Financial Statement Analysis Ratios
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This document provides an overview of financial statement analysis and key financial ratios used to evaluate companies. It discusses ratios that measure activity, liquidity, solvency, and profitability. Ratios covered include inventory turnover, receivables turnover, payables turnover, current ratio, quick ratio, debt-to-assets, interest coverage, gross profit margin, return on equity, and DuPont analysis. The document serves as a guide to understanding a company's performance and financial health using vital ratio calculations and comparisons.
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Financial Statement Analysis Ratios
- 1. Financial Statements Analysis Levon Gyozalyan Diana Melkumyan Lilit Movsisyan Mariam Petrosyan Marina Sedrakyan Areg Vardanyan
- 2. Statement of Profit or Loss and Other Comprehensive Income 2
- 3. Statement of Financial Position 3
- 4. Statement of Cash Flows 4
- 5. 1. Activity Ratios Inventory Turnover Ratio 𝑆𝑎𝑙𝑒𝑠 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝐶𝑜𝐺𝑆 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = Days of Inventory on Hand (DOH) 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑎𝑦𝑠 𝑖𝑛 𝑡ℎ𝑒 𝑃𝑒𝑟𝑖𝑜𝑑 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑃𝑒𝑟𝑖𝑜𝑑 = 5
- 6. 1. Activity Ratios Receivables turnover 𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 = Days of sales outstanding (DSO) 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑜𝑡𝑎𝑙 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 × 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑎𝑦𝑠 = × 6
- 7. 1. Activity Ratios Payables turnover 𝑇𝑜𝑡𝑎𝑙 𝑆𝑢𝑝𝑝𝑙𝑖𝑒𝑟 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 = Number of days of payables 7
- 8. 1. Activity Ratios Working Capital Turnover 𝑆𝑎𝑙𝑒𝑠 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = Fixed Asset Turnover 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑁𝑒𝑡 𝑃𝑃𝐸 = Total Asset Turnover 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 = 8
- 9. 2. Liquidity Ratios Current Ratio 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = Quick Ratio 𝐶𝑎𝑠ℎ&𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠 + 𝑀𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 + 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = Cash Ratio 𝐶𝑎𝑠ℎ + 𝐶𝑎𝑠ℎ 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 9
- 10. 2. Liquidity Ratios Defensive Interval Ratio 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐷𝑎𝑖𝑙𝑖 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 = Cash Conversion Cycle 𝐷𝐼𝑂 + 𝐷𝑆𝑂 + 𝐷𝑃𝑂 = 10
- 11. 3. Solvency Ratios Debt Ratios: Debt-to-Assets 𝑆ℎ𝑜𝑟𝑡 𝑇𝑒𝑟𝑚 𝐷𝑒𝑏𝑡 + 𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝐷𝑒𝑏𝑡 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 = Debt-to-Capital 𝐷𝑒𝑏𝑡 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦 + 𝐷𝑒𝑏𝑡 = 11
- 12. 3. Solvency Ratios Debt Ratios: Debt-to-Equity 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦 = Financial Leverage Ratio 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦 = 12
- 13. 3. Solvency Ratios Coverage Ratios: Interest Coverage Ratio 𝐸𝐵𝐼𝑇 𝐼𝑛𝑡𝑒𝑟𝑒𝑠 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 = Fixed Charge Coverage Ratio 𝐸𝐵𝐼𝑇 + 𝐹𝑖𝑥𝑒𝑑 𝐶ℎ𝑎𝑟𝑔𝑒 (𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥) 𝐹𝑖𝑥𝑒𝑑 𝐶ℎ𝑎𝑟𝑔𝑒 𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 13
- 14. 3. Profitability Ratios Return on Sales: Gross Profit Margin 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝐶𝑜𝐺𝑆 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = Operating Profit Margin 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑖𝑛𝑐𝑜𝑚𝑒 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 = 14
- 15. 3. Profitability Ratios Return on Sales: Pretax Margin 𝑁𝑒𝑡 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 + 𝐼𝑛𝑐𝑜𝑚𝑒 𝑇𝑎𝑥 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 = Net Profit Margin 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 15
- 16. 3. Profitability Ratios Return on Investment: Operating ROA 𝐸𝐵𝐼𝑇 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 = ROA 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 = Return on Total Capital 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝐷𝑒𝑏𝑡 + 𝐸𝑞𝑢𝑖𝑡𝑦 = 16
- 17. 3. Profitability Ratios Return on Investment: ROE 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦 = Return on Common Equity 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑚𝑚𝑜𝑛 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦 = 17
- 18. 5. DuPont 18
- 19. Thank You