{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter_3_Fall2011_s

# Chapter_3_Fall2011_s - Chapter 3 Financial Statement...

This preview shows pages 1–12. Sign up to view the full content.

Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth Chapter 3 Financial Statement Analysis

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2 Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth Ratio Analysis Ratios allow for better comparison through time or between companies. As we look at each ratio, ask yourself: How is the ratio computed? What is the ratio trying to measure and why? What is the unit of measurement? What does the value indicate? How can we improve the company’s ratio?
3 Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth 5 Areas of Financial Performance Short-term solvency – how able is the firm to meet short- term cash obligations? Activity – how well does the firm control its investing? Financial leverage – how much debt does the firm have? Profitability – how much profit does the firm make? Value – the value of the firm to potential investors?

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
4 Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth Solvency or Liquidity Ratios Current Ratio = see p.44 for equation Hadlock Trends 2009: 708 / 540 = times Quick Ratio = see p.44 for equation (708 - 422) / 540 = times Cash Ratio = Cash / CL 98 / 540 = . times
5 Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth Activity - Total Asset / Fixed Asset/ AR Total Asset Turn over = see p.45 for equation 2,311 / 3,588 = times Fixed Asset Turn over (fixed asset utilization) = see p.46 for equation 2,880/2,311 = Receivables Turn over = see p.46 for equation 2,311 / 188 = imes Average collection period , or Days’ Sales in Receivables = see p.46 for equation 365 / 12.3 = days

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
6 Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth More Activity - Inventory Ratios Inventory Turns = see p.47 for equation 1,344 / 422 = 3.2 times Days’ Sales in Inventory (Shelf Life)= see p.47 for equation 365 / 3.2 = days
7 Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth Average vs. End-of-period ratios The suggested method for the CFA is to use “average” values for any activity ratio that includes the word “turn” in the definition. If the values at the end of consecutive periods are significantly different, it is wise to use the average method. For this class you can use either method, as long as you maintain consistency.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
8 Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth Financial Leverage Ratios Total Debt Ratio = see p.48 for equation (3,588 – 2,591) / 3,588 = Debt/Equity = see p.48 for equation (540 + 457) / 2,591 = Equity Multiplier = see p.48 for equation = 1 + D/E 3,588 / 2,591 = 1+ 0.385 =
9 Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth Pierce Construction has a debt ratio of 0.40. What is the D/E ratio and equity multiplier? Debt = 40% so Equity must be 60%. D/E = .4/.6 = The equity multiplier is 1 + D/E or 1 + .667 = Page 49

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
10 Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth Financial Leverage Ratios (coverage) Times Interest Earned = see p.49 for equation 691 / 141 = times Cash Coverage = see p.49 for equation (691 + 276) / 141 = times
11 Chapter 3 Financial Statement Analysis FI 311 Elizabeth Booth

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 48

Chapter_3_Fall2011_s - Chapter 3 Financial Statement...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online