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FSA_01 - CHAPTER3 AnalysisofFinancial Statements...

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    3-1 CHAPTER 3 Analysis of Financial  Statements Ratio Analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative factors
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    3-2 Balance Sheet: Assets    Cash A/R Inventories Total CA Gross FA Less: Dep. Net FA Total Assets       2002 7,282   632,160 1,287,360 1,926,802 1,202,950     263,160     939,790 2,866,592       2003E 85,632  878,000 1,716,480 2,680,112 1,197,160     380,120     817,040 3,497,152
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    3-3 Balance sheet:  Liabilities and Equity Accts payable Notes payable Accruals Total CL Long-term debt Common stock Retained earnings Total Equity Total L & E       2002 524,160   636,808     489,600 1,650,568 723,432 460,000      32,592     492,592 2,866,592       2003E 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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    3-4 Income statement Sales COGS Other expenses EBITDA Depr. & Amort. EBIT Interest Exp. EBT Taxes Net income     2002 6,034,000   5,528,000     519,988 (13,988)     116,960 (130,948)     136,012 (266,960)   (106,784) (160,176)     2003E 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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    3-5 Other data No. of shares EPS DPS Stock price Lease pmts 2003E 250,000 $1.014 $0.220 $12.17 $40,000 2002 100,000 -$1.602 $0.110 $2.25 $40,000
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    3-6 Why are ratios useful? Ratios standardize numbers and  facilitate comparisons. Ratios are used to highlight  weaknesses and strengths.
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    3-7 What are the five major categories of  ratios, and what questions do 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? Market value: Do investors like what they  see as reflected in P/E and M/B ratios?
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    3-8 Calculate D’Leon’s forecasted  current ratio for 2003. Current ratio  = Current assets / Current liabilities = $2,680 / $1,145 = 2.34x
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    3-9 Comments on current ratio 2003 2002 2001 Ind. Current ratio 2.34x 1.20x 2.30x 2.70x Expected to improve but still below the  industry average. Liquidity position is weak.
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    3-10 What is the inventory turnover vs.  the industry average? 2003 2002 2001 Ind. Inventory Turnover 4.1x 4.70x 4.8x 6.1x Inv. turnover  = Sales / Inventories = $7,036 / $1,716 = 4.10x
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    3-11 Comments on  Inventory Turnover Inventory turnover is below industry  average.
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