Professional Documents
Culture Documents
Statement Information
Key Points
Limitations of Financial
Accounting Information
True
TrueCompany
CompanyValue
Value
Reported
ReportedBook
BookValue
Value
Limitations of Financial
Accounting Information
True
TrueCompany
CompanyValue
Value
Objective
Objectiveand
andappropriate
appropriate
GAAP
GAAPbook
book value
value
Legitimate
Legitimatediscretion
discretion
Fraudulent
Fraudulent reporting
reporting
Reported
ReportedBook
BookValue
Value
Limitations of Financial
Accounting Information
True
TrueCompany
CompanyValue
Value
Objective
Objectiveand
andappropriate
appropriate
GAAP
GAAPbook
book value
value
Legitimate
Legitimatediscretion
discretion
Fraudulent
Fraudulent reporting
reporting
Reported
ReportedBook
BookValue
Value
Inherent
InherentGAAP
GAAP
limitation
limitation
Limitations of Financial
Accounting Information
True
TrueCompany
CompanyValue
Value
Objective
Objectiveand
andappropriate
appropriate
GAAP
GAAPbook
book value
value
Legitimate
Legitimatediscretion
discretion
Fraudulent
Fraudulent reporting
reporting
Reported
ReportedBook
BookValue
Value
Inherent
InherentGAAP
GAAP
limitation
limitation
Management
Management
bias
bias
Five Steps of
Financial Statement Analysis
Comparisons Within
the Industry
Comparisons Within
the Financial Statements
1996
$31,645
(15,383)
(15,113)
$1,149
%
1995
100 $28,351
49 (14,886)
48 (11,859)
3 $1,606
%
100
53
42
5
Profitability Ratios
Profitability Ratios
Return on
equity
Net Income
Average Stockholders Equity
Profitability Ratios
Return on
equity
Net Income
Average Stockholders Equity
Return on
assets
Net Income +
[Interest Expense (1 -Tax Rate )]
Average Total Assets
Profitability Ratios
Return on
equity
Net Income
Average Stockholders Equity
Return on
assets
Net Income +
[Interest Expense (1 -Tax Rate )]
Average Total Assets
Return on sales
(profit margin)
Net Income +
[Interest Expense (1 -Tax Rate )]
Net Sales
Leverage Ratios
Leverage Ratios
Common
equity
leverage
Net Income
Net Income +
[Interest Expense (1 -Tax Rate )]
Leverage Ratios
Common
equity leverage
Capital
structure
leverage
Net Income
Net Income +
[Interest Expense (1 -Tax Rate )]
Average Total Assets
Average Stockholders' Equity
Leverage Ratios
Common
equity
leverage
Net Income
Net Income +
[Interest Expense (1 -Tax Rate )]
Capital
structure
leverage
Debt/equity
ratio
Average Liabilities
Average Stockholders' Equity
Leverage Ratios
Common
equity
leverage
Net Income
Net Income +
[Interest Expense (1 -Tax Rate )]
Capital
structure
leverage
Debt/equity
ratio
Average Liabilities
Average Stockholders' Equity
Long-term debt
ratio
Long-Term Debt
Total Assets
This ratio measures the importance of longterm debt as a source of asset financing.
Solvency Ratios
Solvency Ratios
Current ratio
Current Assets
Current Liabilities
Solvency Ratios
Current ratio
Quick ratio
Current Assets
Current Liabilities
Cash +Marketable Securities +
Accounts Receivable
Current Liabilities
Solvency Ratios
Current ratio
Quick ratio
Interest
coverage
Current Assets
Current Liabilities
Cash +Marketable Securities +
Accounts Receivable
Current Liabilities
Net Income +Tax Expense +
Interest Expense
Interest Expense
Solvency Ratios
Current ratio
Quick ratio
Interest
coverage
Current Assets
Current Liabilities
Cash +Marketable Securities +
Accounts Receivable
Current Liabilities
Net Income +Tax Expense +
Interest Expense
Interest Expense
Accounts
Cost of Goods Sold
payable
Average Accounts Payable
turnover
This ratio measures the extent to which accounts
payable is used as a form of financing.
Fixed assets
turnover
Sales
Average Fixed Assets
Total asset
turnover
Sales
Average Total Assets
Market Ratios
Market Ratios
Earnings per
share
Net Income
Average Number of Common Shares
Outstanding
Market Ratios
Earnings per
share
Price/earnings
ratio
Net Income
Average Number of Common
Shares Outstanding
Market Price per Share
Earnings per Share
Market Ratios
Earnings per
share
Net Income
Average Number of Common
Shares Outstanding
Price/earnings
ratio
Dividend yield
ratio
Market Ratios
Earnings per
share
Net Income
Average Number of Common
Shares Outstanding
Price/earnings
ratio
Dividend yield
ratio
Annual return on
investment
Solvency Assessment
Ability to Generate Cash
Cash Requirements
Operating Performance
Financial Flexibility
Solvency Assessment
Ability to Generate Cash
Cash Requirements
Operating Performance
Operating Revenue
Sale of Goods
Sale of Service
Creation of Operating Receivables
(timing difference)
Cash Inflows from Operations
Financial Flexibility
Solvency Assessment
Ability to Generate Cash
Cash Requirements
Operating Performance
Operating Revenue
Sale of Goods
Sale of Service
Creation of Operating Receivables
(timing difference)
Cash Inflows from Operations
Operating Costs
Cost of Goods Sold
Operating Expense
Creation of Operating Payables
(timing difference)
Cash Outflows from Operations
Financial Flexibility
Solvency Assessment
Ability to Generate Cash
Cash Requirements
Operating Performance
Operating Revenue
Sale of Goods
Sale of Service
Creation of Operating Receivables
(timing difference)
Cash Inflows from Operations
Operating Costs
Cost of Goods Sold
Operating Expense
Creation of Operating Payables
(timing difference)
Cash Outflows from Operations
Financial Flexibility
Ability to create short-term debt
Ability to create long-term debt
Ability to issue equity
Ability to liquidate assets Liquidity
Solvency Assessment
Ability to Generate Cash
Cash Requirements
Operating Performance
Operating Revenue
Sale of Goods
Sale of Service
Creation of Operating Receivables
(timing difference)
Cash Inflows from Operations
Operating Costs
Cost of Goods Sold
Operating Expense
Creation of Operating Payables
(timing difference)
Cash Outflows from Operations
Financial Flexibility
Ability to create short-term debt
Ability to create long-term debt
Ability to issue equity
Ability to liquidate assets Liquidity
Solvency Assessment
Ability to Generate Cash
Cash Requirements
Operating Performance
Operating Revenue
Sale of Goods
Sale of Service
Creation of Operating Receivables
(timing difference)
Cash Inflows from Operations
Operating Costs
Cost of Goods Sold
Operating Expense
Creation of Operating Payables
(timing difference)
Cash Outflows from Operations
Financial Flexibility
Ability to create short-term debt
Ability to create long-term debt
Ability to issue equity
Ability to liquidate assets Liquidity