ratio (acid test ratio) if theentity could pay all its currentliabilities if they came due

immediatelyCuick assets 5 cash' short5term

investments' net current receivables


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et incoe

et sales

Pro(itabilityPro(itability

@ate of return on net sales (profitmar"in) percenta"e of each salesdollar that is earned as net income


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Copyright 2007 Prentice-Hall. All rights reserved 2!

et incoe 8nterest e9pense:Average total assets


@ate of return on total assets ho$successful the business is in usin"assets to earn a profit

:Average total assets *; 2


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et incoe Pre$erred dividends

:Average coon stoc6holders? e@&ity


@ate of return on commonstockholders? e


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Tradin" on the e


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et incoe Pre$erred dividends

&er o$ shares o$ coon stoc6 o&tstanding


Earnin"s per share of common stock income "enerated by one share ofstock


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E1!15E1!15

0rate o( return on net sales0rate o( return on net sales

'12(000'21(000

4.+

et incoeet sales

200"

'17(000'237(000

7.2+

2007


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E1!15E1!15

0rate o( return on total assets0rate o( return on total assets

'12(00032(000;'320(0002!2(000>2

14.4+

200"

'17(00015(000;'2!2(0002"2(000>2

11.1+

2007

et incoe 8nterest e9pense:Average total assets

E1 15E1 15


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E1!15E1!150rate o( return on common stocC#olders@0rate o( return on common stocC#olders@

e=uity e=uity

'12(000-4(000;'14"(000140(000>2

5.+

200"

'17(000-4(000;'140(000132(000>2

!.+

2007

et incoe Pre$erred dividends:Average coon stoc6holders? e@&ity


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E1!15E1!15

0earnings per s#are 0earnings per s#are

'12(000-4(00025(000

'0.32

200"

'17(000-4(00025(000

'0.52

2007

et incoe Pre$erred dividends&er o$ shares o$ coon stoc6 o&tstanding


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E1!15E1!15

The company?s operatin"performance deteriorated overalldurin" 2--/ 3ll profitability

measures' except rate of return ontotal assets decreased


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Cost o$ goods soldAverage inventory:

Asset BtilizationAsset Btilization

%nventory turnover ho$ manytimes a year the company sells itsavera"e level of inventory

:Average inventory *;2


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et credit salesAverage net acco&nts receivale:


3ccounts receivable turnover ho$


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Average net acco&nts receivaleBne days? sales:


#ays? sales in receivables ho$many days? sales remain uncollectedin accounts receivable

:Bne days? sales * et sales 35


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C&rrent assetsC&rrent liailities

E1!1:E1!1:

0current ratio0current ratio

'175(000'"7(500

2.0


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E1!1:E1!1:

0=uicC ratio0=uicC ratio

'27(000 '22(000 '54(000'"7(500

1.2

&ic6 assetsC&rrent liailities


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E1!1:E1!1:

0inventory turnover0inventory turnover

'331(700;;'42(000 5(000> 2>

.2 ties

Cost o$ goods soldAverage inventory:


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E1!1:E1!1:0accounts receivable turnover0accounts receivable turnover

'554("00;;'72(000 54(000> 2>

"." ties

et credit salesAverage net acco&nts receivale:

E1 1 0d @ l i


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E1!1: 0days@ sales inE1!1: 0days@ sales in

receivablesreceivables

;;'72(000 54(000> 2>;'554("0035>

41.4 days

Average net acco&nts receivaleBne days? sales:


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otal liailitiesotal assets

*ebt Btilization*ebt Btilization

#ebt ratio proportion of company?sassets financed $ith debt


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8ncoe $ro operations:8nterest e9pense

*ebt Btilization*ebt Btilization

Times5interest5earned (interestcovera"e) ho$ many timesoperatin" income covers interest

expense

:8ncoe $ro operations *8ncoe e$ore incoe ta9 D interest e9pense


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2,,.74+2&,,,D+:&,,,D1+,&,,,D+,&,,,D1:&,,,

2/:422,&.,,

2,,574:&,,,D12&,,,D+6,&,,,D12&,,,

2/+42:&6,,

E1!16E1!16

0current ratio0current ratio


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2,,.74+2&,,,D+:&,,,D1+,&,,,

/.-422,&.,,

2,,574:&,,,D12&,,,

/5642:&6,,

E1!16E1!16

0=uicC ratio0=uicC ratio


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2,,.7422,&.,, D 2&2,,

/24:.,&,,,

2,,5742:&6,, D 2-&,,

/-4:6,&,,,

E1!16E1!16

0debt ratio0debt ratio

E1 16E1 16


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2,,.741.:&,,,

/42&,,,

2,,57415-&,,,

/14&,,,

E1!16E1!16

0times!interest!earned0times!interest!earned


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E1!16E1!16

&ummary6 The company?s ability topay its current liabilities' lon"5termdebt' and interest expense has

improved durin" 2--


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Ear6et price per share=PF

StocC 'nvestmentsStocC 'nvestments

rice7earnin"s ratio the marketprice of 41 of earnin"s


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#ividend per shareEar6et price per share

StocC 'nvestmentsStocC 'nvestments

#ividend yield percenta"e of astock?s market value that is returnedannually as dividends

E1 1.E1 1.


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E1!1.E1!1.

0priceearnings ratio 0priceearnings ratio

'15.1";'"7(000-1"(000>100(000

22.0

200"

'11.3;'"3(000-1"(000>100(000

17.!

2007

Ear6et price per share=PF

E1 1.E1 1.


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E1!1.E1!1.

0dividend yield 0dividend yield

;'4"(0001"(000>100(000'15.1"

.020

200"

;'4"(000-1"(000>100(000'11.3

.02

2007

#ividend per shareEar6et price per share


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Objective :Objective :

easure economic valueadded

Economic ;alue AddedEconomic ;alue Added


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0E;AG0E;AG

easures $hether a business?soperations have increased itsstockholder $ealth

et incoe 8nterest e9pense Capital charge



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0E;AG0E;AG

*apital char"e amountstockholders and lenders char"e acompany for the use of their money

otes

payale


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0E;AG0E;AG

ositive EF3G5 increase instockholder $ealth


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E1!1-E1!1-

randy itts Winery

=GA *'100(000 42(000 41(!04 * '100(0!

Capital Charge;'14(200 335(000> 9 12+ * '41(!04


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E1!1-E1!1-

Henna ,iston !ashions

=GA *'12(000 32(000 25(040 * '1"(!0

Capital Charge;'12(000 301(000> 9 "+ * '25(040


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Atilie non5financial data inanalyin" financial

statements


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9on(inancial *ata9on(inancial *ata

resident?s letter to the stockholders

ana"ement discussion and analysis

3uditor report


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han6 /o&han6 /o&

week12-financial statement analysis

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