Financial Analysis Here are some recommended outside sources to find income statement, balance sheet, and cash flow: ps. It is easier for you to find more information about public cooperation than private company. 1. Https://finance.yahoo.com Search the company Click tab of financials 2. Go the company’s website (I am using Walmart as an example): Find the tab of investors Annual Report! Liquidity Ratio Current Ratio = Current Assets/Current Liabilities · Will the firm be able to pay off its debts as they come due in the coming year? · A higher current ratio indicates a stronger financial position · Healthy Ratio (Rule of Thumb): 2 Quick Ratio = (Current Assets-Inventories)/Current Liability · Firm’s ability to meet its short-term obligations without relying upon the sale of its inventories. · A quick ratio of .9 to 1 is acceptable in most industries Activity Ratio (how effectively the firm is managing its assets) Inventory Turnover = Sales/Inventories · How many times the asset is turned over during year · Whether a firm holds excessive stocks of inventories and whether a firm is selling its inventories slowly compared to the industry average · The faster inventory sells, the sooner cash comes in · Too high a value can mean that the business is not keeping enough inventory on hand (strive for the most profitable rate) · COGS (cost of goods sold)/average inventory (inventories are usually recorded at cost) Days Sales in Inventory (DSI) = 365days/Inventory Turnover · How many days’ sales are tied up in inventories · Average length of time that inventory sits before it is sold · How fast the firm can sell its products Accounts Receivable Turnover Ratio = Sales/ Accounts Receivable · Ability to collect cash from customer · How many times during the year average receivables were turned into cash Days’ Sales Outstanding (DSO) =365/receivables turnover · How many days’ sales remain in Accounts Receivable Fixed Asset Turnover = Sales/Fixed assets · How effectively the firm uses its plant and equipment (Does the firm us its fixed assets as intensively as other firms in its industry?) · Large variances between market value and book value (inflation) tend to inflate the Fixed Assets Turnover, which could cause an older company to appear more efficient than a younger company, but these ratio differences would be more reflective of when the assets were acquired rather than the inefficiency of the younger firm Total Asset Turnover = Sales/Total Assets · How effectively the firm uses all its assets · It measures the company’s ability to generate sales based on its assets Leverage Ratio (ability to pay total liabilities) The Debt Ratio=Total Liabilities/Total assets · Proportion of assets financed with debt · The higher the debt ratio, the greater the pressure to pay interest and principal · The lower the debt ratio, the lower the company’s credit risk The Times-Interest-Earned Ratio= Earnings before interest and taxes/Interest changes · Relate income ...

1. Financial Analysis
Here are some recommended outside sources to find income
statement, balance sheet, and cash flow:
ps. It is easier for you to find more information about public
cooperation than private company.
1. Https://finance.yahoo.com
Search the company
Click tab of financials
2. Go the company’s website (I am using Walmart as an
example):
Find the tab of investors
Annual Report!
Liquidity Ratio
Current Ratio = Current Assets/Current Liabilities
· Will the firm be able to pay off its debts as they come due in
the coming year?
· A higher current ratio indicates a stronger financial position
· Healthy Ratio (Rule of Thumb): 2
Quick Ratio = (Current Assets-Inventories)/Current Liability
· Firm’s ability to meet its short-term obligations without
relying upon the sale of its inventories.
· A quick ratio of .9 to 1 is acceptable in most industries
Activity Ratio (how effectively the firm is managing its assets)
Inventory Turnover = Sales/Inventories
· How many times the asset is turned over during year
· Whether a firm holds excessive stocks of inventories and
whether a firm is selling its inventories slowly compared to the
industry average
· The faster inventory sells, the sooner cash comes in
· Too high a value can mean that the business is not keeping
enough inventory on hand (strive for the most profitable rate)

2. · COGS (cost of goods sold)/average inventory (inventories are
usually recorded at cost)
Days Sales in Inventory (DSI) = 365days/Inventory Turnover
· How many days’ sales are tied up in inventories
· Average length of time that inventory sits before it is sold
· How fast the firm can sell its products
Accounts Receivable Turnover Ratio = Sales/ Accounts
Receivable
· Ability to collect cash from customer
· How many times during the year average receivables were
turned into cash
Days’ Sales Outstanding (DSO) =365/receivables turnover
· How many days’ sales remain in Accounts Receivable
Fixed Asset Turnover = Sales/Fixed assets
· How effectively the firm uses its plant and equipment (Does
the firm us its fixed assets as intensively as other firms in its
industry?)
· Large variances between market value and book value
(inflation) tend to inflate the Fixed Assets Turnover, which
could cause an older company to appear more efficient than a
younger company, but these ratio differences would be more
reflective of when the assets were acquired rather than the
inefficiency of the younger firm
Total Asset Turnover = Sales/Total Assets
· How effectively the firm uses all its assets
· It measures the company’s ability to generate sales based on
its assets
Leverage Ratio (ability to pay total liabilities)
The Debt Ratio=Total Liabilities/Total assets
· Proportion of assets financed with debt
· The higher the debt ratio, the greater the pressure to pay
interest and principal
· The lower the debt ratio, the lower the company’s credit risk
The Times-Interest-Earned Ratio= Earnings before interest and
taxes/Interest changes

3. · Relate income to interest expense
· Measures the number of times operating income can cover
interest expense
· Some company has no interest-bearing debt!
Profitability Ratio
Gross (Profit) Margin = (Sale-Cost of goods sold)/Sales
· The total margin available to cover operating expenses and
yield a profit
Operating Profit Margin = Earning s before interest and taxes
(EBIT)/Sales
· Measures the % of profit earned from each sales dollar in a
company’s core business operations
· Persistently high rate is an important determinant of earnings
quality
· Keeping operating cost as low as possible, given the level of
desired product quality and customer service
Net Profit Margin = Net Income/Sales
· Measures the profit per dollar of sales
· The higher the %, the more profit is being generated by sales
dollars
· Sub-par results generally occur because costs are too high or
inefficient operations.
· If a firm sets a very high price on its products, it may get a
high return on each sale but not make many sales.
Return on Total Assets =Net Income/Total Asset
· Sub-par results may reflect financing strategy
Return on Common Equity = (Net Income-preferred dividends)
/Common Equity
· How much income is earned for every $1 invested
· Stockholders expect to earn a return on their money, and this
ratio tells how well they are doing in an accounting sense. It is
considered the “bottom-line” accounting ratio.
Basic Earning Power Ratio= EBIT/Total assets
· BEP shows the raw earning power of the firm’s assets, before
the influence of taxes and leverage.
Market Value Ratio

4. Price earning ratio = market price per share/earnings per share
· It shows the market price of $1 of earnings.
· Earnings per share = (net income-preferred dividends)/
number of shares of common stock outstanding (earnings
available to the owners of common stock)
· P/E ratios are higher for firms with strong growth prospects
and relatively little risk
Harrison, Horngren, Thomas. 2013. Fianancial Accounting (9e)
Brigham, E. F., & Houston, J.F. 2007 Fundamentals of
Fianancial management (11e)