This document discusses sources of financial information for analyzing companies, including published annual and quarterly reports, reports filed with the SEC like Forms 10-K and 10-Q, and reports from advisory services. It also describes analytical techniques used in financial statement analysis like horizontal analysis, vertical analysis, and ratio analysis. These techniques simplify identifying relationships and trends in financial data to evaluate a company's financial condition, performance, ability to pay debts, and profitability. The objective is to forecast future ability based on historical financial statements.
Analysis of Financial Statements- Basics of Financial StatementsShreyaGangakhedkar
Comparative Statements,
Common size statements,
Trend analysis
Financial statements viz. the income and the position statement i.e. the balance sheet, are indicators of two significant factors : profitability and financial soundness. Analysis of statements means such a treatment of the information contained in the two statements as to afford a full diagnosis of the profitability and financial position of the firm concerned.
Analysis of Financial Statements- Basics of Financial StatementsShreyaGangakhedkar
Comparative Statements,
Common size statements,
Trend analysis
Financial statements viz. the income and the position statement i.e. the balance sheet, are indicators of two significant factors : profitability and financial soundness. Analysis of statements means such a treatment of the information contained in the two statements as to afford a full diagnosis of the profitability and financial position of the firm concerned.
UNIT - III: FINANCIAL ANALYSIS: Analysis and Interpretation of Financial statements
from investor and company point of view- Horizontal Analysis and Vertical Analysis of
Company Financial Statements – Ratios (Conversion of ratios) - Liquidity – Leverage -
Solvency and Profitability ratios -Statement of Changes in Working Capital - Funds from
Operations Funds Flow & Cash Flow statements - Pre packaged Accounting software -
Extensive Business Reports Language (XBRL).
Vertical Analysis is a tool of financial statement analysis which reports each amount of the three categories of accounts that are assets, liabilities and equities as the percentage of total amount that is in a proportionate way. Copy the link given below and paste it in new browser window to get more information on Vertical Analysis:- http://www.transtutors.com/homework-help/accounting/financial-statement-analysis-vertical-analysis/
Financial ratios are created with the use of numerical values taken from financial statements to gain meaningful information about a company. The numbers found on a company’s financial statements – balance sheet, income statement, and cash flow statement – are used to perform quantitative analysis and assess a company’s liquidity, leverage, growth, margins, profitability, rates of return, valuation, and more.
Modes of Expression of Ratios:
Ratios may be expressed in any one or more of the following ways:
(a) Proportion,
(b) Rate or times
(c) Percentage.
Advantages of Ratio Analysis:
The information shown in financial statements does not signify anything individually because the facts shown are inter-related. Hence it is necessary to establish relationships between various items to reveal significant details and throw light on all notable financial and operational aspects. Ratio analysis caters to the needs of various parties interested in financial statements. The basic objective of ratio analysis is to help management in interpretation of financial statements to enable it to perform the managerial functions efficiently.
Limitations of Ratio Analysis:
Ratios are precious tools in the hands of management but the utility lies in the proper utilisation of ratios. Mishandling or misuse of ratios and using them without proper context may lead the management to a wrong direction. The financial analyst should be well versed in computing ratios and proper utilization of ratios. Like all techniques of control, ratio analysis also suffers from several ‘ifs and buts’ and for proper computation and utilization of ratios the analyst should be aware of the limitations of ratio analysis.
Uses and Users of Financial Ratio Analysis
Analysis of financial ratios serves two main purposes:
1. Track company performance
Determining individual financial ratios per period and tracking the change in their values over time is done to spot trends that may be developing in a company. For example, an increasing debt-to-asset ratio may indicate that a company is overburdened with debt and may eventually be facing default risk.
2. Make comparative judgments regarding company performance
Comparing financial ratios with that of major competitors is done to identify whether a company is performing better or worse than the industry average. For example, comparing the return on assets between companies helps an analyst or investor to determine which company is making the most efficient use of its assets.
Users of financial ratios include parties external and internal to the company:
External users: Financial analysts, retail investors, creditors, competitors, tax authorities, regulatory authorities, and industry observers
Internal users: Management team, employees, and owners
Abstract: A financial statement is the lifeblood of any business. People rely on these financial statements to know the condition, performance and ability to efficiently sustain past and future operations of a particular business. The above topic throws light on credentials of financial statement analysis in both theoretical and pragmatic ways. Through this I want to highlight the ways, methods and techniques to analyse the financial statements to determine the position of business, its profitability, future earnings, ability to pay interest, etc. in more detailed manner, which is helpful to extrapolate and forecast the future of a business concern.
EY - SEC reporting update - 2017 trends in SEC comment lettersJulien Boucher
Our SEC Reporting Update publication highlights the SEC staff’s increased focus on non-GAAP financial measures over the last year and discusses emerging topics such as the new revenue standard and cybersecurity. The publication also explains the nature of the staff’s common comments on segment reporting, income taxes and management’s discussion and analysis. It also notes the continuing trend for the SEC staff to issue fewer comment letters than in the previous year.
In our SEC Comments and Trends publication, we discuss in detail the SEC staff’s focus areas in its reviews of public filings in the year ended 30 June 2017. We also identify the top comment areas by industry.
Recent graduates who are aspiring to become Financial Analyst or Finance Manager must have comprehensive understanding of Financial Statements. This 6 part article aims to provide an understanding of Financial Statements through real life examples.
UNIT - III: FINANCIAL ANALYSIS: Analysis and Interpretation of Financial statements
from investor and company point of view- Horizontal Analysis and Vertical Analysis of
Company Financial Statements – Ratios (Conversion of ratios) - Liquidity – Leverage -
Solvency and Profitability ratios -Statement of Changes in Working Capital - Funds from
Operations Funds Flow & Cash Flow statements - Pre packaged Accounting software -
Extensive Business Reports Language (XBRL).
Vertical Analysis is a tool of financial statement analysis which reports each amount of the three categories of accounts that are assets, liabilities and equities as the percentage of total amount that is in a proportionate way. Copy the link given below and paste it in new browser window to get more information on Vertical Analysis:- http://www.transtutors.com/homework-help/accounting/financial-statement-analysis-vertical-analysis/
Financial ratios are created with the use of numerical values taken from financial statements to gain meaningful information about a company. The numbers found on a company’s financial statements – balance sheet, income statement, and cash flow statement – are used to perform quantitative analysis and assess a company’s liquidity, leverage, growth, margins, profitability, rates of return, valuation, and more.
Modes of Expression of Ratios:
Ratios may be expressed in any one or more of the following ways:
(a) Proportion,
(b) Rate or times
(c) Percentage.
Advantages of Ratio Analysis:
The information shown in financial statements does not signify anything individually because the facts shown are inter-related. Hence it is necessary to establish relationships between various items to reveal significant details and throw light on all notable financial and operational aspects. Ratio analysis caters to the needs of various parties interested in financial statements. The basic objective of ratio analysis is to help management in interpretation of financial statements to enable it to perform the managerial functions efficiently.
Limitations of Ratio Analysis:
Ratios are precious tools in the hands of management but the utility lies in the proper utilisation of ratios. Mishandling or misuse of ratios and using them without proper context may lead the management to a wrong direction. The financial analyst should be well versed in computing ratios and proper utilization of ratios. Like all techniques of control, ratio analysis also suffers from several ‘ifs and buts’ and for proper computation and utilization of ratios the analyst should be aware of the limitations of ratio analysis.
