ch03_v2_091405 - CHAPTER3 AnalysisofFinancialStatements...

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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 Assets Liabilities and Shareholders’ Equity Item 2002 2001 Item 2002 2001 Cash & Equivalents $10 $80 Accounts Payable $60 $30 Accounts Receivables 375 315 Notes Payable 110 60 Inventories 615 415 140 130 Total Current Assets 1000 810 Total Current Liabilities 310 220 Fixed Assets, net 1000 870 Long Term debt 754 580 Preferred Stock (400,000) 40 40 Common Stock (50,000,000) 130 130 Retained Earnings 766 710 Total Assets $2000 $168 Total Liabilities and $2000 $1680 Balance Sheet
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    3-3 Income Statement Item 2002 2001 Net Sales $3000.0 $2850.0 Operating Costs excl. DA 2616.2 2497.0 EBITDA 383.8 353.0 Depreciation and Amortization 100.0 90.0 EBIT $283.8 $263.0 Interest 88.0 60.0 EBT $195.8 $203.0 Taxes (40%) 78.3 81.2 Earnings before Preferred Dividends $117.5 $121.8 Preferred Dividends 4.0 4.0 Net Income $113.5 $117.8 Common Dividends 57.5 53.0 Addition in Retained Earnings 56.0 64.8
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    3-4 Per share Data Per Share Data: 2002 2001 Common Stock Price EPS DPS BVPS CFPS
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    3-5 Why are ratios useful? Ratios standardize numbers and  facilitate comparisons. Ratios are used to highlight  weaknesses and strengths.
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    3-6 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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    3-7 Liquidity : If forecasted assets exceed  their liabilities, is the current ratio for 2003  greater than 1? Current ratio  = Current assets / Current liabilities =   =   Acid or Quick ratio = (Current assets – Inventories)/  Current liabilities =   =  
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  3-8 Current ratio over time 2002 2001 Ind. Current
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ch03_v2_091405 - CHAPTER3 AnalysisofFinancialStatements...

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