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Analysis Details

Tool Kit for 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.
RATIO ANALYSIS (Section 3.1)
Input Data:
			2018	2017
Year-end common stock price			$23.00	$26.00
Year-end shares outstanding (in millions)			46	49
Tax rate			23%	44%
After-tax cost of capital			11.0%	10.8%
Lease payments			$28	$28
Required sinking fund payments			$20	$20
Balance Sheets
(in millions of dollars)
Assets			2018	2017
Cash and equivalents			$1,181	$957
Short-term investments			$0	$0
Accounts receivable			$145	$148
Inventories			$2,027	$1,978
Total current assets			$3,353	$3,083
Net plant and equipment			$2,000	$1,700
Total assets			$5,353	$4,783
Liabilities and equity
Accounts payable			$200	$190
Notes payable			$300	$280
Accruals			$280	$130
Total current liabilities			$780	$600
Long-term bonds			$1,200	$1,000
Total liabilities			$1,980	$1,600
Preferred stock (400,000 shares)			$40	$40
Common stock (50,000,000 shares)			$130	$130
Retained earnings			$766	$710
Total common equity			$896	$840
Total liabilities and equity			$2,916	$2,480
Income Statements
(in millions of dollars)
			2018	2017
Net sales			$15,480.0	$15,137.0
Operating costs			$10,155.0	$9,890.0
Earnings before interest, taxes, depr. & amort. (EBITDA)			$5,325.0	$5,247.0
Depreciation			$669.0	$666.0
Amortization			$0.0	$0.0
Depreciation and amortization			$669.0	$666.0
Earnings before interest and taxes (EBIT)			$4,656.0	$4,581.0
Less interest			$88.0	$60.0
Earnings before taxes (EBT)			$4,568.0	$4,521.0
Taxes (40%)			$1,050.6	$1,989.2
Net income before preferred dividends			$3,517.4	$2,531.8
Preferred dividends			$4.0	$4.0
Net income available to common stockholders			$3,513.4	$2,527.8
Common dividends			$57.5	$53.0
Addition to retained earnings			$3,455.9	$2,474.8
Calculated Data: Operating Performance and Cash Flows
			2018	2017
Net operating working capital (NOWC)			$2,873.0	$2,763.0
Total operating capital			$4,873.0	$4,463.0
Net Operating Profit After Taxes (NOPAT)			$3,585.1	$2,565.4
Net Cash Flow (Net income + Depreciation)			$4,182.4	$3,193.8
Operating Cash Flow (OCF)			$4,254.1	$3,231.4
Free Cash Flow (FCF)			$3,175.1	N/A
Calculated Data: Per-share Information
			2018	2017
Earnings per share (EPS)			$75.70	$51.26
Dividends per share (DPS)			$1.24	$1.07
Book value per share (BVPS)			$19.31	$17.04
Cash flow per share (CFPS)			$90.12	$64.77
Free cash flow per share (FCFPS)			$68.41	N/A
LIQUIDITY RATIOS (Section 3.2)				Industry
		2018	2017	Average
Liquidity ratios
Current Ratio		4.30	5.14	1.11
Quick Ratio		1.70	1.84	0.88
ASSET MANAGEMENT RATIOS (Section 3.3)				Industry
		2018	2017	Average
Asset Management ratios
Inventory Turnover		7.64	7.65	11.29