Uses and Users of Financial Ratio Analysis
Analysis of financial ratios serves two main purposes:
1. Track company performance
Determining individual financial ratios per period and tracking the change in their values over time is done to spot trends that may be developing in a company. For example, an increasing debt-to-asset ratio may indicate that a company is overburdened with debt and may eventually be facing default risk.
2. Make comparative judgments regarding company performance
Comparing financial ratios with that of major competitors is done to identify whether a company is performing better or worse than the industry average. For example, comparing the return on assets between companies helps an analyst or investor to determine which company is making the most efficient use of its assets.
Users of financial ratios include parties external and internal to the company:
External users: Financial analysts, retail investors, creditors, competitors, tax authorities, regulatory authorities, and industry observers
Internal users: Management team, employees, and owners
Abstract: A financial statement is the lifeblood of any business. People rely on these financial statements to know the condition, performance and ability to efficiently sustain past and future operations of a particular business. The above topic throws light on credentials of financial statement analysis in both theoretical and pragmatic ways. Through this I want to highlight the ways, methods and techniques to analyse the financial statements to determine the position of business, its profitability, future earnings, ability to pay interest, etc. in more detailed manner, which is helpful to extrapolate and forecast the future of a business concern.
EY - SEC reporting update - 2017 trends in SEC comment lettersJulien Boucher
Our SEC Reporting Update publication highlights the SEC staff’s increased focus on non-GAAP financial measures over the last year and discusses emerging topics such as the new revenue standard and cybersecurity. The publication also explains the nature of the staff’s common comments on segment reporting, income taxes and management’s discussion and analysis. It also notes the continuing trend for the SEC staff to issue fewer comment letters than in the previous year.
In our SEC Comments and Trends publication, we discuss in detail the SEC staff’s focus areas in its reviews of public filings in the year ended 30 June 2017. We also identify the top comment areas by industry.
Recent graduates who are aspiring to become Financial Analyst or Finance Manager must have comprehensive understanding of Financial Statements. This 6 part article aims to provide an understanding of Financial Statements through real life examples.
Financial statement analysis, as the name suggests is the analysis of financial statements. Generally, the financial statements of an organization include the profit and loss account or the income statement, the balance sheet and the statement of cash flows.
Definition of terms
"Micro business customers" means customers having less investable asset, trading transaction and return from business. They represent the lower class of wholesale banking customer segments of the Bank.
"Wholesale banking" means banking service availed to individual and non- individual business customers, public & institutional customers.
“Agent” means a person contracted by the Bank to facilitate provision of agency banking business service in the name and on behalf of the bank.
“Board” means the supervisory Board of the Bank formed in accordance with Article 10 (2) and 12 of Public Enterprises Proclamation No 25/1992.
“CBEBirr” means a mobile money service owned by CBE that provides services like mobile payment, mobile transfer, and agency banking.
“Credit History” a history of all the pieces of financial information that relates to customer’s life.
“Credit policy” means a general framework approved by the board that spells out and guides the bank’s credit/financing strategic directions and credit /financing decisions.
“Credit Scoring” means judging/evaluating the creditworthiness of a customer based on basic characteristics and past performance in credit and other relationships with Bank.
“Credit” means an arrangement to receive financial services now and pay later.
“Customer” means a person who uses Micro Saving and Lending services.
“Digital Micro Credit” means micro loans that are requested, received and repaid all through mobile phones (or any other appropriate tools) via interaction with a computer system.
“Digital MSL Policy” means a policy document that governs the management of digital micro saving and credit services.
“Financial Transaction” mean an event which involves money or payment, such as deposit money into a bank account, borrow money to customers.
“Fixed Account” means a saving account locked for a certain period, a minimum of three months, based on the preference of the customers to fulfil their designated plan.
“Know Your Customer(KYC)” means performing a set of due diligence measures undertaken by the Bank to identify a user and the motivation behind the financial activities of customers.
“Lending officials” means any person involved in MSL business of customer acquisition, Credit Worthiness evaluation, Credit operation, Collection, monitoring and decision-making as well as write off and post write off follow up process.
“Level Three agents” means agent hierarchically created as agents in CBE Birr System.
“Level Two agent” means an agent hierarchically created as sole agent in CBE Birr System and cannot create an agent. And managing the cash and balance on CBE Birr account liquidity requirements of its own.
“Loan Pricing” means setting the interest rate, fees, commission, and others to be charged by the Bank on loans, advances, and guarantees extended to customers.
“Merchant” means an entity that contract with an acquirer to originate transactions and accepts cards for payment and displaying b
Discuss financial statements- financial statement analysis and ratio a.docxrtodd615
Discuss financial statements, financial statement analysis and ratio analysis
Discuss financial statements, financial statement analysis and ratio analysis
Solution
The financial statements include income statement, balance sheet, cash flow statement and statement of changes in stockholder\'s equity . The purpose of preparing these financial statements is to ensure that the stakeholders of the company are provided with the correct and reliable information on the operations and financial aspects of the company. These statements are frequently used by various parties for investment purposes and understand growth prospects of the company (by investors), to grant loans (by banks and financial institutions) and for tax related issues (by government and state-tax authorities). Important information as to the ownership of the company, assets and liabilities can also be obtained from the balance sheet of the company. Current cash flow position can also be evaluated with the use of cash flow statement.
Financial statement analysis is performed to evaluate the current financial position of the company. Analysts use techniques such as horizontal, vertical and ratio analysis to determine the financial performance of the company over a particular period. Information for 2 or more periods is compared with the use of these tools to analyze the growth/decline in the company\'s overall financial performance/soundness. It is on the basis of information derived from financial statement analysis, that various decisions relating to investment (in the company) are made by outside parties. The company can also perform such comparisons for investing money in growth and expansion projects.
Ratio analysis is considered as one of the most important tools for financial analysis. Different types of ratios can be calculated to determine the liquidity (short term financial position) and solvency (long term financial position) of the company. Overall profitability and operational efficiency can also be determined with the use of ratios. Various forms of ratios can be calculated and compared with the ratios of other companies within the same industry to determine the company\'s overall financial and operational performance. Calculation and comparision of ratios over a period of years can also provide highly useful results with respect to the profitability and growth of the company.
.
21
Analyzing Financial
Statements
Chapter Twenty-One
After completing this chapter, you should be able to:
1 Explain the objectives of financial statement analysis.
2 Describe and use the following four analytical techniques: horizontal analysis, trend
analysis, vertical analysis, and ratio analysis.
3 Explain the importance of comparisons and trends in financial statement analysis.
4 Prepare and interpret common-size financial statements.
5 Define and compute the various financial ratios discussed in the chapter.
Chicago, IL—Contemporary
Interiors, a Chicago tradition in
Scandinavian furniture and
contemporary design, has
announced a decision to go
national. Although Contempo-
rary Interiors has opened
stores throughout the Midwest
in recent years, the company
has remained a regional busi-
ness with the bulk of its sales
in the greater Chicago area.
