About Finance
Sheet1
| Tool Kit | Chapter 3 | ||||
| Analysis of Financial Statements | |||||
| Financial statements are analyzed by calculating certain key ratios and then comparing them with the ratios of other firms and by examining the trends in ratios over time. We can also combine ratios to make the analysis more revealing, one below are exceptionally useful for this type of analysis. | |||||
| 3-1 Financial Analysis | |||||
| Input Data: | |||||
| 2013 | 2012 | ||||
| Year-end common stock price | $27.00 | $40.00 | |||
| Year-end shares outstanding (in millions) | 50 | 50 | |||
| Tax rate | 40% | 40% | |||
| After-tax cost of capital | 11.0% | 10.5% | |||
| Lease payments | $28 | $28 | |||
| Required sinking fund payments | $20 | $20 | |||
| Figure 3-1 | |||||
| MicroDrive Inc. Balance Sheets and Income Statements for Years Ending December 31 | |||||
| (Millions of Dollars, Except for Per Share Data) | |||||
| Balance Sheets | 2013 | 2012 | |||
| Assets | |||||
| Cash and equivalents | $ 50 | $ 60 | |||
| Short-term investments | - | 40 | |||
| Accounts receivable | 500 | 380 | |||
| Inventories | 1,000 | 820 | |||
| Total current assets | $ 1,550 | $ 1,300 | |||
| Net plant and equipment | 2,000 | 1,700 | |||
| Total assets | $ 3,550 | $ 3,000 | |||
| Liabilities and Equity | |||||
| Accounts payable | $ 200 | $ 190 | |||
| Notes payable | 280 | 130 | |||
| Accruals | 300 | 280 | |||
| Total current liabilities | $ 780 | $ 600 | |||
| Long-term bonds | 1,200 | 1,000 | |||
| Total liabilities | $ 1,980 | $ 1,600 | |||
| Preferred stock (400,000 shares) | 100 | 100 | |||
| Common stock (50,000,000 shares) | 500 | 500 | |||
| Retained earnings | 970 | 800 | |||
| Total common equity | $ 1,470 | $ 1,300 | |||
| Total liabilities and equity | $ 3,550 | $ 3,000 | |||
| Income Statements | 2013 | 2012 | |||
| Net sales | $ 5,000 | $ 4,760 | |||
| Costs of goods sold except depreciation | 3,800 | 3,560 | |||
| Depreciation | 200 | 170 | |||
| Other operating expenses | 500 | 480 | |||
| Earnings before interest and taxes (EBIT) | $ 500 | $ 550 | |||
| Less interest | 120 | 100 | |||
| Pre-tax earnings | $ 380 | $ 450 | |||
| Taxes (40%) | 152 | 180 | |||
| Net Income before preferred dividends | $ 228 | $ 270 | |||
| Preferred dividends | 8 | 8 | |||
| Net Income available to common stockholders | $ 220 | $ 262 | |||
| Other Data | |||||
| Common dividends | $50 | $48 | |||
| Addition to retained earnings | $170 | $214 | |||
| Lease payments | $28 | $28 | |||
| Bonds' required sinking fund payments | $20 | $20 | |||
| Common stock price per share | $27 | $40 | |||
| Calculated Data: Operating Performance and Cash Flows | |||||
| 2013 | 2012 | ||||
| Net operating working capital (NOWC) | $1,050 | $790 | |||
| Total operating capital | $3,050 | $2,490 | |||
| Net operating profit after taxes (NOPAT) | $300 | $330 | |||
| Return on capital (ROIC) | 9.8% | 13.3% | |||
| Free cash flow (FCF) | ($260) | N/A | |||
| Net cash flow (Net income + Depreciation) | $ 420 | $432 | |||
| Earnings before interest, taxes, depreciation & amortization (EBITDA) = EBIT + Depreciation & amortization | $700 | $720 | |||
| Market capitalization (# shares x price per share) | $1,350 | $2,000 | |||
| Calculated Data: Per-share Information | |||||
| 2013 | 2012 | ||||
| Earnings per share (EPS) | $4.40 | $5.24 | |||
| Dividends per share (DPS) | $1.00 | $0.96 | |||
| Book value per share (BVPS) | $29.40 | $26.00 | |||
| Cash flow per share (CFPS) | $8.40 | $8.64 | |||
| EDITDA per share | $14.00 | $14.40 | |||
| Free cash flow per share (FCFPS) | ($5.20) | N/A | |||
| 3-2 Liquidity Ratios | Industry | ||||
| 2013 | 2012 | Average | |||
| Liquidity ratios | |||||
| Current Ratio = CA/CL | 2.0 | 2.2 | 2.2 | ||
| Quick Ratio = (CA - Inventories)/CL | 0.7 | 0.8 | 0.8 | ||