Days Sales Outstanding		3.4	3.57 Christopher Buzzard: To calculate the DSO ratio, a 365-day accounting year was used.	3.0931506849
Fixed Asset Turnover		7.74	8.90	3
Total Asset Turnover		2.89	3.16	0.84
DEBT MANAGEMENT RATIOS (Section 3.4)				Industry
		2018	2017	Average
Debt Management ratios
Debt Ratio		36.99%	33.45%	40.00%
Debt-to-Equity Ratio		0.59	0.50	0.67
Market Debt Ratio		64.97%	55.52%	N/A
Times Interest Earned		52.91	76.35	6
EBITDA Coverage Ratio		39.36 Brigham: (EBITDA + Lease Payments) / (Interest + Loan Payments + Lease Payments)	48.84	8
PROFITABILITY RATIOS (Section 3.5)				Industry
		2018	2017	Average
Profitability ratios
Profit Margin		22.70%	16.70%	43.00%
Basic Earning Power		86.98%	95.78%	17.20%
Return on Assets		65.63%	52.85%	5.65%
Return on Equity		392.12%	300.92%	13.88%
MARKET VALUE RATIOS (Section 3.6)				Industry
		2018	2017	Average
Market Value ratios
Price-to Earnings Ratio		0.30	0.51	22.48
Price-to-Cash Flow Ratio		0.26	0.40 Christopher Buzzard: P/CF ratio is calculated by dividing the price by the net cash flow per share.	2.51
Price-to-EBITDA		0.22	0.25	4.34
Market-to-Book Ratio		1.19	1.53	21.08
TREND ANALYSIS, COMMON SIZE ANALYSIS, AND PERCENT CHANGE ANALYSIS (Section 3.7)
TREND ANALYSIS
Trend analysis allows you to see how a firm's results are changing over time. For instance, a firm's ROE may be slightly below the benchmark, but if it has been steadily rising over the past four years, that should be seen as a good sign.
A trend analysis and graph have been constructed on this data regarding MicroDrive's ROE over the past 5 years. (MicroDrive and indusry average data for earlier years has been provided.)
		ROE
			Industry
	2014	14.0%	13.2%
	2015	16.1%	15.0%
	2016	14.8%	16.0%
	2017	300.9%	16.2%
	2018	392.1%	13.9%
Figure 3-1 Rate of Return on Common Equity
COMMON SIZE ANALYSIS
In common size income statements, all items for a year are divided by the sales for that year.
Figure 3-2 Common Size Income Statements
			Industry Composite	MicroDrive
			2018	2018	2017
Net sales			100.0%	100.0%	100.0%
Operating costs			87.6%	65.6%	65.3%
Earnings before interest, taxes, depr. & amort. (EBITDA)			12.4%	34.4%	34.7%
Depreciation and amortization			2.8%	4.3%	4.4%
Earnings before interest and taxes (EBIT)			9.6%	30.1%	30.3%
Less interest			1.3%	0.6%	0.4%
Earnings before taxes (EBT)			8.3%	29.5%	29.9%
Taxes (40%)			3.3%	6.8%	13.1%
Net income before preferred dividends			5.0%	22.7%	16.7%
Preferred dividends			0.0%	0.0%	0.0%
Net income available to common stockholders (profit margin)			5.0%	22.7%	16.7%
In common sheets, all items for a year are divided by the total assets for that year.
Figure 3-3 Common Size Balance Sheets
		Industry Composite	MicroDrive
		2018	2018	2017
Assets
Cash and equivalents		1.0%	22.1%	20.0%
Short-term investments		2.2%	0.0%	0.0%