Yesterday, however, a company
spokesman announced that
Contemporary Interiors’ Board
of Directors had decided the
time was right to make the
next move. Marc Janson,
spokesman for the firm’s pres-
ident and CEO, pointed to the
strong economy and consumer
confidence as being key to the
decision. “Disposable income
is up, and we’re seeing that in
our business,” said Janson.
“Even more important, though,
is our company’s strong finan-
cial position. The analysts tell
us that our financial state-
ments look good. Our working
capital, inventory turnover,
return on assets, and so forth
are all strong. This will be
important, because in order to
expand, the company’s going
to have to raise capital. And
the bankers and potential
investors are going to need to
see those strong financial indi-
cators. The board hasn’t
decided yet how much of our
new capital needs should be
debt and how much should be
in stock. I’m sure they’ll keep a
close eye on the debt-equity
ratio.” When asked where
Contemporary Interiors’ next
store would appear, Janson
replied that New York, Atlanta,
and San Francisco were all
under consideration.
CONTEMPORARY INTERIORS TO GO NATIONAL
Financial statements provide the primary means for managers to communicate about
the financial condition of their organization to outside parties. Managers, investors,
lenders, financial analysts, and government agencies are among the users of financial
statements. Substantial information is conveyed by financial statements about the
financial strength and current performance of an enterprise. Although financial state-
ments are prepared primarily for users outside an organization, managers also find their
organization’s financial statements useful in making decisions. As managers develop
operating plans, they think about how those plans will affect the performance of the
organization, as conveyed by the financial statements. In this chapter, we explore how
to analyze financial statements to glean the most information about an organization.
Overview of Financial Statements
There are four primary financial statements:
1. Balance sheet
2..
Original article from the Flevy business blog can be found here:
http://flevy.com/blog/whats-the-impact-of-ratios-in-financial-analysis/
Financial statement analysis can be referred as a process of understanding the risk and profitability of a company by analyzing reported financial info, especially annual and quarterly reports. In other words, financial statement analysis is a study about accounting ratios among various items included in the balance sheet.
Advantages of Financial Statement Analysis
The different advantages of financial statement analysis are listed below:
The most important benefit if financial statement analysis is that it provides an idea to the investors about deciding on investing their funds in a particular company.
Another advantage of financial statement analysis is that regulatory authorities can ensure the company following the required accounting standards.
Financial statement analysis is helpful to the government agencies in analyzing the taxation owed to the firm.
Above all, the company is able to analyze its own performance over a specific time period.
From the above, it is obvious that only way for financial analysis is ratio analysis.
What is Ratio analysis?
What is the role/Importance of ratio analysis in financial analysis?
What are its advantages?
How it helps out in decision making?
How it helps the auditor in assessment of the risk of material misstatement?
These are some questions the answer of each must be known by every professional, business man and by user of financial statement. Some of you may already know about these. The answer of these questions must be part of professional’s life and business man must know to keep check on the management progress.
In simple words, we can say that ratio analysis is “quantitative analysis of information contained in a company’s financial statements.” In fact, it is critical quantitative analysis.
Alot of printing presses facing problem due to stages in production process, and there are so many kinds of identical item to produce. so they can sort out their costing problem by using this sheet and develop ERP as per their needs
Income statement Functional Format,Linear cost Function,Method of Analyzing cost,Comparison of variable costing , unit cost computation, Illustration of variable costing , evaluation of results. Managerial Accounting
Future value , Compounding , Present value Discounting , Future value Annuity, ordinary annuity, Annuities due, Present value ordinary annuity , Annuities Due,, Solving for interest Rate, number of periods or payment
Type of Production: Homogeneous
Firm using it : Chemical, Oil,flour, Plastic and paint,
Focal Point: Processing Center,,
Control Document :Cost of Production Report,
Reporting period: Time period such as month,
Unit cost computation:by processing center
Flow of products:continuous,
Measurement of Output: Equivalent Unit of Production.
Interest-rate risk substantially affect the values of the assets and liabilities of most corporations and is often a dominant factor affecting the values of pension funds, banks and many other financial intermediaries.
The market-oriented economies and the global market place have enhanced the competition for funds and market share thereby cutting down the spreads of the banks, a part from declining spread, banks are also witnessing a faster growth in their expenses when compared to their revenues predominant in these expenses are the raising salary expenses and loan-loss expenses. banks are responding by introducing new product lines and developing the existing services into more sophisticated ones,in order to offset the rising expenses
BMA Asset Management Company Limited (BMA FUNDS) established in 1992 is a Non Banking Finance Company (NBFC) and a wholly owned subsidiary of BMA Capital Management Limited. The firm is an approved Investment Advisor and Asset Manager by the Securities and Exchange Commission of Pakistan (SECP) with a proven track record and intimate knowledge of Pakistan's capital markets over the past 15 years. BMA Capital is the parent company of BMA FUNDS and a leading investment firm involved in the domestic capital markets, investment banking, asset management and private equity. In June 2004, BMA entered into a joint venture with Abraaj Capital, the leading private equity firm in the Middle East and have launched Pakistan's first private equity fund of US $300 million for inward investment in Pakistan.
More from Sumaira Sultana Talpur (MBA Finance) (20)
Buy Verified PayPal Account | Buy Google 5 Star Reviewsusawebmarket
Buy Verified PayPal Account
Looking to buy verified PayPal accounts? Discover 7 expert tips for safely purchasing a verified PayPal account in 2024. Ensure security and reliability for your transactions.
PayPal Services Features-
🟢 Email Access
🟢 Bank Added
🟢 Card Verified
🟢 Full SSN Provided
🟢 Phone Number Access
🟢 Driving License Copy
🟢 Fasted Delivery
Client Satisfaction is Our First priority. Our services is very appropriate to buy. We assume that the first-rate way to purchase our offerings is to order on the website. If you have any worry in our cooperation usually You can order us on Skype or Telegram.
24/7 Hours Reply/Please Contact
usawebmarketEmail: support@usawebmarket.com
Skype: usawebmarket
Telegram: @usawebmarket
WhatsApp: +1(218) 203-5951
USA WEB MARKET is the Best Verified PayPal, Payoneer, Cash App, Skrill, Neteller, Stripe Account and SEO, SMM Service provider.100%Satisfection granted.100% replacement Granted.
Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
www.seribangash.com
Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
Affordable Stationery Printing Services in Jaipur | Navpack n PrintNavpack & Print
Looking for professional printing services in Jaipur? Navpack n Print offers high-quality and affordable stationery printing for all your business needs. Stand out with custom stationery designs and fast turnaround times. Contact us today for a quote!
Explore our most comprehensive guide on lookback analysis at SafePaaS, covering access governance and how it can transform modern ERP audits. Browse now!
Discover the innovative and creative projects that highlight my journey throu...dylandmeas
Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
RMD24 | Debunking the non-endemic revenue myth Marvin Vacquier Droop | First ...BBPMedia1
Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
Taurus Zodiac Sign_ Personality Traits and Sign Dates.pptxmy Pandit
Explore the world of the Taurus zodiac sign. Learn about their stability, determination, and appreciation for beauty. Discover how Taureans' grounded nature and hardworking mindset define their unique personality.
Accpac to QuickBooks Conversion Navigating the Transition with Online Account...PaulBryant58
This article provides a comprehensive guide on how to
effectively manage the convert Accpac to QuickBooks , with a particular focus on utilizing online accounting services to streamline the process.
