Comm298-Week2-Financial_statement_analysis-wit

Comm298-Week2-Financial_statement_analysis-wit - Com298:...

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Com298: Week 2 Financial Statement Analysis Learning Objectives: Focus on the following: Financial ratios: what the ratios are telling you. Profitability ratios Liquidity and solvency ratios Turnover ratios Financial fitness test scorecard Financial Ratios: What the Numbers are Telling You Power of financial ratios: 1
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Comes from the fact that the numbers in the financial statements by themselves don’t reveal the whole story. Example: Is net profit of $10 million a healthy bottom line for a company ? Depends on the size of the company. Depends on the expectations of this year’s profit. Compared to the net profit of previous years. Financial ratios offer points of comparison: Compare financial ratios overtime. Compare with what was projected. Compare with the industry average or with the competitors ratios. Short Term Liquidity Ratios 2008 2009 Industry Current ratio 1.18 1.31 1.25 * 2
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Quick ratio 0.46 0.53 0.60 Cash ratio 0.15 0.18 0.20 * Net working capital 2.9% 4.7% 5.2% * Interval measure (days) 182 192 202 * Long Term Solvency Ratios 2008 2009 Industry Total debt ratio 0.32 0.28 0.42 * Debt/equity 0.47 0.39 0.72 * Asset/equity 1.47 1.39 1.72 * Long term debt ratio 0.16 0.15 0.16 * 3
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Times interest earned 4.2 4.9 2.8 * Cash coverage ratio 6.2 6.9 4.2 * Turnover Ratios 2008 2009 Industry Inventory turnover 3.3 3.3 4.0 Day’s sales in inventory 111 114 91 Receivables turnover 12.5 12.3 11.5 * Day’s sales in receivables 29 30 32 * NWC turnover 20.9 13.8 14.6 Fixed asset turnover 0.76 0.80 0.90 * Total asset turnover 0.61 0.64 0.71 * 4
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Profitability and Market Value Ratios 2008 2009 Industry Profit margin 11.6% 15.7% 10.7% Return on assets (ROA) 7.1% 10.1% 7.6% Return on equity (ROE) 10.5% 14.0% 13.1% Price earnings ratio (P/E) 12.0 14.3 12.0 Market to book ratio 2.4 2.0 1.9 EV/EBITDA 6.5 5.9 5.5 5
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Global Inc. Balance Sheet 2009 ($ m) Current Assets Current Liabilities Cash 23.2 A/c payable 29.2 Receivables 18.5 Notes payable 5.5 Inventory 15.3 ____ Total 57.0 34.7 Fixed assets 113.1 Long term debt 113.2 ____ Total equity 22.2 Total asset 170.1 Total Liab & equity 170.1 Calculate Global’s current ratio. Current ratio = current assets current liabilities Rule of thumb: an acceptable ratio > 2. Answer: _________________________________
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Comm298-Week2-Financial_statement_analysis-wit - Com298:...

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