6thCh4P_1 - CHAPTER4 RatioAnalysis DuPontSystem...

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CHAPTER 4 Analysis of Financial Statements Ratio Analysis DuPont System Effects of Improving Ratios Limitations of Ratio Analysis Qualitative Factors Economic Value Added
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4-2 Analysis of Financial Statements Financial Statement analysis - determine relative. strengths &  weaknesses of company Investors need to estimate future Cash Flow (CF) & riskiness  of CF Financial Managers need to evaluate past performance & map  future plans. Financial statement analysis - study relationship between  Income Statement (IS) & Balance Sheet (B/S),  how change over time (trend analysis)   & how compare with other firms in industry (comparative  ratio analysis)
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Ratios to know from chapter 4 Current Ratio Inventory Turnover ratio DSO = Days Sales Outstanding  Total Asset turnover ratio Debt ratio Times-interest-earned ratio Profit margin on sales Return on Assets Return on Equity BEP (Basic Earning Power) (need for capital structure chapter) Price/Earnings ratio du Pont equation for ROE and for ROA Equity multiplier Earnings per share Dividends per share 4-3
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      2008 7,282   632,160 1,287,360 1,926,802 1,202,950     263,160     939,790 2,866,592       2009E 85,632  878,000 1,716,480 2,680,112 1,197,160     380,120     817,040 3,497,152 Balance Sheet: Assets Cash A/R Inventories Total CA Gross FA Less: Deprec. Net FA Total Assets 4-4
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Balance Sheet: Liabilities and Equity Accts payable Notes payable Accruals Total CL Long-term debt Common stock Retained earnings Total Equity Total L & E 4-5       2008 524,160   636,808     489,600 1,650,568 723,432 460,000      32,592     492,592 2,866,592       2009E 436,800   300,000     408,000 1,144,800 400,000 1,721,176     231,176 1,952,352 3,497,152
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Income Statement Sales COGS Other expenses EBITDA Deprec. & amort. EBIT Interest exp. EBT Taxes Net income 4-6       2008 6,034,000 5,528,000 519,988     (13,988)      116,960   (130,948)      136,012   (266,960)   (106,784)   (160,176)     2009E 7,035,600   5,875,992     550,000 609,608     116,960 492,648       70,008 422,640     169,056    253,584
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Other Data No. of shares EPS DPS Stock price Lease pmts 4-7       2009E 250,000 $1.014 $0.220 $12.17 $40,000      2008 100,000 -$1.602 $0.110 $2.25 $40,000
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Why are ratios useful? Ratios standardize numbers and  facilitate comparisons. Ratios are used to highlight  weaknesses and strengths. Ratio comparisons should be made  through time and with competitors. Trend analysis. Peer (or industry) analysis. 4-8
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Five Major Categories of Ratios and the  Questions They Answer Liquidity: Can we make required payments? Asset management: right amount of assets  vs. sales? Debt management: 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?
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