"𝑩𝑬𝑮𝑼𝑵 𝑾𝑰𝑻𝑯 𝑻𝑱 𝑰𝑺 𝑯𝑨𝑳𝑭 𝑫𝑶𝑵𝑬"
𝐓𝐉 𝐂𝐨𝐦𝐬 (𝐓𝐉 𝐂𝐨𝐦𝐦𝐮𝐧𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬) is a professional event agency that includes experts in the event-organizing market in Vietnam, Korea, and ASEAN countries. We provide unlimited types of events from Music concerts, Fan meetings, and Culture festivals to Corporate events, Internal company events, Golf tournaments, MICE events, and Exhibitions.
𝐓𝐉 𝐂𝐨𝐦𝐬 provides unlimited package services including such as Event organizing, Event planning, Event production, Manpower, PR marketing, Design 2D/3D, VIP protocols, Interpreter agency, etc.
Sports events - Golf competitions/billiards competitions/company sports events: dynamic and challenging
⭐ 𝐅𝐞𝐚𝐭𝐮𝐫𝐞𝐝 𝐩𝐫𝐨𝐣𝐞𝐜𝐭𝐬:
➢ 2024 BAEKHYUN [Lonsdaleite] IN HO CHI MINH
➢ SUPER JUNIOR-L.S.S. THE SHOW : Th3ee Guys in HO CHI MINH
➢FreenBecky 1st Fan Meeting in Vietnam
➢CHILDREN ART EXHIBITION 2024: BEYOND BARRIERS
➢ WOW K-Music Festival 2023
➢ Winner [CROSS] Tour in HCM
➢ Super Show 9 in HCM with Super Junior
➢ HCMC - Gyeongsangbuk-do Culture and Tourism Festival
➢ Korean Vietnam Partnership - Fair with LG
➢ Korean President visits Samsung Electronics R&D Center
➢ Vietnam Food Expo with Lotte Wellfood
"𝐄𝐯𝐞𝐫𝐲 𝐞𝐯𝐞𝐧𝐭 𝐢𝐬 𝐚 𝐬𝐭𝐨𝐫𝐲, 𝐚 𝐬𝐩𝐞𝐜𝐢𝐚𝐥 𝐣𝐨𝐮𝐫𝐧𝐞𝐲. 𝐖𝐞 𝐚𝐥𝐰𝐚𝐲𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞 𝐭𝐡𝐚𝐭 𝐬𝐡𝐨𝐫𝐭𝐥𝐲 𝐲𝐨𝐮 𝐰𝐢𝐥𝐥 𝐛𝐞 𝐚 𝐩𝐚𝐫𝐭 𝐨𝐟 𝐨𝐮𝐫 𝐬𝐭𝐨𝐫𝐢𝐞𝐬."
India Orthopedic Devices Market: Unlocking Growth Secrets, Trends and Develop...Kumar Satyam
According to TechSci Research report, “India Orthopedic Devices Market -Industry Size, Share, Trends, Competition Forecast & Opportunities, 2030”, the India Orthopedic Devices Market stood at USD 1,280.54 Million in 2024 and is anticipated to grow with a CAGR of 7.84% in the forecast period, 2026-2030F. The India Orthopedic Devices Market is being driven by several factors. The most prominent ones include an increase in the elderly population, who are more prone to orthopedic conditions such as osteoporosis and arthritis. Moreover, the rise in sports injuries and road accidents are also contributing to the demand for orthopedic devices. Advances in technology and the introduction of innovative implants and prosthetics have further propelled the market growth. Additionally, government initiatives aimed at improving healthcare infrastructure and the increasing prevalence of lifestyle diseases have led to an upward trend in orthopedic surgeries, thereby fueling the market demand for these devices.
Business Valuation Principles for EntrepreneursBen Wann
This insightful presentation is designed to equip entrepreneurs with the essential knowledge and tools needed to accurately value their businesses. Understanding business valuation is crucial for making informed decisions, whether you're seeking investment, planning to sell, or simply want to gauge your company's worth.
1. Analysis of Financial Statement
Use of Financial statement
Manager and number of external parties regularly use a firm’s financial statements to evaluate the financial and
operating performance of the business.
Sources of Financial Information
Published Financial Reports
The firm’s financial Statement contained in the annual report is the end products of the accounting
process. To report on the progress of a firm during the year, most publically held companies also issue
interim reports each quarter. Interim reports focus primarily on the income statement and contain
summary data rather than a full set of financial statements. Still, they provide additional information for
evaluating the financial position and the profitability of the firm’s operations. Unlike the annual reports,
however, interim reports are unaudited.
Annual and interim reports are two of the primary means by which management communicates
information about the firm to interested parties. In addition to the financial statement. These reports
generally contain the auditor’s report. Schedules and explanatory notes. And a discussion and analysis of
the firms operation by management. An analysis of the published reports should include, at a minimum, a
review of these components, for example the auditor’s report tells the reader that the statements were
audited, and whether the statements are fairly presented in accordance with generally accepted
accounting principles .Major concerns of the auditors will also be discussed in the report. A review of the
notes will indicate the accounting policies followed by the company.
Reports filed With the SEC
Probably the most detailed information available on publicly held companies in contained in the reports
that must be filled with Securities and Exchange Commission (SEC) .these reports include.
Form S-1 A report that must be filed when a firm wishes to offer securities for sale to public. From S-1
contain financial information about the company, its management and management’s plan for the use of
the money received from the sale of the proposed securities.
Form 10-K. An annual report that is more detailed than the published annual report provided to
stockholders.
Form 10-Q. A quarterly report of summarized financial information.
Form 8-k. A special report filed whenever any significant events occur such as a change in top
management.
2. These reports are available to the public on request.
Advisory Services And Financial Publications
Financial advisory services, such as Moody’s investors Services and standard and Poor’s Corporation, also
Publish financial data about both publicly and privately owned companies; these are normally not as
detailed as the SEC reports or the Company Reports. The advantages of advisory service reports are their
accessibility since they are found at most public and university libraries.
A comparison of the company under study with firms in a similar line of business and with industry norms
is also useful. Industry data are available from a number of financial services. For examples, Robert Morris
Associates Annual statement studies provide income statement and balance sheet data and 16 financial
ratios for many industries. Dun & Bradstreet publishes an industry Norms and key business Ratios book
that contains typical balance sheet, income statements and 14 selected financial ratios for over 800
different lines of business. The 14 ratios for the most recent year. By industry groups are also published in
key business Ratios by Dun & Bradstreet. Individual company and industry analyses are also available
from stock brokerage firms. An abundance of useful information is found in various economic and
financial newspapers and magazines such as the Wall street Journal, Forbes, Fortune, Business week, and
Barron’s.
In making comparisons with other companies, we must recognize that the company under review may not
be similar to other companies because of diversification into other product lines .Also, because of
diversification; industry data may not clearly resemble the company under study. In such cases, we
attempts to identify the industry that the company best fits and uses that industry data and companies in
that industry group for comparison.
The Need for Analytical Techniques
Information contained in the various sources of financial data is expressed primarily in monetary terms.
