Financial Analysis n Competitive position: Revenue/Costs/Trends(Competitors) n Market Opportunities/Threats n Profitability vs. Market: Products/Areas/ Customers/Distribution Channels/Costs n Global Market Financial Analysis nCompetitive position: Revenue/Costs/Trends(Competitors) nMarket Opportunities/Threats nProfitability vs. Market: Products/Areas/ Customers/Distribution Channels/Costs nGlobal Market Financial Ratios - Other Price/earning ratio Dividend payout ratio Dividend yield on common stock How Formula Expressed Meaning Market price per share————————— Earnings per share Decimal Percentage Percentage Shows the current market’s evaluation of a stock, based on its earnings; shows how much the investor is willing to pay for each dollar of earnings. Indicates the percentage of profit that is paid out as dividends. Indicates the dividend rate of return to common shareholders at the current market price. Annual dividends per share———————————— Annual earnings per share Annual dividends per share——————————————— Current market price per share Note: In using ratios for analysis, calculate ratios for the corporation and compare them to the average and quartile ratios for the particular industry. Refer to Standard and Poor’s and Robert Morris Associates for average industry data. Special thanks to Dr. Moustafa H. Abdelsamad, Dean, Business School, Texas A&M University–Corpus Christi, Corpus Christi, Texas, for his definitions of these ratios. Financial Ratios -Other Price/earning ratio Dividend payout ratio Dividend yield on common stock How Formula Expressed Meaning Market price per share ————————— Earnings per share Decimal Percentage Percentage Shows the current market’s evaluation of a stock, based on its earnings; shows how much the investor is willing to pay for each dollar of earnings. Indicates the percentage of profit that is paid out as dividends. Indicates the dividend rate of return to common shareholders at the current market price. Annual dividends per share ———————————— Annual earnings per share Annual dividends per share ——————————————— Current market price per share Note:In using ratios for analysis, calculate ratios for the corporation and compare them to the average and quartile ratios for the particular industry. Refer to Standard and Poor’s and Robert Morris Associates for average industry data. Special thanks to Dr. Moustafa H. Abdelsamad, Dean, Business School, Texas A&M University–Corpus Christi, Corpus Christi, Texas, for his definitions of these ratios. Financial Ratios - Activity Inventory turnover Days of inventory Net working capital turnover Asset turnover Fixed asset turnover Average collection period Accounts receivable turnover Accounts payable period Days of cash How Formula Expressed Meaning Net sales——————— Inventory Decimal Days Decimal Decimal Decimal Days Decimal Days Days Measures the number of times that average inventory of finished goods ...

1. Financial Analysis
n Competitive position:
Revenue/Costs/Trends(Competitors)
n Market Opportunities/Threats
n Profitability vs. Market: Products/Areas/
Customers/Distribution Channels/Costs
n Global Market
Financial Analysis
nCompetitive position:
Revenue/Costs/Trends(Competitors)
nMarket Opportunities/Threats
nProfitability vs. Market: Products/Areas/
Customers/Distribution Channels/Costs
nGlobal Market
Financial Ratios - Other
Price/earning ratio
Dividend payout ratio
Dividend yield on
common stock
How
Formula Expressed Meaning

2. Market price per share—————————
Earnings per share Decimal
Percentage
Percentage
Shows the current market’s evaluation
of a stock, based on its earnings;
shows how much the investor is willing
to pay for each dollar of earnings.
Indicates the percentage of profit that
is paid out as dividends.
Indicates the dividend rate of return to
common shareholders at the current
market price.
Annual dividends per share————————————
Annual earnings per share
Annual dividends per share———————————————
Current market price per share
Note: In using ratios for analysis, calculate ratios for the
corporation and compare them to the average and quartile ratios
for
the particular industry. Refer to Standard and Poor’s and Robert
Morris Associates for average industry data. Special thanks
to Dr. Moustafa H. Abdelsamad, Dean, Business School, Texas
A&M University–Corpus Christi, Corpus Christi, Texas, for
his definitions of these ratios.
Financial Ratios -Other
Price/earning ratio

3. Dividend payout ratio
Dividend yield on
common stock
How
Formula Expressed Meaning
Market price per share
—————————
Earnings per share
Decimal
Percentage
Percentage
Shows the current market’s evaluation
of a stock, based on its earnings;
shows how much the investor is willing
to pay for each dollar of earnings.
Indicates the percentage of profit that
is paid out as dividends.
Indicates the dividend rate of return to
common shareholders at the current
market price.
Annual dividends per share
————————————
Annual earnings per share
Annual dividends per share
———————————————
Current market price per share
Note:In using ratios for analysis, calculate ratios for the
corporation and compare them to the average and quartile ratios
for
the particular industry. Refer to Standard and Poor’s and Robert
Morris Associates for average industry data. Special thanks
to Dr. Moustafa H. Abdelsamad, Dean, Business School, Texas
A&M University–Corpus Christi, Corpus Christi, Texas, for
his definitions of these ratios.