| 3-3 Asset Management Ratios | Industry | ||||
| 2013 | 2012 | Average | |||
| Asset Management ratios | |||||
| Total Asset Turnover = Sales/TA | 1.4 | 1.6 | 1.8 | ||
| Fixed Asset Turnover = Sales/Fixed assets | 2.5 | 2.8 | 3 | ||
| Days Sales Outstanding = Accounts receivable/Daily sales | 36.5 | 29.1 Christopher Buzzard: To calculate the DSO ratio, a 365-day accounting year was used. | 30 | ||
| Inventory Turnover = COGS/Inventories | 4.0 | 4.5 | 5 | ||
| 3-4 Debt Management Ratios | Industry | ||||
| 2013 | 2012 | Average | |||
| Debt Management ratios | |||||
| Debt Ratio = Debt-to-Assets Ratio = Total debt/TA | 41.7% | 37.7% | 25.0% | ||
| Debt-to-Equity Ratio = Total debt/Total common equity | 1.01 | 0.87 | 0.46 | ||
| Market Debt Ratio = Total debt/(Total debt + Market Cap) | 52.3% | 36.1% | 20.0% | ||
| Liabilities-to-Assets Ratio = TL/TA | 55.8% | 53.3% | 45.0% | ||
| Times Interest Earned = EBIT/Interest expense | 4.2 | 5.5 | 10.0 | ||
| EBITDA Coverage Ratio = (EBIT + Depreciation + Lease pmt) (Interest + Principal pmt + Lease pmt) | 4.3 | 5.1 | 12.0 | ||
| 3-5 Profitability Ratios | Industry | ||||
| 2013 | 2012 | Average | |||
| Profitability ratios | |||||
| Profit Margin = Net income/Sales | 4.4% | 5.5% | 6.2% | ||
| Basic Earning Power = EBIT/TA | 14.1% | 18.3% | 20.2% | ||
| Return on Assets = Net income/TA | 6.2% | 8.7% | 11.0% | ||
| Return on Equity = Net income/Total common equity | 15.0% | 20.2% | 19.0% | ||
| 3-6 Market Value Ratios | Industry | ||||
| 2013 | 2012 | Average | |||
| Market Value ratios | |||||
| Price-to Earnings Ratio = Price/(Net income/# shares) | 6.1 | 7.6 | 10.5 | ||
| Price-to-Cash Flow Ratio = Price (Net income + Depreciation)/# shares | 3.2 | 4.6 | 6.3 | ||
| Price-to-EBITDA Ratio = Price (EBIT + Depreciation)/# shares | 1.9 | 2.8 | 4.0 | ||
| Market-to-Book Ratio = Price/(Total common equity/#shares) | 0.9 | 1.5 | 1.8 |
Sheet2
| Tool Kit | Chapter 3 | ||||
| Analysis of Financial Statements | |||||
| Financial statements are analyzed by calculating certain key ratios and then comparing them with the ratios of other firms and by examining the trends in ratios over time. We can also combine ratios to make the analysis more revealing, one below are exceptionally useful for this type of analysis. | |||||
| 3-1 Financial Analysis | |||||
| Input Data: | |||||
| 2013 | 2012 | ||||
| Year-end common stock price | $27.00 | $40.00 | |||
| Year-end shares outstanding (in millions) | 50 | 50 | |||
| Tax rate | 40% | 40% | |||
| After-tax cost of capital | 11.0% | 10.5% | |||
| Lease payments | $28 | $28 | |||
| Required sinking fund payments | $20 | $20 | |||
| Figure 3-1 | |||||
| MicroDrive Inc. Balance Sheets and Income Statements for Years Ending December 31 | |||||
| (Millions of Dollars, Except for Per Share Data) | |||||
| Balance Sheets | 2013 | 2012 | |||
| Assets | |||||
| Cash and equivalents | $ 50 | $ 60 | |||
| Short-term investments | - | 40 | |||
| Accounts receivable | 500 | 380 | |||
| Inventories | 1,000 | 820 | |||
| Total current assets | $ 1,550 | $ 1,300 | |||
| Net plant and equipment | 2,000 | 1,700 | |||
| Total assets | $ 3,550 | $ 3,000 | |||
| Liabilities and Equity | |||||
| Accounts payable | $ 200 | $ 190 | |||
| Notes payable | 280 | 130 | |||
| Accruals | 300 | 280 | |||
| Total current liabilities | $ 780 | $ 600 | |||
| Long-term bonds | 1,200 | 1,000 | |||
| Total liabilities | $ 1,980 | $ 1,600 | |||
| Preferred stock (400,000 shares) | 100 | 100 | |||
| Common stock (50,000,000 shares) | 500 | 500 | |||
| Retained earnings | 970 | 800 | |||
| Total common equity | $ 1,470 | $ 1,300 | |||
| Total liabilities and equity | $ 3,550 | $ 3,000 | |||
| Income Statements | 2013 | 2012 | |||
| Net sales | $ 5,000 | $ 4,760 | |||
