CASE ILLUSTRATIVE FOR FINANCIAL STATEMENT ANALYSIS Exhibit 1 XYZ CORPORATION INCOME STATEMENTS (in 000s) Revenue Cost of Goods Sold(COGS) Selling&Admin. Exp.(S&A) Depreciation Earnings before Int. & Tax Interest Expense Earnings before Tax Tax @ 34% Net Income Dividends Retained Earnings Exhibit 2 BALANCE SHEETS as of December 31, 20XX (in 000s) ASSETS Cash Mkt. Securities Accts Receivable Inventory Total Current Assets Equipment & Bldgs. Less Depreciation Net Equip.& Bldgs. Land Total Fixed Assets TOTAL ASSETS LIABILITIES & OWNERS' EQUITY Accts Payable Salaries Payable Notes Payable Total Current Liabilities Long-term Debt Common Stock(par value $ .10) Paid-in Surplus of par Retained Earnings Total Equity TOTAL LIAB. & OWN. EQUITY Common Stock No. of Shares = 20,000/0.10 = 200,000 NOTE: Compute the missing values in the shaded cells, making sure the Balance Sheet balances! 259 259 259 270 30 2490 11743 27400 -8310 148 30 2723 17357 27400 -11560 172 30 2909 16800 27400 -14810 2000 2000 2500 2000 52846 23781 15569 3250 10246 1830 8416 2001 50280 23632 14050 3250 9348 1642 7706 2002 57394 29271 13035 3250 11838 1701 10137
984 229 1500 18000 20 1000 12149
1112 250 1740 17000 20 1000
1092 273 1350 9600 20 1000
TREND ANALYSIS of XYZ CORPORATION FINANCIAL STATEMENTS NOTE: The Trend Analysis can be done in two ways: a) Comparing each line item of a year with the corresponding item of the base year (eg. Revenue: 2001 ratio will be 50280/52846=0.951; 2002 ratio will be 57394/52846=1.086); b) For each year, divide each item by that year's REVENUE for the Income Statement, and by TOTAL ASSETS for the Balance Sheet. The ratios of each item can be compared for its trend. A: Trend Analysis compared to base year values as 1 for selected accounts: TREND INCOME STATEMENT: Revenue Cost of Goods Sold Selling & Admin. Expense Net Income TREND BALANCE SHEET: Inventory Current Assets Net Equipment & Bldgs. Total Assets: Current Liabilities Long-term Debt Retained Earnings Total Liab. & Equity: 1 1 1 1 1 1 1 1 2000 1 1 1 1 0.95 2001 2002 1.09
B: Trend Analysis using Common Size Income Statement and Balance Sheet for each year, on selected accounts. Common Size Income Statement Revenue Cost of Goods Sold Selling & Admin. Expense Earnings before Interest & Tax Earnings before Tax Net Income
1 0.45
1 0.47
1 0.51
Common Size Balance Sheet Total Assets: Current Assets Fixed Assets
1 0.43 0.57
1
1
Current Liabilities 0.08 Long-term Debt 0.53 Equity 0.39 NOTE: Compute the missing values in the shaded cells.
FINANCIAL RATIO ANALYSIS OF XYZ CORPORATION RATIO A: LIQUIDITY: Current Ratio Quick Ratio EQUATION 2000 2001 2002
Current Assets/ Current Liabilities (Current Assets - Inventory) / CL
7.33 1.15
B: PROFITABILITY: Net Profit Margin Net Income / Revenue Return on Assets Net Income / Total Assets Return on Equity Net Income / Total Equity Earning Power EBIT / Total Assets Gross Profit Margin (Revenue - COGS)/ Revenue Leverage Total Assets / Equity Assets Turnover Revenue / Total Assets (NOTE: DuPont Equation is the product A12*A18*A17, giving A14, thus linking ROA and ROE) C: EFFICIENCY: Inventory Turnover COGS / Inventory AR Turnover Revenue / Accts Receivable AP Turnover COGS / Accts Payable ( Note: The denominator in the above thr...