Accounts receivable		17.8%	2.7%	3.1%
Inventories		19.8%	37.9%	41.4%
Total current assets		40.8%	62.6%	64.5%
Net plant and equipment		59.2%	37.4%	35.5%
Total assets		100.0%	100.0%	100.0%
Liabilities and equity
Accounts payable		1.8%	3.7%	4.0%
Notes payable		4.4%	5.6%	5.9%
Accruals		3.6%	5.2%	2.7%
Total current liabilities		9.8%	14.6%	12.5%
Long-term bonds		30.2%	22.4%	20.9%
Total liabilities		40.0%	37.0%	33.5%
Preferred stock		0.0%	0.7%	0.8%
Total common equity		60.0%	16.7%	17.6%
Total liabilities and equity		100.0%	54.5%	51.9%
PERCENT CHANGE ANALYSIS
In percent change analysis, all items are divided by the that item's value in the beginning, or base, year.
Figure 3-4 Income Statement Percent Change Analysis
Base year =	2017		Percent Change in
			2018
Net sales			2.3% Marieke: Marieke: Sales increased by 5.3% in 2010 but EBITDA increased by 8.7% which was then offset by a 46.7% increased in interest expense …this caused growth in net income to be negative
Operating costs			2.7%
Earnings before interest, taxes, depr. & amort. (EBITDA)			1.5%
Depreciation and amortization			0.5%
Earnings before interest and taxes (EBIT)			1.6%
Less interest			46.7%
Earnings before taxes (EBT)			1.0%
Taxes (40%)			(47.2%)
Net income before preferred dividends			38.9%
Preferred dividends			0.0%
Net income available to common stockholders			39.0% Marieke: Marieke: This % change analysis shows that the decrease in net income was mostly from an increase in interest expense
			Christopher Buzzard: P/CF ratio is calculated by dividing the price by the net cash flow per share.	Brigham: (EBITDA + Lease Payments) / (Interest + Loan Payments + Lease Payments)	Marieke: Marieke: Sales increased by 5.3% in 2010 but EBITDA increased by 8.7% which was then offset by a 46.7% increased in interest expense …this caused growth in net income to be negative	Balance Sheet Percent Change Analysis (not in textbook)
Base year =	2017		Percent Change in
			2018
Assets
Cash and equivalents			23.4%
Short-term investments			ERROR:#DIV/0!
Accounts receivable			-2.0%
Inventories			2.5% Marieke: Marieke: Inventories grew at a large rate of 48.2% with only a 5.3% growth in sales- so this large grwoth in inventories could be of concern to managers
			Christopher Buzzard: To calculate the DSO ratio, a 365-day accounting year was used.	Total current assets			8.8%
Net plant and equipment			17.6%
Total assets			11.9%
Liabilities and equity
Accounts payable			5.3%
Notes payable			7.1%
Accruals			115.4%
Total current liabilities			30.0%
Long-term bonds			20.0%
Total liabilities			23.8%
Preferred stock (400,000 shares)			0.0%
Common stock (50,000,000 shares)			0.0%
Retained earnings			7.9%
Total common equity			6.7%
Total liabilities and equity			17.6%

