FIN6120-Ratio discussion
Jaspereric
Chapters13.pptFinancial Statement Analysis
New Focus Consulting, 2014
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Chapter 13
Ratios and Trend Analysis
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Chapter 13
Horizontal Analysis: source, value investing basics
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Chapter 13
Calculate Income Statement 2013 vertical amounts and 2011 to 2013 horizontal amounts.
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Current Ratio: Used to determine a company’s ability to repay short-term debts.
Current Assets
Current Liabilities
Chapter 13
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Quick Ratio: Addressed liquidity by using cash and current assets that can be most quickly converted to cash(quick assets).
Quick Assets
Current Liabilities
Chapter 13
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Chapter 13
Inventory Turnover Ratio: Number of times the inventory of a company is sold and replaced over a specified period of time.
Cost of Goods Sold
Average Inventory at Cost
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Chapter 13
Accounts Receivable Turnover Ratio: Calculates how quickly a company turns it credit sales into cash.
Credit Sales
Average Accounts Receivable
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Chapter 13
Average Collection Period Ratio: The average number of days it takes for a company to collect its accounts receivable.
Avg. Accounts Receivable
(Sales/360)
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Chapter 13
Debt to Equity Ratio: Calculates the amount of debt as a percentage of equity. Some analysts will use total liabilities as debt.
Total Debt
Total Equity
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Chapter 13
Gross Profit Margin Ratio: Determines the profitability of a company through direct expenses. Used to evaluate efficiency of operations.
Sales – Cost of Goods Sold
Sales
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Chapter 13
Operating Margin Ratio: Determines the profitability percentage from a company’s operations.
Operating Income
Sales
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Chapter 13
Net Profit Margin Ratio: Determines the profit of a company after it meets the obligations for a specific period.
Net Profit
Sales
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Chapter 13
Return on Equity Ratio: Indicates the return earned by the owners(investors) for a period.
Net Profit
Average Owners Equity
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Chapter 13
Earnings Per Share Ratio: The theoretical earnings per each outstanding share.
Net Income – Preferred Dividends
Average Number of Common Shares Outstanding
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Chapter 13
The prior ratios were some examples of ratios and analysis. There are a number more. Some not presented were ratios using assets as a denominator. In my opinion, they are less telling than other ratios.
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