BH-Chapter4.ppt

BH-Chapter4.ppt - Chapter 4 Analysis of Financial...

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Chapter 4 Chapter 4 Analysis of Financial Statements Nataliya Zaiats, Ph.D.
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2 Readings BH Chapter 4: Analysis of Financial Statements
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3 Ratio analysis Du Pont system Limitations of ratio analysis Qualitative factors Outline
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4 Ratios are designed to help analyze the past performance of the company and make reasonable predictions regarding company’s future Why use ratios? Ratios standardize numbers and facilitate comparisons Ratios better highlight weaknesses and strengths than raw accounting data Ratios are used by: Lenders - to determine creditworthiness Stockholders - to estimate future cash flows and risk Managers - to identify areas of weakness and strength Ratio analysis
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5 Trend analysis – analysis of the performance of the company over time Benchmarking – comparing the performance of the company to Industry average Main competitor Common size analysis All Income Statement items are divided by sales All Balance Sheet Items are divided by total assets Facilitates comparison over time and across companies Percentage change analysis Comparison base
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6 Liquidity: Can we meet our obligations? Asset management: Right amount of assets vs. sales? Debt management: Right mix of debt and equity? Profitability: Are we able to generate adequate profit given our expenditures? Market value: Do investors perceive our company as a strong investment? Categories of ratios
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7 Income statement 2013 2014E Sales $5,834,400 $7,035,600 COGS 4,980,000 5,800,000 Other expenses 720,000 612,960 Deprec. 116,960 120,000 Tot. op. costs 5,816,960 6,532,960 EBIT 17,440 502,640 Int. expense 176,000 80,000 EBT (158,560) 422,640 Taxes (40%) (63,424) 169,056 Net income ($ 95,136) $ 253,584
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8 Balance sheet: assets 2013 2014E Cash $ 7,282 $ 14,000 S-T invest. 20,000 71,632 AR 632,160 878,000 Inventories 1,287,360 1,716,480 Total CA 1,946,802 2,680,112 Net FA 939,790 836,840 Total assets $2,886,592 $3,516,952
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9 Balance sheet: liabilities & equity 2013 2014E Accts. payable $ 324,000 $ 359,800 Notes payable 720,000 300,000 Accruals 284,960 380,000 Total CL 1,328,960 1,039,800 Long-term debt 1,000,000 500,000 Common stock 460,000 1,680,936 Ret. earnings 97,632 296,216 Total equity 557,632 1,977,152 Total L&E $2,886,592 $3,516,952
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10 Other relevant data 2013 2014E Stock price $6.00 $12.17 # of shares 100,000 250,000 EPS -$0.95 $1.01 DPS $0.11 $0.22 Book val. per sh. $5.58 $7.91 Lease payments $40,000 $40,000 Tax rate 0.4 0.4
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11 1. Current ratio = Current assets / Current liabilities 2. Quick ratio = (Current assets - Inventories) / Current liabilities Liquidity ratios
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