2014 2015 2016 2017 2018 0.14000000000000001 0.161 0.14800000000000002 3.0092380952380955 3.9211607142857141 Industry

2014 2015 2016 2017 2018 0.13200000000000001 0.15 0.16 0.16200000000000001 0.13880000000000001

ROE (%)

Company Data

Fill in your company details here:
Comapny 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.
RATIO ANALYSIS (Section 3.1)
Input Data:
			2018	2017
Year-end common stock price			$23.00	$26.00
Year-end shares outstanding (in millions)			50	50
Tax rate			23%	44%
After-tax cost of capital			11.0%	10.8%
Lease payments			$28	$28
Required sinking fund payments			$20	$20
Balance Sheets
(in millions of dollars)
Assets			2018	2017
Cash and equivalents			$1,181	$957
Short-term investments			$0	$0
Accounts receivable			$145	$148
Inventories			$2,027	$1,978
Total current assets			$3,353	$3,083
Net plant and equipment			$2,000	$1,700
Total assets			$5,353	$4,783
Liabilities and equity
Accounts payable			$200	$190
Notes payable			$300	$280
Accruals			$280	$130
Total current liabilities			$780	$600
Long-term bonds			$1,200	$1,000
Total liabilities			$1,980	$1,600
Preferred stock (400,000 shares)			$40	$40
Common stock (50,000,000 shares)			$130	$130
Retained earnings			$766	$710
Total common equity			$896	$840
Total liabilities and equity			$2,916	$2,480
Income Statements
(in millions of dollars)
			2018	2017
Net sales			$3,000.0	$2,850.0
Operating costs			$2,616.2	$2,497.0
Earnings before interest, taxes, depr. & amort. (EBITDA)			$383.8	$353.0
Depreciation			$100.0	$90.0
Amortization			$0.0	$0.0
Depreciation and amortization			$100.0	$90.0
Earnings before interest and taxes (EBIT)			$283.8	$263.0
Less interest			$88.0	$60.0
Earnings before taxes (EBT)			$195.8	$203.0
Taxes (40%)			$45.0	$89.3
Net income before preferred dividends			$150.8	$113.7
Preferred dividends			$4.0	$4.0
Net income available to common stockholders			$146.8	$109.7
Common dividends			$57.5	$53.0
Addition to retained earnings			$89.3	$56.7
Calculated Data: Operating Performance and Cash Flows
			2018	2017
Net operating working capital (NOWC)			$2,873.0	$2,763.0
Total operating capital			$4,873.0	$4,463.0
Net Operating Profit After Taxes (NOPAT)			$218.5	$147.3
Net Cash Flow (Net income + Depreciation)			$246.8	$199.7
Operating Cash Flow (OCF)			$318.5	$237.3
Free Cash Flow (FCF)			($191.5)	N/A
Calculated Data: Per-share Information
			2018	2017
Earnings per share (EPS)			$2.94	$2.19
Dividends per share (DPS)			$1.15	$1.06
Book value per share (BVPS)			$17.92	$16.80
Cash flow per share (CFPS)			$4.94	$3.99
Free cash flow per share (FCFPS)			($3.83)	N/A
LIQUIDITY RATIOS (Section 3.2)				Industry
		2018	2017	Average
Liquidity ratios
Current Ratio		4.30	5.14	4.2
Quick Ratio		1.70	1.84	2.1
ASSET MANAGEMENT RATIOS (Section 3.3)				Industry
		2018	2017	Average
Asset Management ratios
Inventory Turnover		1.48	1.44	9
Days Sales Outstanding		17.6	18.95 Christopher Buzzard: To calculate the DSO ratio, a 365-day accounting year was used.	36
Fixed Asset Turnover		1.50	1.68	3
Total Asset Turnover		0.56	0.60	1.8
DEBT MANAGEMENT RATIOS (Section 3.4)				Industry
		2018	2017	Average
Debt Management ratios
Debt Ratio		36.99%	33.45%	40.00%
Debt-to-Equity Ratio		0.59	0.50	0.67
Market Debt Ratio		63.26%	55.17%	N/A
Times Interest Earned		3.23	4.38	6
EBITDA Coverage Ratio		3.03 Brigham: (EBITDA + Lease Payments) / (Interest + Loan Payments + Lease Payments)	3.53	8
PROFITABILITY RATIOS (Section 3.5)				Industry
		2018	2017	Average
Profitability ratios
Profit Margin		4.89%	3.85%	5.00%
Basic Earning Power		5.30%	5.50%	17.20%
Return on Assets		2.74%	2.29%	9.00%
Return on Equity		16.38%	13.06%	15.00%
MARKET VALUE RATIOS (Section 3.6)				Industry
		2018	2017	Average
Market Value ratios
Price-to Earnings Ratio		7.84	11.85	12.5
Price-to-Cash Flow Ratio		4.66	6.51 Christopher Buzzard: P/CF ratio is calculated by dividing the price by the net cash flow per share.	Brigham: (EBITDA + Lease Payments) / (Interest + Loan Payments + Lease Payments)	Christopher Buzzard: To calculate the DSO ratio, a 365-day accounting year was used.	6.8