When the absolute dollar amounts for most items reported in the financial statements are considered
individually, they are generally of limited usefulness. Significant relationships may not be apparent from a
review of absolute dollar amounts. Because no indication is given whether a particular item is good or bad
for a firm. For example merely knowing that a company reported earnings of $100000 for the current year
is of limited use unless the amount is compared to other information such a last year’s earnings, the
amount is compared to other information, such as last year’s earnings, the amount of capital invested, the
current year’s sales, the earnings of other companies in the same business or some predetermined
amount budgeted by the firm.
To simplify the identification of significant changes and relationships. The dollar amount reported in the
financial statement is frequently converted into the percentages or ratios by the statement user. Some
commonly recognized percentages are sometimes shown in supplementary schedules to the financial
statement as part of the firm’s annual report. The analysis of relationship between dollar amounts of each
item to same base amount is referred to as horizontal analysis and vertical analysis. Ratio analysis is the
interpretation of the relationship between two items. Such as current assets to current liabilities.
3. Objectives of Financial Statement Analysis
Percentage analysis and ratio analysis have been developed to provide and effective means by which a
statement user can identify.
1. Important relationship between items in the statements and
2. Trends in financial data percentages and ratio simplify the evaluation of financial conditions and
past operating performances.
The information is used primarily to forecast a firm’s ability to pay its debts when due and to operate at a
satisfactory profit level. However because the analytical techniques
Are almost limitless as are the user’s special interests and objectives the choice of
Proper ratio and percentages must fit their specific purposes. For example some users
of financial data are concerned with evaluating the firm’s ability to produce enough cash to pay its short
term debts when they mature and still have sufficient cash left to carry out its other activities. The
concern with a firm’s short-term debt-paying ability is called liquidity. The focus of this type of
investigation is generally on the firm’s current assets and current liabilities.
Other users, such a long-term creditors and stockholders. Want to know about a firm’s liquidity, but are
also interested in the business ability to pay its long-term obligations. This long-term focus deals with a
firm’s solvency. In this analysis the statement user assesses the financial structure of the firm and its use
of financial leverage. The objective is to evaluate the prospects for operating at an earnings level
adequate to provide sufficient cash for the payment of interest. Dividends and debt principal.
Percentage Analysis
1. Horizontal Analysis
An analysis of the change in individual financial statement items from year to year is called
horizontal analysis; Horizontal analysis of the preceding year’s financial statement is generally
performed as a starting point for forecasting future performance. Most firms’ annual reports
include financial statements for the two most recent years and selected summary data for five to
ten year. Financial statements presented for the same company for two or more years are called
Comparative Statements.
4.
5. In horizontal analysis, the individual items or groups of items on comparative financial statements are
generally first placed side by side, as they are in the first columns of figures. Because it is difficult to
compare absolute dollar amounts, the difference between the dollar amount of one year and the next is
computed in both dollar amounts and percentage change. In computing the increase or decrease the
earlier year is used as the base year. The percentage change is computed as follows:
Percentage Change= 100(Dollar Amount of change )
Dollar amount in previous year
For Example From 1990 to 1991 the cash account of ABC Corporation increased by 90 the percentage
change is 30%.
A percentage change can only be computed when a positive amount is reported in the base year. The
amount of change cannot be stated as a percentage if the item in the base year was reported as a
negative or a zero amount.
We must also be careful when the dollar amount in the base year is small because a small absolute change can result
in a substantial percentage change.For example, assume that net income was $100 last year and increased
to $300 in the current year. This is an increase of only $200 in income. But is a 200% increase in
percentage term such a large percentage change may create a misleading impression.
A review of the percentage increase or decrease will reveal those items that showed the
Most significant change between the periods under study. Important and unusual changes such as a
significant percentage change in sales should be investigated further by the analyst. The objective of the
investigation is:
1) To determine the cause of the change
2) To determine whether the change was favorable or unfavorable.
3) To attempt to assess whether a trend is expected to continue.
WE must also consider changes in other related items. For example when reviewing the percentage changes
in the balance sheet accounts included in figure. Attention is directed to the change is in the plant and
equipment because of the size and direction of the change 44.4% increase the cause of the change is
favorable or unfavorable, We must need to seek further answers to such question as how is the added
investment being financed, is the expansion going to cause severe cash flow problems? Are sales markets
adequate to support the additional output? What is the impact of Expansion on income? Answer To these
questions and announcements made by management, will assist us in determining whether further
expansion is expected to continue and to be effective. We may look to the balance sheet, the income
statement. The statement of cash flow. And supplementary disclosures for additional data in answering
these questions.
Sales in figure increase 7.7% by itself a favorable trend. However the rate of increase in cost of Goods sold
was 10.7% and selling expenses increased by 30.1% thus during the period the firm was unable to maintain
its profit margin percentage. It appears that the increase in sales is a least partially the result of an increased
sales effort. These items warrant further investigation by us if we are concerned with the profitability and
long term future of the firm. in this case the we should try to determine whether inventory cost are
continuing to increase , the extent of competitive pressures on the revenues of the firm and the effect of
the increased selling expenses on future sales.
6. Trend Analysis
Trend analysis is commonly employed when financial data are presented for three or more years. In this analysis,
the base year is the first year that data are reported. Each financial statement item of the base year is set equal
to 100.In subsequent years statement item are stated as a percentage of their value in the base year as follow:
Index=100(Dollar amount in index year)
Dollar amount in base year
For Example, Assume that sales and net income were reported for the last five years as shown:
It is clear that the dollar amount of both sales and net income are increasing .However, the relationship
between the change in sales and net income can be interpreted more easily. If the changes are expressed in
percentages as shown here
Now it can be seen that net income is increasing more slowly than sales.
The relationship between sales and net income is only one trend to review. The trend in other accounts should
also be investigated, particularly since the level of net income is affected not only by sales but also by the firm’s
expenses. In this case, it is possible that the firms inventory cost are increasing faster than selling prices. Or the
increase in sales may be the result of granting liberal credit terms. Which are resulting in larger bad debt
expenses? The important point is that other related operating data must be also reviewed before drawing a
conclusion about significance of one particular item. The overall objective is to evaluate various related trends and
attempts to assess whether the trends can be expected to continue.
Vertical Analysis
Horizontal analysis compares the proportional changes in a specific item from one period to the next. Vertical
analysis involves restating the dollar amount of each item on the same statement. This item is referred to as the
base amount. For example, on the balance sheet, individual components are stated as a percentage of total assets
or total liabilities and stock holder’s equity. on the income statement , net sales or total revenue are usually set
7. equal to a base of 100%, with each income statement item expressed as a percentage of the base amount. Such
statements are often called common size statement since all the items are presented as a percentage of some
common base amounts.
Vertical analysis is also an important tool for comparing data to other standards such as the past performance of
the firm. The current performance of competing firms, and averages developed for the industry in which the firm
operates.
Ratio Analysis
A financial statement ratio is computed by dividing the dollar amount of one item reported, the purpose is to
express a relationship between two relevant items that is easy to interpret and compare with other information
.for example the relationship of current assets to current liabilities. Called current ratio. is of interest to most
financial statement users. For a firm reporting current asset of $210000 and current liabilities of $120000 the
current ratio is 1.75. This means that the company has$1.75 in current asset for every $1 of its current liabilities.
The relationship could be converted to a percentage, 175% by multiplying the ratio by 100.in ratio form, or as a
percentage, the relationship between the two items can be more easily compared to other standards, such as the
current ratio of other companies or an industry wide ratio.
