Comm298-Week2-Financial_statement_analysis-wit

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

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1 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
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2 Financial Ratios: What the Numbers are Telling You Power of financial ratios: Comes from the fact that the numbers in the financial statements by themselves don’t reveal the whole story. Example: Is net profit of $10 million a healthy bottom line for a company ? Depends on the size of the company. Depends on the expectations of this year’s profit. Compared to the net profit of previous years. Financial ratios offer points of comparison: Compare financial ratios overtime. Compare with what was projected. Compare with the industry average or with the competitors ratios.
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3 Short Term Liquidity Ratios 2008 2009 Industry Current ratio 1.18 1.31 1.25 * Quick ratio 0.46 0.53 0.60 Cash ratio 0.15 0.18 0.20 * Net working capital 2.9% 4.7% 5.2% * Interval measure (days) 182 192 202 *
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4 Long Term Solvency Ratios 2008 2009 Industry Total debt ratio 0.32 0.28 0.42 * Debt/equity 0.47 0.39 0.72 * Asset/equity 1.47 1.39 1.72 * Long term debt ratio 0.16 0.15 0.16 * Times interest earned 4.2 4.9 2.8 * Cash coverage ratio 6.2 6.9 4.2 *
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5 Turnover Ratios 2008 2009 Industry Inventory turnover 3.3 3.3 4.0 Day’s sales in inventory 111 114 91 Receivables turnover 12.5 12.3 11.5 * Day’s sales in receivables 29 30 32 * NWC turnover 20.9 13.8 14.6 Fixed asset turnover 0.76 0.80 0.90 * Total asset turnover 0.61 0.64 0.71 *
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6 Profitability and Market Value Ratios 2008 2009 Industry Profit margin 11.6% 15.7% 10.7% Return on assets (ROA) 7.1% 10.1% 7.6% Return on equity (ROE) 10.5% 14.0% 13.1% Price earnings ratio (P/E) 12.0 14.3 12.0 Market to book ratio 2.4 2.0 1.9 EV/EBITDA 6.5 5.9 5.5
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7 Student Exercise Global Inc. Balance Sheet 2009 ($ 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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8 Student Exercise Calculate Global’s quick ratio. Quick ratio = current assets - inventory
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This note was uploaded on 01/27/2011 for the course COMM 298 taught by Professor L during the Spring '10 term at Capilano.

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

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