Chapter 04_Financial Statement Analysis

Chapter 04_Financial Statement Analysis - 4-1 CHAPTER 4...

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Unformatted text preview: 4-1 CHAPTER 4 Analysis of Financial Statements Ratio Analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative factors 4-2 Balance Sheet: Assets Cash A/R Inventories Total CA Gross FA Less: Dep. Net FA Total Assets 2005 7,282 632,160 1,287,360 1,926,802 1,202,950 263,160 939,790 2,866,592 2006E 85,632 878,000 1,716,480 2,680,112 1,197,160 380,120 817,040 3,497,152 4-3 Balance sheet: Liabilities and Equity Accts payable Notes payable Accruals Total CL Long-term debt Common stock Retained earnings Total Equity Total L & E 2005 524,160 636,808 489,600 1,650,568 723,432 460,000 32,592 492,592 2,866,592 2006E 436,800 300,000 408,000 1,144,800 400,000 1,721,176 231,176 1,952,352 3,497,152 4-4 Income statement Sales COGS Other expenses EBITDA Depr. & Amort. EBIT Interest Exp. EBT Taxes Net income 2005 6,034,000 5,528,000 519,988 (13,988) 116,960 (130,948) 136,012 (266,960) (106,784) (160,176) 2006E 7,035,600 5,875,992 550,000 609,608 116,960 492,648 70,008 422,640 169,056 253,584 4-5 Other data No. of shares EPS DPS Stock price Lease pmts 2006E 250,000 $1.014 $0.220 $12.17 $40,000 2005 100,000-$1.602 $0.110 $2.25 $40,000 4-6 Why are ratios useful? Ratios standardize numbers and facilitate comparisons. Ratios are used to highlight weaknesses and strengths. Ratio comparisons should be made through time and with competitors Trend analysis Peer (or Industry) analysis 4-7 What are the five major categories of ratios, and what questions do they answer? 1. Liquidity: Can we make required payments? 2. Asset management: right amount of assets vs. sales? 3. Debt management: Right mix of debt and equity? 4. Profitability: Do sales prices exceed unit costs, and are sales high enough as reflected in PM, ROE, and ROA? 5. Market value : Do investors like what they see as reflected in P/E and M/B ratios? 4-8 Calculate DLeons forecasted current ratio and quick ratio for 2006. Current ratio = Current assets / Current liabilities = $2,680 / $1,145 = 2.34x Quick ratio = (CA Inventories) / CL = ($2,680 $1,716) / $1,145 = 0.84x 4-9 Comments on liquidity ratios 2006E 2005 2004 Ind....
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Chapter 04_Financial Statement Analysis - 4-1 CHAPTER 4...

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