FM11 Ch 13 Show - 13 - 1 CHAPTER 13 Analysis of Financial...

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13 - 1 Ratio analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative factors CHAPTER 13 Analysis of Financial Statements
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13 - 2 Income Statement 2004 2005E 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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13 - 3 Balance Sheets: Assets 2004 2005E 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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13 - 4 2004 2005E 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 2,886,592 3,516,952
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13 - 5 Other Data 2004 2005E 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 share $5.58 $7.91 Lease payments 40,000 40,000 Tax rate 0.4 0.4
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13 - 6 Standardize numbers; facilitate comparisons Used to highlight weaknesses and strengths Why are ratios useful?
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13 - 7 Liquidity: Can we make required payments as they fall due? Asset management: Do we have the right amount of assets for the level of sales? What are the five major categories of ratios, and what questions do they answer? (More…)
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13 - 8 Debt management: Do we have the right mix of debt and equity? Profitability: Do sales prices exceed unit costs, and are sales high enough as reflected in PM, ROE, and ROA? Market value: Do investors like what they see as reflected in P/E and M/B ratios?
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13 - 9 Calculate the firm’s forecasted current and quick ratios for 2005. CR 05 = = = 2.58x. QR 05 = = = 0.93x. CA CL $2,680 $1,040 $2,680 - $1,716 $1,040 CA - Inv. CL
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13 - 10 Expected to improve but still below the industry average. Liquidity position is weak. Comments on CR and QR 2005E 2004 2003 Ind. CR 2.58x 1.46x 2.3x 2.7x QR 0.93x 0.5x 0.8x 1.0x
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What is the inventory turnover ratio as compared to the industry average? Inv. turnover =
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FM11 Ch 13 Show - 13 - 1 CHAPTER 13 Analysis of Financial...

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