Financial Analysis data problem Assignement for smith_comp
jayabe
analyzingfinancialdata-class_0513.pptAnalyzing Financial Data
Ratio Analysis
Lesson Components
- Four Key Financial Statements
- Ratio Overview
- Ratio Categories
- Liquidity
- Activity
- Debt
- Profitability
- Market
- Practice
Four Key Financial Statements
Each corporation is required to file with the Securities and Exchange Commission (SEC) four key financial statements:
- Income statement:
- provides a financial summary of the company’s operating results over a specified period of time.
- Balance sheet:
- provides a summary statement of the company’s financial position at a given point in time.
- Statement of Stockholders’ Equity:
- shows all the equity account transactions in a given year.
- Statement of Cash Flows:
- summary of cash flows of a given period of time.
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Learning Statements
- These financial statements are also used in order to do ratio analysis to examine the performance of a firm.
Income Statement
Sample Accounts
Sales
COGS
Operating Expenses
Selling Expenses
Interest Expense
Earnings before Interest & Taxes (EBIT)
Net Income
Balance Sheet
Sample Accounts
Cash Accounts Payable
Accounts Receivable Notes Payable
Inventories Accruals
Total Current Assets Total Current Liability
Land and Buildings Preferred Stock
Machinery & Equipment Common Stock
Vehicles Retained Earnings
Ratio Overview
- Many internal and external stakeh0lders use ratios
- A ratio is not enough information on its own.
- Several limitations exist to ratio analysis
- Seasonality
- Inflation
- Summarization
- Asset valuation
Five Categories of Ratios
- Liquidity
- Activity
- Debt
- Profitability
- Market
Liquidity Ratios
Liquidity is the company’s ability to pay its short-term bills
Current ratio
Current assets/Current liabilities $72,000/$69,000 = ???
Quick ratio
Current assets-inventory/Current liabilities $72,000-45,500/$69,000 =???
Activity Ratios
Activity is a measure of how quickly the firm’s current assets are converted into cash.
Inventory Turnover
COGS /Avg Inventory $106,000/ $45,500=???
Average Collection Period
Accts rec/(Annual sales/365) $25,000/(160,000/365)=???
Total Asset Turnover
Sales/ Total Assets $160,000 $150,000=???
Debt Ratios
Debt Ratio
Total liabilities/ Total assets $91,950/ $150,000 =???
Times Interest Earned Ratio
EBIT/ Interest expense $17,000/ 6,100 =???
Used to determine whether the firm is able to meet long-term financial obligations.
Profitability Ratios
Gross Profit Margin
(Sales-COGS)/ Sales ($160,000-106,000)/$160,000 =??
Operating Profit Margin
EBIT or Operating Income/Sales $17,000/160,000=??
Net Profit Margin
Net Income/Sales $6,540/160,000=??
Earnings per Share
Net Income/Shares Outstanding $6,540/3,000=??
Return on Total Assets
Net Income/ Total Asset $6,540/150,000=??
Return on Equity
Net Income/Shareholder Equity $6,540/31,500=??
Measure how well management is utilizing company resources to earn a return on the funds invested by various groups
Market Ratios
Price Earnings Ratio
Market price per share common stock/ EPS
$25/$2.18 = ???
Market/Book Ratio
Market price per share common stock/(Shareholder Equity/shares outstanding)
$25/($31,500/3000) =???
This set measures how well the firm is doing in terms of the stock price and risk and return
Check Your Understanding
Which of the following measure a company’s liquidity without considering inventory?
a. Current ratio
b. Rapid test ratio
c. Quick ratio
d. Inventory ratio
