2.3 Ratio Analysis.pptx - FINANCIAL ENGINEERING Financial KRIPA SHANKER Statements Ph D(Cornell FNAE FIE(I FITEE(I LMISTE LMIIIE MORSI MORSA SMIIE

2.3 Ratio Analysis.pptx - FINANCIAL ENGINEERING Financial...

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Financial Statements Financial Statements KRIPA SHANKER Ph D (Cornell) FNAE, FIE(I), FITEE(I), LMISTE, LMIIIE, MORSI, MORSA, SMIIE Visiting Faculty Department of Mechanical Engineering Indian Institute of Technology (BHU) Varanasi Former Emeritus Fellow Industrial and Management Engineering Department Indian Institute of Technology Kanpur Former Vice Chancellor, Uttar Pradesh Technical University Lucknow Former Deputy Director, Indian Institute of Technology Kanpur KRIPA SHANKER Ph D (Cornell) FNAE, FIE(I), FITEE(I), LMISTE, LMIIIE, MORSI, MORSA, SMIIE Visiting Faculty Department of Mechanical Engineering Indian Institute of Technology (BHU) Varanasi Former Emeritus Fellow Industrial and Management Engineering Department Indian Institute of Technology Kanpur Former Vice Chancellor, Uttar Pradesh Technical University Lucknow Kanpur 1 Prof Kripa Shanker Mechanical Engineering IIT (BHU) Varanasi FINANCIAL ENGINEERING FINANCIAL ENGINEERING
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2 Prof Kripa Shanker Mechanical Engineering IIT (BHU) Varanasi
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Kripa Shanker IIT Kanpur 3 Financial Engineering Financial Engineering ANALYSIS OF FINANCIAL STATEMENTS ANALYSIS OF FINANCIAL STATEMENTS RATIO ANALYSIS
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Kripa Shanker IIT Kanpur 4 IME 611 : Financial Engineering IME 611 : Financial Engineering INCOME STATEMENT COMPANY ABC : INCOME STATEMENT for Year Ending MARCH 31 (Millions of Dollars) 20X1 20X0 Net Sales $3,000.0 $2,850.0 Costs excluding depreciation $2,616.2 $2,497.0 Depreciation $ 100.0 $ 90.0 Total operating costs $2,716.2 $2,587.0 Earnings before interests and taxes (EBIT) $ 283.8 $ 263.0 Less interest $ 88.0 $ 60.0 Earnings before taxes (EBT) $ 195.8 $ 203.0 Taxes (40%) $ 78.3 $ 81.0 Net income before preferred dividends $ 117.5 $ 122.0 Preferred dividends $ 4.0 $ 4.0 Net income available to common stockholder $ 113.5 $ 118.0 Common dividends $ 57.5 $ 53.0 Addition to retained earnings $ 56.0 $ 65.0 Per share data Common stock price $ 23.0 $ 24.0 Earning per share (EPS) $ 2.27 $ 2.36 Dividends per share (DPS) $ 1.15 $ 1.06 Shares of Common Stock outstanding : 50,000 EPS = (Net Income)/(Common Shares Outstanding) = ($113,500,000)/ (50,000,000) = $2.27 DPS = (Dividends paid to common stockholders)/(Common Shares Outstanding) = ($57,500,000)/(50,000,000) ANALYSIS OF FINANCIAL STSTEMENTS ANALYSIS OF FINANCIAL STSTEMENTS
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Kripa Shanker IIT Kanpur 5 IME 611 : Financial Engineering IME 611 : Financial Engineering BALANCE SHEET COMPANY ABC : INCOME STATEMENT for Year Ending MARCH 31 (Millions of Dollars) ASSETS 20X1 20X0 LIABILITIES 20X1 20X0 Cash $ 10 $ 15 Accounts payable $ 60 $ 30 Marketable securities 0 65 Notes payable 110 60 Accounts receivable 375 315 Accruals 140 130 Inventories 615 415 Total current liabilities $ 310 $ 220 Total current assets$1,000 $ 810 Long-term bonds 754 580 Net plant and Total debt $ 1,064 $ 800 equipment 1,000 870 Preferred stock (400,000) $ 40 $ 40 Common stock (50,000,000)$ 50 $ 50 Paid-in capital 80 80 Retained earnings 766 710 Common equity $ 896 $ 840 Total assets $2,000 $1,680 Total liabilities and equity $ 2,000 $1,680 Assets Liabilities – Preferred stock = Common equity $2,000,000,000 - $1,064,000,000 - $40,000,000 = $896,000,000 ANALYSIS OF FINANCIAL STSTEMENTS ANALYSIS OF FINANCIAL STSTEMENTS
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Kripa Shanker IIT Kanpur 6 IME 611 : Financial Engineering IME 611 : Financial Engineering STATEMENT OF RETAINED EARNINGS COMPANY ABC : STATEMENT OF RETAINED EARNINGS for Year Ending MARCH 31, 20X1 (Millions of Dollars) Balance of retained earnings March 31, 20X0 $710.0
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