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Chap003 Chap003 Presentation Transcript

  • Financial Statements Analysis and Long-Term Planning
  • Accounting as an Information System
  • Chapter Outline
    • 3.1 Financial Statements Analysis
    • 3.2 Ratio Analysis
    • 3.3 The Du Pont Identity
    • 3.4 Using Financial Statement Information
  • 3.1 Financial Statements Analysis
    • Common-Size Balance Sheets
      • Compute all accounts as a percent of total assets
    • Common-Size Income Statements
      • Compute all line items as a percent of sales
    • Standardized statements make it easier to compare financial information, particularly as the company grows.
    • They are also useful for comparing companies of different sizes, particularly within the same industry.
  • 3.2 Ratio Analysis
    • Ratios also 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?
  • Categories of Financial Ratios
    • Short-term solvency or liquidity ratios
    • Long-term solvency, or financial leverage, ratios
    • Asset management or turnover ratios
    • Profitability ratios
    • Market value ratios
  • Payables Turnover
    • Number of times , on average, that a company pays its accounts payables in an accounting period
    Payables Turnover = Net Purchases Average Accounts Payable
  • Days’ Payable
    • How long , on average, a company takes to pay its accounts payables
    Days’ Payable = Payables Turnover 365 days
    • 進貨 銷貨 收現
    • 平均銷售天數 平均收現天數
    • 營 業 週 期
    • 進貨 付現 收現
    • 平均付款天數 現金週期
    • Days’ Sales in Receivables =
    • Gross Receivables / (Net Sales/365)
    • Assess how effectively a company manages its receivables by comparing days’ sales in receivables with its credit terms .
  • Liquidity of Inventory
    • Days’ sales in Inventory =
    • Ending Inventory / (Cost of Goods Sold /
    • 365)
    • An indication of the length of time that it will take to use up the inventory through sales.
  • 3.3 The Du Pont Identity
    • ROE = NI / TE
    • = (NI / Sales) (Sales / TA) (TA / TE)
      • = PM * TAT * EM
  • Using the Du Pont Identity
    • ROE = PM * TAT * EM
      • Profit margin is a measure of the firm’s operating efficiency – how well it controls costs.
      • Total asset turnover is a measure of the firm’s asset use efficiency – how well it manages its assets.
      • Equity multiplier is a measure of the firm’s financial leverage .
  • 3.4 Using Financial Statements
    • Ratios are not very helpful by themselves: they need to be compared to something
    • Time-Trend Analysis
      • Used to see how the firm’s performance is changing through time
    • Peer Group Analysis
      • Compare to similar companies or within industries
  • Potential Problems
    • There is no underlying theory, so there is no way to know which ratios are most relevant.
    • Benchmarking is difficult for diversified firms.
    • Globalization and international competition makes comparison more difficult because of differences in accounting regulations.
    • Firms use varying accounting procedures.
    • Firms have different fiscal years.
    • Extraordinary, or one-time, events