Price-to-EBITDA		3.00	3.68	4.6
Market-to-Book Ratio		1.28	1.55	1.7
TREND ANALYSIS, COMMON SIZE ANALYSIS, AND PERCENT CHANGE ANALYSIS (Section 3.7)
TREND ANALYSIS
Trend analysis allows you to see how a firm's results are changing over time. For instance, a firm's ROE may be slightly below the benchmark, but if it has been steadily rising over the past four years, that should be seen as a good sign.
A trend analysis and graph have been constructed on this data regarding MicroDrive's ROE over the past 5 years. (MicroDrive and indusry average data for earlier years has been provided.)
		ROE
		MicroDrive	Industry
	2014	14.0%	13.2%
	2015	16.1%	15.0%
	2016	14.8%	16.0%
	2017	13.1%	16.2%
	2018	16.4%	15.0%
Figure 3-1 Rate of Return on Common Equity
COMMON SIZE ANALYSIS
In common size income statements, all items for a year are divided by the sales for that year.
Figure 3-2 Common Size Income Statements
			Industry Composite	MicroDrive
			2018	2018	2017
Net sales			100.0%	100.0%	100.0%
Operating costs			87.6%	87.2%	87.6%
Earnings before interest, taxes, depr. & amort. (EBITDA)			12.4%	12.8%	12.4%
Depreciation and amortization			2.8%	3.3%	3.2%
Earnings before interest and taxes (EBIT)			9.6%	9.5%	9.2%
Less interest			1.3%	2.9%	2.1%
Earnings before taxes (EBT)			8.3%	6.5%	7.1%
Taxes (40%)			3.3%	1.5%	3.1%
Net income before preferred dividends			5.0%	5.0%	4.0%
Preferred dividends			0.0%	0.1%	0.1%
Net income available to common stockholders (profit margin)			5.0%	4.9%	3.8%
In common sheets, all items for a year are divided by the total assets for that year.
Figure 3-3 Common Size Balance Sheets
		Industry Composite	MicroDrive
		2018	2018	2017
Assets
Cash and equivalents		1.0%	22.1%	20.0%
Short-term investments		2.2%	0.0%	0.0%
Accounts receivable		17.8%	2.7%	3.1%
Inventories		19.8%	37.9%	41.4%
Total current assets		40.8%	62.6%	64.5%
Net plant and equipment		59.2%	37.4%	35.5%
Total assets		100.0%	100.0%	100.0%
Liabilities and equity
Accounts payable		1.8%	3.7%	4.0%
Notes payable		4.4%	5.6%	5.9%
Accruals		3.6%	5.2%	2.7%
Total current liabilities		9.8%	14.6%	12.5%
Long-term bonds		30.2%	22.4%	20.9%
Total liabilities		40.0%	37.0%	33.5%
Preferred stock		0.0%	0.7%	0.8%
Total common equity		60.0%	16.7%	17.6%
Total liabilities and equity		100.0%	54.5%	51.9%
PERCENT CHANGE ANALYSIS
In percent change analysis, all items are divided by the that item's value in the beginning, or base, year.
Figure 3-4 Income Statement Percent Change Analysis
Base year =	2017		Percent Change in
			2018
Net sales			5.3%
Operating costs			4.8%
Earnings before interest, taxes, depr. & amort. (EBITDA)			8.7%
Depreciation and amortization			11.1%
Earnings before interest and taxes (EBIT)			7.9%
Less interest			46.7%
Earnings before taxes (EBT)			(3.5%)
Taxes (40%)			(49.6%)
Net income before preferred dividends			32.6%
Preferred dividends			0.0%
Net income available to common stockholders			33.8%
Balance Sheet Percent Change Analysis (not in textbook)
Base year =	2017		Percent Change in
			2018
Assets
Cash and equivalents			23.4%
Short-term investments			ERROR:#DIV/0!
Accounts receivable			-2.0%
Inventories			2.5%
Total current assets			8.8%
Net plant and equipment			17.6%
Total assets			11.9%
Liabilities and equity
Accounts payable			5.3%
Notes payable			7.1%
Accruals			115.4%
Total current liabilities			30.0%
Long-term bonds			20.0%
Total liabilities			23.8%
Preferred stock (400,000 shares)			0.0%
Common stock (50,000,000 shares)			0.0%
Retained earnings			7.9%
Total common equity			6.7%
Total liabilities and equity			17.6%

MicroDrive

2014 2015 2016 2017 2018 0.14000000000000001 0.161 0.14800000000000002 0.13057142857142856 0.16380133928571444 Industry

2014 2015 2016 2017 2018 0.13200000000000001 0.15 0.16 0.16200000000000001 0.15

ROE (%)