GORDON COLLEGE FIN 501 Handout #2

College of Business and Accountancy Mailene Claire Mapa, CPA, MICB

FINANCIAL STATEMENT ANALYSIS
I. HORIZONTAL ANALYSIS
A. MACY INC. (net sales in millions)
2016 2015 2014
27, 931 27,686 26,405

Change since Base Period = Current Year Amount Base Year Amount
(formula for HA of changes since base period) Base Year Amount

Current Results in relation to Base Period = Current year amount

(formula for HA of current year in relation to base year) Base Year amount

By how much did Macy, Inc. increased from 2014 to 2015? From 2014 to 2015?
Express the current year net sales as a percentage of the base year neat sales.

B. QUALITY DEPT STORE

Condensed Balance Sheets
December 31

C. QUALITY DEPT STORE

Condensed Income Statements
For the years ended December 31
D.
QUALITY DEPT STORE
Retained Earnings Statements
For the years ended December 31

II. VERTICAL ANALYSIS

A. Condensed Balance Sheets

B.1 Condensed Income Statements

B.2 Condensed Income Statements

III. RATIO ANALYSIS

A. LIQUIDITY RATIOS

1. Current Ratio / Working Capital Ratio = Current Assets

Current Liabilities

2. Acid test ratio = Cash + Short-term Investments + Accounts Receivable (net)

Current Liabilities

3. Accounts Receivable turnover = Net Credit Sales

Average Net Accounts Receivable

Average collection period = 365

AR turnover

4. Inventory turnover = Cost of goods sold

Average Inventory

Days in Inventory = 365

Inventory turnover

Assume beg inventory in 2015 for Quality Department was 450,000.

B. PROFITABILITY RATIOS

5. Profit margin = Net Income

Net Sales

6. Asset Turnover = Net Sales

Average Total Assets

7. Return on Assets = Net Income

Average Total Assets
8. Return on Common Stockholders Equity = Net Income
Average Common Stockholders Equity

Return on Common SHE = Net Income Preferred Dividends

Average Common Stockholders Equity

9. Earnings per share = Net Income Preferred Dividends

Weighted Average Common Shares Outstanding

10. Price-Earnings Ratio = Market Price per Share

Earnings per Share

11. Payout Ratio = Cash dividends declared on Common Stock

Net Income

C. SOLVENCY RATIOS

12. Debt to Assets Ratio = Total Liabilities

Total Assets

13. Times Interest Earned = Net Income + Interest Expense + Income Tax Expense
Interest Expense