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ANALYSIS
Involves
the
To
Objectives
Comparison
of financial data
The
The FS does not include all the factors needed for the evaluation
Limitations
INFLATION
Higher
Involves
Horizontal Analysis
Process
Vertical Analysis
Ratios
Ratio Analysis
Reports
Sales(Revenue)
Cost of Good Sold
(400)
Gross Margin
Expenses
Earnings before interest & taxes
170
Interest expense
Earnings before tax
150
Tax
Net income
Presentation
1 000
400
(230)
(20)
( 45)
105
ASSETS-
LIABILITIES-
outsiders.
EQUITY-
It includes:
Cash-
hand.
Accounts Receivable- credit sales not have been collected.
:The Bad-Debt reserve- Allowance for doubtful accounts.
Inventory- product held for sale in the normal course of
business.
Fixed Assets- Longer-lived assets/PPE
:Depreciation- spread the cost of the assets over useful life.
ASSETS
Accounts
credit.
Term of sale- length time allowed until payment is due
on a credit sale is specified.
Accruals-
LIABILITIES
Working
Long-term
Direct
Total
EQUITY
Detailed
Reports
Operating
Classification
RESIDUAL
Income
RESIDUAL INCOME (2) = Actual Income (Assets x
Target ROI)
ECONOMIC
FREE
Additional concepts:
Cash
Gives
Profitability Ratios
Return on Assets
- A measure of the productivity
of assets, regardless of how the
assets are financed.
Method of computation:
OPERATING INCOME
AVERAGE TOTALS ASSETS
Return on Equity
- The rate of return earned on the
stockholders equity in the
business
NET INCOME
AVERAGE TOTAL EQUITY
Or
Profit margin x Total asset Turnover x financial leverage
Method of Computation:
Return on Sales
Net Income
Net Sales
Method of Computation:
Measures
Liquidity Ratios
Method of Computation
Cash
$34,390
Marketable Securities
12,000
Accounts Receivable
56,200
Prepaid Insurance
Total Current Assets
Total Current Liabilities
9,000
111,590
73,780
Solution
Quick ratio = ( 34,390 + 12,000 + 56,200 ) / 73,780 = 102,590 / 73,780 = 1.39
OR
Quick ratio = ( 111,590 9,000 ) / 73,780 = 102,590 / 73,780 = 1.39
21,720
Treasury Bills
18,500
Accounts Receivable
15,930
Prepaid Rent
6,500
Inventory
17,240
79,890
52,960
Solution
In this example, treasury bills are marketable securities thus we will
calculate quick ratio as follows:
Quick ratio = ( 79,890 6,500 17,240 ) / 52,960 = 56,150 / 52,960 =
1.06
OR
Quick ratio = ( 21,720 + 18,500 + 15,930 ) / 52,960 = 56,150 / 52,960 =
1.06
Measures
Asset Management
PURPOSE
RATIOS
Average Collection Period
(ACP)
FORMULA
ACP = Accounts Receivable
Average Daily Sales
ACP = Accounts receivable
Sales
x360
Inventory Turnover
Invty. TO = Cost of Goods Sold
Inventory
FA TO = Net Sales
Average
Net FA
FA TO = Sales
FA
Total Asset Turnover
TA TO = Net Sales
Average
Net TA
TA TO = Sales
As of December 31
2008
2007
CASH
P 80,000
P 640, 000
Notes and AR (net)
400,000
1, 200, 000
Merchandise Invty.
720,000
1, 200, 000
Machinery and Equip.
1, 240,000
1, 080, 000
Land and buildings (net)
2, 720,000
2, 880, 000
Bonds payable LT
2, 160,000
2, 240, 000
Accounts Payable trade
560,000
880, 000
Notes Payable ST
160,000
320, 000
Sales (20% cash, 80% credit sales)
P 18, 400,000 P 19, 200, 000
Cost of Goods Sold
8, 400 000
11, 200, 000
ACP?
INVENTORY
TURNOVER?
TOTAL ASSETS TURNOVER?
ACP=
18.4x
INVENTORY TURNOVER= 8.33x
TOTAL ASSETS TURNOVER= 3.03x
Shows
debt.
TOTAL LIABILTIES
TOTAL ASSETS
DEBT RATIO:
Indicates
EQUITY RATIO:
Measures
TOTAL LIABILITIES
TOTAL EQUITY
Reflects
Measures
Measures
Measures
Tiggies
=>
=>
Measure
Valuation Ratios
Ratios
Market to book ratio
Formula
Market Price per share
Book Value per share
Purpose
Measures how high is the
shares market price in
relation to book value
Equity
Shares Outstanding
Price/Earning ratio
Market Price
Earnings per share
Gambit
P 12.50
$12.50