Relevant relationship can exist between items in the same financial statement or between items reported in two
different statements; so many ratios can be computed. We must give careful thought to which ratios best express
the relationship relevant to the area of immediate concern. The user must keep in mind that a ratio shows a
significant relationship that may have little significance when used alone. Consequently, to evaluate the adequacy
of a certain relationship, the ratio should be compared to other standards such as an industry average and the
historical record of the company understudy.
Ratios are classified according to their evaluation of a firm’s profitability, liquidity, and solvency.
Ratios To Analyze Profitability
Profitability analysis consists of tests used to evaluate a firm’s earning performance during the year. The result are
combined with other data to forecast the Firm’s potential earning power, which is more important to managers,
long-term creditors, and stock holders because , in the long run, the firm must operate at a satisfactory profit to
survive. Potential earning power is also significant for other statement users. Such as suppliers and labor unions,
who are interested in maintaining a continuing relationship with a financially sound company? A firm’s financial
soundness depends on its future earning power.
Adequacy of earnings is measured in terms of the relationship between earnings and either total assets or
common stockholder’s equity, the relationship between earnings and sales, and the availability of earning to
common stockholders. If earning appears to be inadequate, the next step is to determine why. Is the sales volume
too low? Are the costs of goods sold and or other expenses too high? Is the investment in assets excessive in
relation to the firm’s sales?
Rate of Return on Total Assets
Rate of return on total assets is determined by dividing the sum of net income plus after-tax interest expense by
average total assets for the year:
8. Return on Total Assets= Net Income + Interest Expense (Net of tax)
Average total Asset
Interest expense (net of tax) is computed as:
Interest Expense X (1.0- income tax rate)
Interest expense is added back to net income in the numerator to derive the total return earned on the total assets
used, Regardless of how they were acquired. In other words, interest expense is a return to the creditors for the
use of their money to finance the acquisition of assets. The net of tax interest expense is used because it is the net
cost to the firm for using borrowed funds; Average total assets are used in the denominator because the earnings
were produced by employing resources throughout the period. The sum of the beginning and ending total assets is
divided by two to compute average total assets. If sufficient information is available, a monthly or quarterly
average would be preferred to minimize the effects of seasonal fluctuations.
The management of XYZ Corporation produced a return on averaging total assets of 11.0% in 1991 and 13.5% in
1990 as computed below assuming the tax rate was 21 and 26% respectively:
1991 1990
558+252(1.00-.21) = 11.0% 690+230(1.00-.26) = 13.5%
(6,300+7,440)/2 (6,400 +6300)/2
During 1991, Management produced approximately 11 cents in profit for every dollar of asset invested, compared
with 13.5 cents for every dollar in 1990.The decrease in the ratios between the two years is significant and result
from decreased net income combined with an increased investment base. Such a decrease highlights the need for
further investigation by us.
Rate of Return on Common Stockholder’s Equity
The return on total assets does not measure the return earned on the assets invested by the common
stockholders. The return to the common stockholders may be greater or less than the return on total assets
because of the firm’s use of financial leverage. Financial leverage is the use of borrowed funds or other financing
sources, such as preferred stock, to earn a return greater than the interest or dividends paid to the creditors or
preferred stockholders, If a firm is able to earn more on these funds than the amount that must to be paid to the
creditors or preferred stockholders, the return to the common stockholders will be greater than the return on total
assets. If the amount earned on the funds is less than the return on total assets. The rate of return to common
stockholders may be computed as:
Return on Common Stockholder’s equity= Net income-Preferred stock dividend Requirements
Average Common Stockholders’ Equity
The preferred dividend requirement is subtracted from net income to yield the portion of net income allocated to
the common stockholder’s equity. The denominator excludes the preferred stockholder’s equity in the firm.
9. The Computation for ABC Corporation are shown here:
Note that these rates are higher that the corresponding returns computed on total assets because the company
earned a return on the assets financed by the creditors and preferred stockholders greater than the interest or
dividends paid to them. However, the percentage decreased from 26 in 1990 to 17.1 in 1991 a decrease worthy of
further investigation.
Return on sales
Return on sales-also called the profit margin is called during a vertical analysis of income statement, it reflects the
portion of each dollar of sales that represents net income. Return on sales is computed by dividing net income by
net sales.
Return on sales= Net Income
Net Sales
For ABC Corporation the rates are
1991 1990
558
5%
690
7%
10320 9582
For 1991, each Dollar of sales produced 5 cent in net income. Consistent with other ratios computed, this is
measure shows a declining profitability trend for the firm. The ratio should, ofcource, be compared to other
standards to be more useful. If the return on sales for competing firms is 4.5% for example, the 5% appears
favorable. Even so, other data, such as increases in major expenses, should be investigated further because some
problem areas or Poor management practices could be discovered to explain the decline between the two years.
10. Earnings Per Share
The Earning per share (EPS) of common stock is widely used in evaluating a firm’s financial performance; the ratio
is commonly used to compile earning data for the press and for statistical services. It is a well-publicized ratio
because its converts the absolute dollar amount of net income to a per share amount. That is, the EPS ratio is the
amount of net income earned on one share of stock it is computed as follows:
EPS=
Net income -Preferred stock dividend Requirements
Weighted Average Number of Common shares outstanding
In the ABC Corporation illustration, the calculations are
1991 1990
558-30
$3.52
690-30
$5.50
150 120
The average number of common shares outstanding is computed on a weighted average basis. The weighted
average is based on the number of months that the shares were outstanding .The average number of shares for
1990 and 1991 is computed on the assumption that 120000, shares were outstanding during 1990 and that 30000
additional shares were issued at the beginning of 1991.
The EPS ratio means that for 1991 the firm earned $3.52 per share of common stock outstanding .current generally
accepted accounting standards require that the EPS must be disclosed on the face of the income statement.
Price –Earnings Ratio
The price-Earnings Ratio (P/E ratio) indicates how much investors are currently paying for each dollar of earnings.
It enhances a statement user’s ability to compare the market value of one common stock, relative to earnings to
that of other companies. The ratio is computed by dividing the current market price of share of common stock by
the Earning per share.
P/E Ratio = Market Price per share of Common Stock
Earnings per share
Assuming a market price of $40 per share ABC Corporation common stock on December 31, 1991 the P/E ratio is
computed as follows:
40
11.36 times
3.52
11. The Common stock of ABC Corporation is said to be selling for 11.4 times its earnings.
P/E ratios vary widely since they represent investor’s expectations about the future earnings power of company.
Thus high P/E ratios are associated with companies with prospects of high earning growth. Whereas more stable
firms have lower P/E ratios. For example in the early part of 1988. Companies associated with high technology
generally had high P/E ratios. Apple computer had a P/E of approximately 27. On the other hand, companies in the
auto industry had low P/E ratio-Ford Motor Company and General Motors had P/E ratios of 5 and 7 respectively.
