fin2700_fsa-toi-26-02-2011

fin2700_fsa-toi-26-02-2011 - Financial Statement Analysis 2...

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Unformatted text preview: Financial Statement Analysis 2 Internal Users External Users Financial statement analysis helps users make better decisions. Financial statement analysis helps users make better decisions. Managers Officers Internal Auditors Shareholders Lenders Customers Purpose of Analysis 3 Growt h in sales Return to stockhol ders Profit mar gins Return on equity Determi ned by analyzing the financial statemen ts. Fina nci al me asur es are often use d to rank corp orate perf orma nce. Exa mp les of me asur es includ e: Purpose of Analysis 4 Outcomes Describe meaning and usage of financial statement analysis 3 Types of Analysis 5 Types of Financial Ratios 5 Ratio Analysis numbers versus ratios Why? AA BB COMPANY $ 1,000,000 $ 10,000 NET INCOME $ 5,000,000 $ 20,000 TOTAL ASSETS 0.20 = 20% 0.50 = 50% NI / TA EX : 6 Ratio Analysis Types of ratio analysis 1. Industry Comparative You 28 % 22 % NI / TA To compare with the average of the companies in the same industry (your performance is higher or lower than the mean?) Industry average 7 Ratio Analysis Types of ratio analysis 2. Trend or time series 2001 YEAR 22 % 25 % NI / TA To compare with yourself along the period of time (your performance is improving or getting worse?) 2002 2003 23 % 8 Ratio Analysis Types of ratio analysis 3. Cross-sectional You COMPANY 28 % 22 % NI / TA To compare with your main competitors (your performance is better or worse than them?) C1 C2 19 % C3 36 % 9 Types of Financial Ratios Liquidity Asset Management (Efficiency) Debt Management (Financial Leverage) Profitability Market Value 10 1. Liquidity Ratios = Ability to pay current obligations (S-T debts; A/P, N/P) By using current sources of cash (Current Assets) Quick or acid-test ratio = (CA - Inventories) CL Inventories are the least liquid current assets so exclude it out You 1.20 1.00 Current ratio Co1 Example 0.70 Co2 Good Normal Analysis Bad Current ratio = CA CL 11...
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fin2700_fsa-toi-26-02-2011 - Financial Statement Analysis 2...

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