| Costs of goods sold except depreciation | 3,800 | 3,560 | |||
| Depreciation | 200 | 170 | |||
| Other operating expenses | 500 | 480 | |||
| Earnings before interest and taxes (EBIT) | $ 500 | $ 550 | |||
| Less interest | 120 | 100 | |||
| Pre-tax earnings | $ 380 | $ 450 | |||
| Taxes (40%) | 152 | 180 | |||
| Net Income before preferred dividends | $ 228 | $ 270 | |||
| Preferred dividends | 8 | 8 | |||
| Net Income available to common stockholders | $ 220 | $ 262 | |||
| Other Data | |||||
| Common dividends | $50 | $48 | |||
| Addition to retained earnings | $170 | $214 | |||
| Lease payments | $28 | $28 | |||
| Bonds' required sinking fund payments | $20 | $20 | |||
| Common stock price per share | $27 | $40 | |||
| Calculated Data: Operating Performance and Cash Flows | |||||
| 2013 | 2012 | ||||
| Net operating working capital (NOWC) | $1,050 | $790 | |||
| Total operating capital | $3,050 | $2,490 | |||
| Net operating profit after taxes (NOPAT) | $300 | $330 | |||
| Return on capital (ROIC) | 9.8% | 13.3% | |||
| Free cash flow (FCF) | ($260) | N/A | |||
| Net cash flow (Net income + Depreciation) | $ 420 | $432 | |||
| Earnings before interest, taxes, depreciation & amortization (EBITDA) = EBIT + Depreciation & amortization | $700 | $720 | |||
| Market capitalization (# shares x price per share) | $1,350 | $2,000 | |||
| Calculated Data: Per-share Information | |||||
| 2013 | 2012 | ||||
| Earnings per share (EPS) | $4.40 | $5.24 | |||
| Dividends per share (DPS) | $1.00 | $0.96 | |||
| Book value per share (BVPS) | $29.40 | $26.00 | |||
| Cash flow per share (CFPS) | $8.40 | $8.64 | |||
| EDITDA per share | $14.00 | $14.40 | |||
| Free cash flow per share (FCFPS) | ($5.20) | N/A | |||
| 3-2 Liquidity Ratios | Industry | ||||
| 2013 | 2012 | Average | |||
| Liquidity ratios | |||||
| Current Ratio = CA/CL | 2.0 | 2.2 | 2.2 | ||
| Quick Ratio = (CA - Inventories)/CL | 0.7 | 0.8 | 0.8 | ||
| 3-3 Asset Management Ratios | Industry | ||||
| 2013 | 2012 | Average | |||
| Asset Management ratios | |||||
| Total Asset Turnover = Sales/TA | 1.4 | 1.6 | 1.8 | ||
| Fixed Asset Turnover = Sales/Fixed assets | 2.5 | 2.8 | 3 | ||
| Days Sales Outstanding = Accounts receivable/Daily sales | 36.5 | 29.1 Christopher Buzzard: To calculate the DSO ratio, a 365-day accounting year was used. | 30 | ||
| Inventory Turnover = COGS/Inventories | 4.0 | 4.5 | 5 | ||
| 3-4 Debt Management Ratios | Industry | ||||
| 2013 | 2012 | Average | |||
| Debt Management ratios | |||||
| Debt Ratio = Debt-to-Assets Ratio = Total debt/TA | 41.7% | 37.7% | 25.0% | ||
| Debt-to-Equity Ratio = Total debt/Total common equity | 1.01 | 0.87 | 0.46 | ||
| Market Debt Ratio = Total debt/(Total debt + Market Cap) | 52.3% | 36.1% | 20.0% | ||
| Liabilities-to-Assets Ratio = TL/TA | 55.8% | 53.3% | 45.0% | ||
| Times Interest Earned = EBIT/Interest expense | 4.2 | 5.5 | 10.0 | ||
| EBITDA Coverage Ratio = (EBIT + Depreciation + Lease pmt) (Interest + Principal pmt + Lease pmt) | 4.3 | 5.1 | 12.0 | ||
| 3-5 Profitability Ratios | Industry | ||||
| 2013 | 2012 | Average | |||
| Profitability ratios | |||||
| Profit Margin = Net income/Sales | 4.4% | 5.5% | 6.2% | ||
| Basic Earning Power = EBIT/TA | 14.1% | 18.3% | 20.2% | ||
| Return on Assets = Net income/TA | 6.2% | 8.7% | 11.0% | ||
| Return on Equity = Net income/Total common equity | 15.0% | 20.2% | 19.0% | ||
| 3-6 Market Value Ratios | Industry | ||||
| 2013 | 2012 | Average | |||
| Market Value ratios | |||||
| Price-to Earnings Ratio = Price/(Net income/# shares) | 6.1 | 7.6 | 10.5 | ||
| Price-to-Cash Flow Ratio = Price (Net income + Depreciation)/# shares | 3.2 | 4.6 | 6.3 | ||
| Price-to-EBITDA Ratio = Price (EBIT + Depreciation)/# shares | 1.9 | 2.8 | 4.0 | ||
| Market-to-Book Ratio = Price/(Total common equity/#shares) | 0.9 | 1.5 | 1.8 |