Dividend Yield
The dividend yield is normally computed by investors who are primarily investing in common stock for dividends,
rather than for appreciation in the market price of the stock. The percentage indicates a rate of return on the
dollars invested and permits easier comparison to returns from alternative investment opportunities. The dividend
yield is computed as follows:
Dividend Yield Annual Dividend per share of Common Stock
Market Price Per share of Common Stock
Cash Dividends of $150000 ($1 per share) were paid during 1991 to the common stockholders of ABC Corporation,
Assuming market price of $40 per share, the Dividend yield is computed as follows:
1
2.50%
40
The $150000 can be verified as follows
Retained Earnings 1/1/91 1100000
Add : Net income 558000
Less :Cash dividend
Preferred stock 30000
Common stock 150000 180000
Retained Earning 31/12/1991 $1,478,000
Dividend per share as follows
Dividend Per share Dividends to Common stockholders
Number of Common share outstanding
12. $150,000
150000 shares
$1 per shares
Dividend Payout
Investors interested in dividend yields may also compute the percentage of common stock earnings distributed as
dividends to the common stock-holders each period. This ratio is referred to as the dividend payout ratio.
Dividend payout= Total dividend to Common Stockholders
Net Income- Preferred Stock Dividend Requirements
For ABC Corporation, The 1991 ratio is computed below:
150
28%
558-30
The Ratio provides an investor with some insights into management’s Policy of distributing dividends as a
percentage of net income available to common stockholders .A low payout ratio would indicate that management
is reinvesting earnings internally. Such a Company would be desirable for someone interested in investing for
growth in the market price of the shares. A Company with a consistently high payout ratio would appeal to an
investor who depends on dividends as a source of current income (e.g. retired individual).
Ratios To Analyze Liquidity
Liquidity- that is, the firm’s ability to meet its short-term obligation-is an important factor in financial statement
analysis, After all, a firm that cannot meet these obligation may be forced into bankruptcy and will not have the
opportunity to operate in the long run. The focus of this type of analysis is on working capital or some components
of working capital.
Current Ratio
Perhaps the most commonly used measure of a firm’s liquidity is the current ratio which is computed as follows:
Current Ratio=
Current Assets
Current Liabilities
13. The current ratio measure the Creditors Margin of safety in being paid. It indicates the relationship of current
assets to current liabilities on a dollar per dollar basis. A low ratio may mean that the firm would be unable to
meet its short-term debt in an emergency. A high ratio is considered favorable to creditors, but may indicate
excessive investment in working capital items, such as holding slow selling inventory. That may not be producing
income.
Analysts often contended that the current ratio should be at least two to one. In other words, a firm should
maintain $2 of current asset for every $1 of current liabilities. Although such a rule is one standard of comparison,
it is arbitrary and subject to exception and numerous qualifications in the modern approach to statement analysis.
Deviations from 2:1 rule nevertheless indicate an area in which additional tests are needed to evaluate the time
meeting its shot-term commitment therefore, to assess its liquidity the quick ratio and turnover ratios discussed
below and the company’s cash flow should be carefully investigated.
The current ratios for ABC Corporation for 1991 and 1990 are:
1991 1990
4340
2.47
3900
2.44
1760 1600
ABC Corporation shows a slight improvement in the relationship between current assets and current liabilities and,
in the absence of other information, would be considered liquid, at least in the short run. However, a ratio of 2.4
or higher may signify excessive investment in current assets that is a high ratio may indicate that the company is
holding too many assets that are not producing revenue.
Quick Ratio
One of the limitations of the current ratio is that it include inventory and prepaid expenses in the numerator,
however, these items are not as liquid as cash, marketable securities, notes receivable, or accounts receivables. In
the normal course of business. Inventories must first be sold and the cash must be collected before its is available,
also most prepaid expenses, such as prepaid insurance, are to be consumed and cannot be readily converted into
cash’s ratio used to supplement the current ratio that provides a more rigorous measure of liquidity is the quick
ratio or acid test ratio. As it is sometimes called. The quick ratio is computed by dividing the sum of the most liquid
current assets-generally cash, short-term marketable securities and net current receivable-by the current liabilities
as follows:
Quick Ratio=
Cash +Marketable Securities + Net Receivables
Current liabilities
The higher the ratio, the more liquid the firm is considered, A lower ratio may indicate that, in an emergency, the
company would be unable to meet its immediate obligations.
14. The Quick ratios for ABC Corporation are computed as follows:
1991 1990
Cash $390 $300
Marketable Securities 380 440
Account Receivable (Net) 1460 1290
Total quick Assets $2,230 $2,030
1991 1990
2230
1.27
2030
1.27
1760 1600
A Ratio of 1.27:1 in both years shows that the firm is highly liquid. However, this observation is somewhat
dependent on the collectability of the receivables included in the numerator.
The current ratio and quick ratio measure the adequacy of the firm’s current assets to satisfy its current obligations
as of the balance sheet date.However, these ratios ignore how long it takes for a firm to collect cash-an important
aspect of the firm’s liquidity, since receivables and inventories normally makeup a large percentage of a firm’s
current assets, The quick ratio and current ratio may be misleading if there is an extended interval between
purchasing inventory, selling it, and collecting cash from the sale. Thus, the receivable turnover and inventory
turnover ratios are two other liquidity measures that often yield additional information. These turnover ratios are
sometimes called activity ratios.
Receivable Turnover
The receivable turnover ratio is a measure of how many times the average receivable balance was converted into
cash during the year. It is also considered a measure of the efficiency of the firm’s credit-granting and collection
policies it is computed as follows:
Receivable Turnover= Net sales
Average Receivable Balance
The higher the receivable turnover ratio, the shorter the time period between recording a sale and collecting the
cash. To be competitive, the firm’s credit policies are influenced by industry practicing. Comparison of this ratio to
industry norms can reveal deviations from competitors operating results.
15. In computing this ratio, credit sales should be used in the numerator whenever the amount is available, however,
such information is normally not found in financial statements, and so net sales are substituted. An average of
monthly receivable balance should be used in the denominator. In the absence of monthly information, the year-
end balance, an average of the beginning of the year and end of the year balances, or averages of quarterly
balances are used in the calculation. The average of the receivable balance is used because net sales earned over a
period of time. Therefore the denominator should approximate what the receivable balance was throughout the
period.
The computation for ABC Corporation is:
1991 1990
10320 7.51
times
9582
7.34 times
(1290+1460)/2 (1320+1290)/2
Frequently, the receivable turnover is divided into 360 days to derive the average number of days its takes to
collect receivables from sales on account.
1991 1990
360 days 48.0
days
360 days
49.0 days
7.51 7.34
During 1991, the corporation collected the average account receivables balance 7.51 times. Expressed another
ways, it took an average of 48.0 days to collect sales on account, an improvement of one day over 1990.these
measures are particularly useful if one knows the credit terms granted by the firm. Assuming credit terms of 60
days, the average 48-to -49 day collection period shows that the firm’s credit policy is effective and firm probably is
not burdened by excessive amounts of uncollectible accounts that have not been written off. A collection period
significantly in excess of 60 days indicates a problem with either the granting of credit, collection policies or both.
