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(2013) Ideal Current ratio 0.835 0.88 1.17 2 Acid-test ratio 0.20 0.20 0.46 1 Debt-to-equity ratio 1.485 1.55 1.91 Close to 1 Return on sales 3.65% 3.54% 4.09% High Return on equity 20.8% 20.72% 18.1% High Earnings per share $5.02 $4.52 $4.61 High Inventory turnover 8.23 6.46 Varies per
industry 8.05 Caveats on Financial Statement Analysis
Caveats Industry matters!
You can be tighter in some areas of your
financial structure, if you have more leeway in
others. How to Read a Corporate Annual Report
How Read management’s discussion of changes in
operations. Try to identify strengths or
Review the firm’s consolidated balance sheet.
(Its assets, liabilities, and owner’s equity.)
Analyze the Income Statement. Look beyond
the year (Sales drops can spell trouble).
Review the statement of changes in cash flows.
Review auditor’s opinion.
Financial statement analysis tries to discern the
liquidity, profitability and efficiency of an
Ratio analysis, the standard technique used to
perform financial statement analysis, depends
on industry, size, and interdependences within
the financial statements.
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- Spring '06