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15-Analysis of Financial Statement

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Wahyu Wijanarko
Wahyu Wijanarko

The document discusses various financial ratios that can be used to analyze a company's financial statements. It provides ratio calculations and analysis for a company called D'Leon for the years 2002-2003. Key ratios like current ratio, inventory turnover, days sales outstanding, profit margin, and return on equity are presented. Limitations of ratio analysis are also discussed.

BusinessEconomy & FinanceTechnology
1 of 38
Analysis of Financial Statements Lecture Note three
Analysis of Financial Statements ,[object Object],[object Object],[object Object],[object Object],[object Object]
Balance Sheet: Assets ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],2002 7,282 632,160 1,287,360 1,926,802 1,202,950 263,160 939,790 2,866,592 2003E 85,632 878,000 1,716,480 2,680,112 1,197,160 380,120 817,040 3,497,152
Balance sheet: Liabilities and Equity ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],2002 524,160 636,808 489,600 1,650,568 723,432 460,000 32,592 492,592 2,866,592 2003E 436,800 300,000 408,000 1,144,800 400,000 1,721,176 231,176 1,952,352 3,497,152
Income statement ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],2002 6,034,000 5,528,000 519,988 (13,988) 116,960 (130,948) 136,012 (266,960) (106,784) (160,176) 2003E 7,035,600 5,875,992 550,000 609,608 116,960 492,648 70,008 422,640 169,056 253,584
Other data ,[object Object],[object Object],[object Object],[object Object],[object Object],2003E 250,000 $1.014 $0.220 $12.17 $40,000 2002 100,000 -$1.602 $0.110 $2.25 $40,000
Why are ratios useful? ,[object Object],[object Object]
What are the five major categories of ratios, and what questions do they answer? ,[object Object],[object Object],[object Object],[object Object],[object Object]
Calculate D’Leon’s forecasted current ratio for 2003. ,[object Object],[object Object],[object Object]
Comments on current ratio ,[object Object],[object Object],2.70x 2.30x 1.20x 2.34x Current ratio Ind. 2001 2002 2003
What is the inventory turnover vs. the industry average? Inv. turnover = Sales / Inventories = $7,036 / $1,716 = 4.10x 6.1x 4.8x 4.70x 4.1x Inventory Turnover Ind. 2001 2002 2003
Comments on Inventory Turnover ,[object Object],[object Object],[object Object]
DSO is the average number of days after making a sale before receiving cash. ,[object Object],[object Object],[object Object],[object Object]
Appraisal of DSO ,[object Object],[object Object],32.0 37.4 38.2 45.6 DSO Ind. 2001 2002 2003
Fixed asset and total asset turnover ratios vs. the industry average ,[object Object],[object Object],[object Object],[object Object]
Evaluating the FA turnover and TA turnover ratios ,[object Object],[object Object],7.0x 10.0x 6.4x 8.6x FA TO 2.6x 2.3x 2.1x 2.0x TA TO Ind. 2001 2002 2003
Calculate the debt ratio, TIE, and EBITDA coverage ratios. ,[object Object],[object Object],[object Object],[object Object]
Calculate the debt ratio, TIE, and EBITDA coverage ratios. ,[object Object],[object Object],[object Object],[object Object],[object Object]
How do the debt management ratios compare with industry averages? ,[object Object],6.2x 4.3x -1.0x 7.0x TIE 50.0% 54.8% 82.8% 44.2% D/A 8.0x 3.0x 0.1x 5.9x EBITDA coverage Ind. 2001 2002 2003
Profitability ratios: Profit margin and Basic earning power ,[object Object],[object Object],[object Object],[object Object]
Appraising profitability with the profit margin and basic earning power ,[object Object],[object Object],[object Object],3.5% 2.6% -2.7% 3.6% PM 19.1% 13.0% -4.6% 14.1% BEP Ind. 2001 2002 2003
Profitability ratios: Return on assets and Return on equity ,[object Object],[object Object],[object Object],[object Object]
Appraising profitability with the return on assets and return on equity ,[object Object],[object Object],9.1% 6.0% -5.6% 7.3% ROA 18.2% 13.3% -32.5% 13.0% ROE Ind. 2001 2002 2003
Effects of debt on ROA and ROE ,[object Object],[object Object]
Problems with ROE ,[object Object],[object Object],[object Object],[object Object],[object Object]
Calculate the Price/Earnings, Price/Cash flow, and Market/Book ratios. ,[object Object],[object Object],[object Object],[object Object],[object Object]
Calculate the Price/Earnings, Price/Cash flow, and Market/Book ratios. ,[object Object],[object Object],14.2x 9.7x -1.4x 12.0x P/E 11.0x 8.0x -5.2x 8.21x P/CF 2.4x 1.3x 0.5x 1.56x M/B Ind. 2001 2002 2003
Analyzing the market value ratios ,[object Object],[object Object],[object Object],[object Object],[object Object]
Extended DuPont equation: Breaking down Return on equity ,[object Object],[object Object],[object Object],-32.5% 5.8 2.1 -2.7% 2002 13.3% 2.2 2.3 2.6% 2001 13.0% 1.8 2.0 3.6% 2003E 18.2% 2.0 2.6 3.5% Ind. ROE EM TA TO PM
The Du Pont system ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Trend analysis ,[object Object],[object Object]
An example: The effects of improving ratios ,[object Object],[object Object],[object Object],[object Object],[object Object]
Reducing accounts receivable and the days sales outstanding ,[object Object],[object Object],[object Object],[object Object],[object Object]
Effect of reducing receivables on balance sheet and stock price ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Potential uses of freed up cash ,[object Object],[object Object],[object Object],[object Object]
Potential problems and limitations of financial ratio analysis ,[object Object],[object Object],[object Object],[object Object]
More issues regarding ratios ,[object Object],[object Object],[object Object]
Qualitative factors to be considered when evaluating a company’s future financial performance ,[object Object],[object Object],[object Object],[object Object],[object Object]

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15-Analysis of Financial Statement

  • 1. Analysis of Financial Statements Lecture Note three
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  • 11. What is the inventory turnover vs. the industry average? Inv. turnover = Sales / Inventories = $7,036 / $1,716 = 4.10x 6.1x 4.8x 4.70x 4.1x Inventory Turnover Ind. 2001 2002 2003
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