BCOR 2200 Chapter 3 w cq

BCOR 2200 Chapter 3 w cq - Chapter3 Workingwith Financial...

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Chapter 3 Working with  Financial  Statements 1
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Chapter Outline 3.1  Standardized Financial  Statements 3.2  Ratio Analysis 3.3  The Du Pont Identity 3.4  Internal and Sustainable  Growth 3.5  Using Financial Statement  Information 2
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Key Concepts and Skills Know how to standardize financial  statements for comparison purposes Know how to compute and interpret  important financial ratios Know the determinants of a firm’s  profitability and growth Understand the problems and pitfalls in  financial statement analysis 3
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3.1 Standardized Financial  Statements The basic idea:  Divide everything on the page by the  biggest number on the page Balance Sheet:  The biggest number is Total  Assets (or Liabilities plus Equity) Income Statement:  The biggest number is  Sales 4
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Standardized Balance Sheet Table 3.1 5
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Standardized Balance Sheet Table 3.2:  Standardized B-S 6
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Standardized Balance Sheet This is Table 3.1 laying over Table 3.2: 7
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Standardized Income Statement This is Table 3.3 laying over Table 3.4: Some other stuff we will need later for the “Ratio Analysis”: EBIT = NI + Int Exp + Tax Exp = 363 + 141 + 187 = $691 EBITDA = NI + Int Exp + Tax Exp + Dep Exp = 691 + 276 = $967 8
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3.2 Ratio Analysis Instead of values, show as fractions of other values  (ratios) Ratio Categories: 1.Short-Term Solvency Firm’s ability to pay current bills  2.Long-Term Solvency  Firm’s ability to meet LT debt obligations 3.Asset Management   aka Turnover Ratios (Efficiency measures) 4.Profitability Ratios 5.Market Value Ratios 9
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Some things to think about as we look at  ratios: 1. Definition of the Ratio How is it computed?  Is it always the same?  (It will be for us) Sometime the E nding  B-S value is used Sometimes the  Average  value  1. What is the unit of Measure?   Dollars, years, Dollars of assets… 2. What are HIGH values?  What are LOW  values? High or low for the company over time for the industry for the sector for all companies 10
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Category 1:  Short-Term Solvency First Some Notation: Current Assets = CA, Current Liabilities = CL Total Assets = TA = A Total Liabilities = TL = L = Total Debt = TD = Debt =D Total Equity = TE = E [3.1]   Current Ratio  = CA/CL = 708/540 = 1.31 [3.2]   Quick Ratio  = (CA – Inv)/CL = (708 – 442)/540 =  0.53 Inventory is the  least liquid  current asset [3.3]   Cash Ratio  = Cash/CL = 98/540 = 0.18 Cash is the  most liquid  current asset 11
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Clicker Question Did the firm’s short-term solvency improve or  deteriorate between the end of 2007 and then  end of 2008?
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