Section 11 Analysis of Financial Statements

Presentation Transcript

Section 11 Analysis of Financial Statements © 2005 Thomson/South-Western

Financial Statements and Reports The Income Statement The Balance Sheet Statement of Cash Flows Statement of Retained Earnings

Unilate Textiles: Comparative IS

Unilate Textiles: Comparative BS

Unilate Textiles: Liabilities and Equity

Ratio Analysis of a company's proportions is by and large the initial phase in budgetary examination. Proportions are intended to show connections between money related articulation accounts inside firms and between firms.

What is the Purpose of Ratio Analysis? Give thought of how well the organization is getting along Standardize numbers; encourage examinations Used to highlight shortcomings and qualities

What Are the Five Major Categories of Ratios? What Questions Do They Answer? Liquidity: Can we make required installments in the present time frame? Resource mgt.: Right measure of advantages versus deals? Obligation mgt.: Right blend of obligation and value? Productivity: Do deals costs surpass unit costs, and are deals sufficiently high as reflected in PM, ROE, and ROA? Advertise values: Do speculators like what they see as reflected in P/E and M/B proportions?

Industry Average Data

Current Ratio = Current Assets Current Liabilities $465.0 $130.0 = 3.6 circumstances Industry normal = 4.1 circumstances What is Unilate's Current Ratio?

Quick Ratio = Current Assets-Inventories Current Liabilities $195.0 $130.0 $465.0 - $270.0 $130.0 = 1.5 circumstances Industry normal = 2.1 circumstances What is Unilate's Quick, or Acid Test, Ratio?

Unilate's Liquidity Position Ratios is somewhat beneath industry normal. Inventories are minimal fluid of Unilate's benefits and they are the advantages that endure misfortunes in case of a constrained deal. The snappy proportion demonstrates that, if receivables are gathered in full, Unilate can result its present liabilities without liquidating its stock.

4.6 . 6 times $1,230.0 = $270.0 Industry normal = 7.4 circumstances What is Unilate's Inventory Turnover Ratio? Contrasts ineffectively and industry May hold overabundance inventories May hold old/out of date stock.

Industry normal = 32.1 days What is Unilate's Days Sales Outstanding Ratio?

$1,500.0 = 3.9 circumstances $380.0 Industry Average 4.0 circumstances = What is Unilate's Fixed Assets Turnover Ratio?

$1,500.0 = 1.8 circumstances = $845.0 Industry Average 2.1 circumstances = What is Unilate's Total Assets Turnover Ratios? TA turnover is underneath industry normal. Unilate may have overabundance inventories & receivables.

Debt Ratio = Total obligation Total resources $430.0 $130.0 . + $300.0 . = 0.509 = 50.9% = $845.0 Industry Average = 45.0% Calculate the Debt Ratio

TIE = EBIT Interest charges $130.0 3.3 circumstances = $40.0 Industry Average = 6.5 circumstances Calculate the Times-Interest-Earned Ratio

Calculate the Fixed Charge Coverage Ratio Industry Average = 5.8x All three past proportions reflect utilization of obligation, yet concentrate on various perspectives.

$54.0 $1,500 = 0.036 = 3.6% Industry Average = 4.7% Unilate's Profitability Ratios- - Profit Margin, ROA, and ROE

= 0.064 = 6.4% $54.0 $845.0 = $54.0 $415.0 - 0 = 0.130 = 13.0% Industry Average = Industry Average = 12.6% 17.2% Unilate's ROA, and ROE

$23.00 10.6 circumstances = $2.16 Industry Average = 13.0 circumstances Unilate's Market Value Ratios Price/Earnings Ratio

1.4 circumstances $23.00 $16.00 = Industry Average = 2.0 circumstances Unilate's Market Value Ratios Market/Book Ratio

ROA = Net Profit Margin X Total Assets Turnover Sales Total Assets Net Income Sales X = $54.0 $1,500.0 X $1,500.0 $845.0 = 3.6% X 1.8 = 6.4% Summary of Ratio Analysis: The DuPont Equation

DuPont Equation Provides Overview Firm's productivity (measured by ROA) Firm's cost control (measured by overall revenue) Firm's benefit usage (measured by aggregate resource turnover)

Limitations of Ratio Analysis? Correlation with industry midpoints is troublesome if the firm works a wide range of divisions. "Normal" execution not really great. Expansion twists accounting reports. Occasional variables can twist proportions. "Window dressing" methods can improve proclamations and proportions look. Diverse working and bookkeeping rehearses twist correlations. At times hard to discern whether a proportion is "great" or "terrible" Difficult to tell whether organization is, on adjust, in solid or frail position