IFM10 Ch08 Lecture

IFM10 Ch08 Lecture - CHAPTER8 AnalysisofFinancialStatements...

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1 CHAPTER 8 Analysis of Financial Statements
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2 Topics in Chapter Ratio analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative factors
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3 Income Statement 2009 2010E Sales $5,834,400  $7,035,600 COGS 4,980,000  5,800,000 Other expenses 720,000  612,960 Deprec. 116,960  120,000    Tot. op. costs 5,816,960  6,532,960    EBIT 17,440  502,640 Int. expense 176,000  80,000    EBT (158,560) 422,640 Taxes (40%) (63,424) 169,056 Net income ($  95,136) $ 253,584
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4 Balance Sheets: Assets 2009 2010E Cash $      7,282  $     14,000 S-T invest. 20,000  71,632 AR 632,160  878,000 Inventories 1,287,360  1,716,480    Total CA 1,946,802  2,680,112    Net FA 939,790  836,840 Total assets $2,886,592   $3,516,952
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5 Equity 2009 2010E Accts. payable $    324,000  $    359,800 Notes payable 720,000  300,000 Accruals 284,960  380,000    Total CL 1,328,960  1,039,800 Long-term debt 1,000,000  500,000 Common stock 460,000  1,680,936 Ret. earnings 97,632  296,216    Total equity 557,632  1,977,152 $2,886,592   $3,516,952
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6 Other Data 2009 2010E Stock price $6.00 $12.17 # of shares 100,000  250,000 EPS -$0.95 $1.01 DPS $0.11 $0.22 Book val. per sh. $5.58 $7.91 Lease payments $40,000 $40,000 Tax rate 0.4 0.4
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7 Why are ratios useful? Standardize numbers; facilitate  comparisons Used to highlight weaknesses and  strengths
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8 Five Major Categories of  Ratios Liquidity:  Can we make required  payments as they fall due? Asset management:  Do we have the  right amount of assets for the level of  sales? (More…)
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9 Ratio Categories (Continued) Debt management:  Do we have the  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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10 Forecasted Current and Quick  Ratios for 2010. CR 10  =           =               = 2.58. QR 10  = =                             = 0.93. CA CL $2,680 $1,040 $2,680 - $1,716 $1,040 CA - Inv. CL
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11 Comments on CR and QR 2010E 2009 2008 Ind. CR 2.58 1.46 2.3 2.7 QR 0.93 0.5 0.8 1.0 Expected to improve but still below the  industry average. Liquidity position is weak.
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Inventory Turnover Ratio vs.  Industry Average Inv. turnover = =                =  4.10. Sales
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IFM10 Ch08 Lecture - CHAPTER8 AnalysisofFinancialStatements...

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