Inventory Turnover
The control of the amount invested in inventory is an important aspect of managing a business, the size of
investment in inventory and inventory turnover depend on such factors as type of business and time of year, A
grocery store has higher turnover that an automobile dealership. The inventory level of a seasonal business is
higher at certain times in the operating cycle that at others. The inventory turnover ratio is a measure of the
adequacy of inventory and how efficiently it is being managed. The ratio is an expression of the number of times
the average inventory balance was sold and then replaced during the year. The ratio is computed as follows:
Inventory Turnover=
Cost of Goods Sold
Average Inventory Balance
Cost of Goods sold, rather than sales, is used in the numerator because (1) it is a measure of the cost of inventory
sold during the year and (2) the cost measure is consistent with the cost basis of the denominator. Ideally, an
average monthly inventory balances should be computed. But this information is generally not available to
16. external parties in published reports. A quarterly average can be computed if quarterly interim reports are
published by the firm.
The inventory turnover ratios for ABC Corporation using the average of beginning and ending inventories are:
1991 1990
7719 4.08
times
6975 3.84
times(1770+2010)/2 (1860+1770)/2
The average days per turnover can be computed by dividing 360 days by the turnover ratio.
1991 1990
360 days 88.2
days
360 days
93.8 days
4.08 3.84
The turnover ratio indicates that the average inventory was sold 4.08 times during the year, as compared to 3.84
times in 1990.in terms of days the firm held its inventory approximately 88 days in 1991 before it was sold,
compared to about 94 days in 1990.
The increased turnover in 1991 is generally considered a favorable trend. Inventory with a high turnover is less
likely to become obsolete and decline in price before it is sold. A higher turnover also demonstrates greater
liquidity, since the inventory will be converted into cash in a shorter period.Howerver, given the nature of the
firm’s business, a very high turnover may indicate that the company in carrying insufficient inventory and is losing
a significant amount of sales.
Ratios to Analyze Solvency
Another important use of financial statement analysis is to evaluate a firm’s solvency, or its ability to meet
commitments arising from utilizing financial leverage, in the long run. A firm uses financial leverage whenever its
finances a portion of its assets by borrowing or by issuing preferred stock. Issuing bonds to finance the purchase of
plant assets is an example of using financial leverage. Debt of the firm carries two obligations: one to make interest
payments on specified dates and the other to repay the principal when it matures. If a firm fails to meet these
commitments, the bondholders can force the firm into bankruptcy, thus, borrowing increases the risk of default.
The advantage to the common stockholders is that their return may be increased if the return earned on the funds
borrowed is greater than the cost of the debt.AS a result, managers, long-term creditors, short term creditors and
stockholders are all concerned with the amount of financial leverage a firm employs.
Several ratios are used to analyze a firm’s solvency; one approach focuses on the firm’s ability to meet its interest
commitments as indicated by the income statement, while second ratio considers the firm’s ability to carry debts
as indicated by the balance sheet.
Debt to Total Assets
The percentage of total assets financed by creditors indicates the extent to which the firm uses debt financing .The
ratio of debt to total assets, also called the debt ratio. Measures the relationship between total liabilities and total
assets and is computed as follows:
17. Debt to Total Asset=
Total Liabilities
Total Assets
A high debt to total assets ratio indicates a greater risk of default and less protection for the creditors, this
percentage is important to long-term creditor and stockholders, since the creditor have a prior claim to assets in
the event of liquidation. That is the creditors must be paid in full before assets are distributed to stockholders, the
greater the percentage of assets invested by stockholders, the greater the protection to the creditors.
1991 1990
3660
49.20%
3300
52.40%
7440 6300
Thus, for both years, approximately 49 to 52% of the assets were provided by the firm’s creditors.
Because of the trade-off between increased risks for potentially greater returns to common stockholders, no single
percentage is considered best in all cases. Other things being equal, firms with stable income can issue a greater
percentage of debt than firms with volatile income. Stable income levels enable a statement user to better predict
from period to period the level of debt costs that can be paid with cash generated by operation.
Times Interest Earned
The times interest earned ratio is an indication of the firm’s ability to satisfy periodic interest payments from
current earnings. The rough rule of thumb is that the company should earn three to four times its interest
requirement. Since current interest charges are normally paid from funds provided by current operations, we
frequently compute the relationship between earning and interest.
Times Interest Earned=
Net Income+ Interest Expense+ Income Tax Expense
Interest Expense
Interest expense and income tax expense are added back to net income in the numerator because the ratio is a
measure of income available to pay the interest charges for ABC Corporation, the ratios are shown below:
1991 1990
Net income $558 $690
Interest Expense 252 230
Income Tax Expense 144 237
Totals $954 $1,157
18. 1991 1990
954
=3.79
1157
=5.03
252 230
In 1990, earnings before interest and income taxes were 5.03 times interest expense. This ratio declined to 3.79 in
1991.the 1991 result is Marginal, but it is still an adequate coverage according to the rule of Thumb, However, the
result should be considered in relation to other trends in the company’s financial status, especially the trend in this
ratio, and in comparison with other standards, such as industry averages.
Limitations of Financial Analysis
The analytical techniques introduced in this are useful for providing insights into the financial position and results
of operations of a particular firm. Statement users must be careful in interpreting trends and ratios computed from
reported financial statements, certain basis limitations and an explanation of each follow:
1. Financial analysis is performed on historical data primarily for the purpose of forecasting future
performance. The historical relationship may not continue because of changes in:
a) The general state of economy
b) The business environment in which the firm must operate
c) Management
d) The Policies established by management
2. The measurement base used in computing the analytical measures in historical cost. Failure to
adjust for inflation or for changes in fair value may result in some computations providing
misleading analysis of trends and comparisons between companies. For example, the return on
total asset includes net income in the numerator, which is affected by the current year’s sales
and current operating expenses measured in current dollars. However, fixed assets and other
nonmonetary items are measured in historical dollars, which are not adjusted to reflect current
price levels, thus the ratio divides items primarily measured in current dollar amounts by a total
measured primarily in terms of historical dollars.
3. Year-end data may not be typical of the firm’s position during the year. Knowing that certain
ratios are computed at year-end, management may improve a ratio by entering into certain
types of transactions near the end of the year, for example, the current ratio can be improved by
using cash to pay off short-term debt. To illustrate, assume that a firm reported current assets of
$200000 and current liabilities of $100000 before paying $50,000 on account payable. The
payment will increase the current ratio as shown here:
Before Payment Payment
After
Payment
Current assets $200,000 $50,000 $150,000
Current Liabilities 100,000 50,000 50,000
19. Also, a firm usually establishes a fiscal year-end that coincides with the low point of activity in its
operating cycle. Therefore, account balances such as receivables, payables, and inventory may
not be representative of the balances carried in these accounts during the year.
4. Companies may not be comparable. Data among companies may not provide meaningful
comparisons because of such factors as the use of different accounting methods, estimates made
by company management the size of the companies, and diversification of product lines.
The selection of a particular accounting method or estimate can have significant effect on net income and financial
position of a firm. Using accounting methods or making estimates that result in reporting the lowest net income In
the current period is considered a conservative approach to income measurement. For example, in a period of
increasing inventory prices, the last in, first out (LIFO) inventory method results in the lowest net income, so it is
conservative. First in, first out (FIFO) is the least conservative inventory method when prices are increasing .To use
a 5 year period to amortize an intangible asset rather than a 40-year period is another example of conservatism. As
Financial analysts we carefully review such policies to assess what is called the quality of earnings. A firm that
follows more conservative policies is considered to have a high quality of earnings.
Current Ratio 200,000
2
Current Ratio 150,000
3
100,000 50,000