4. Financial Ratios - Activity
Inventory turnover
Days of inventory
Net working capital
turnover
Asset turnover
Fixed asset turnover
Average collection
period
Accounts receivable
turnover
Accounts payable
period
Days of cash
How
Formula Expressed Meaning
Net sales———————
Inventory Decimal
Days
Decimal
Decimal
Decimal
Days

5. Decimal
Days
Days
Measures the number of times that average inventory of
finished goods was turned over or sold during a period of
time, usually a year.
Measures the number of one day’s worth of inventory that
a company has on hand at any given time.
Measures how effectively the net working capital is used
to generate sales.
Measures the utilization of all the company’s assets;
measures how many sales are generated by each dollar
of assets.
Measures the utilization of the company’s fixed assets
(i.e., plant and equipment); measures how many sales
are generated by each dollar of fixed assets.
Indicates the average length of time in days that a
company must wait to collect a sale after making it; may
be compared to the credit terms offered by the company
to its customers.
Indicates the number of times that accounts receivable
are cycled during the period (usually a year).
Indicates the average length of time in days that the
company takes to pay its credit purchases.
Indicates the number of days of cash on hand, at present
sales levels.
Inventory———————————
Cost of goods sold ÷ 365
Net sales—————————
Net working capital

6. Sales—————————
Total assets
Sales———————
Fixed assets
Accounts receivable—————————
Sales for year ÷ 365
Annual credit sales—————————
Accounts receivable
Accounts payable————————————
Purchases for year ÷ 365
Cash———————————
Net sales for year ÷ 365
Financial Ratios -Activity
Inventory turnover
Days of inventory
Net working capital
turnover
Asset turnover
Fixed asset turnover
Average collection
period
Accounts receivable
turnover
Accounts payable
period
Days of cash
How
Formula Expressed Meaning
Net sales

7. ———————
Inventory
Decimal
Days
Decimal
Decimal
Decimal
Days
Decimal
Days
Days
Measures the number of times that average inventory of
finished goods was turned over or sold during a period of
time, usually a year.
Measures the number of one day’s worth of inventory that
a company has on hand at any given time.
Measures how effectively the net working capital is used
to generate sales.
Measures the utilization of all the company’s assets;
measures how many sales are generated by each dollar
of assets.
Measures the utilization of the company’s fixed assets
(i.e., plant and equipment); measures how many sales
are generated by each dollar of fixed assets.
Indicates the average length of time in days that a
company must wait to collect a sale after making it; may
be compared to the credit terms offered by the company
to its customers.
Indicates the number of times that accounts receivable
are cycled during the period (usually a year).
Indicates the average length of time in days that the
company takes to pay its credit purchases.
Indicates the number of days of cash on hand, at present
sales levels.
Inventory
———————————

8. Cost of goods sold ÷365
Net sales
—————————
Net working capital
Sales
—————————
Total assets
Sales
———————
Fixed assets
Accounts receivable
—————————
Sales for year ÷365
Annual credit sales
—————————
Accounts receivable
Accounts payable
————————————
Purchases for year ÷365
Cash
———————————
Net sales for year ÷365
Financial Ratios - Liquidity
Current ratio
Quick (acid test) ratio
Inventory to net
working capital
Cash ratio

9. How
Formula Expressed Meaning
Current assets
—————————
Current liabilities
Decimal
Decimal
Decimal
Decimal
A short-term indicator of the company’s
ability to pay its short-term liabilities
from short-term assets; how much of
current assets are available to cover
each dollar of current liabilities.
Measures the company’s ability to pay
off its short-term obligations from
current assets, excluding inventories.
A measure of inventory balance;
measures the extent to which the
cushion of excess current assets over

10. current liabilities may be threatened by
unfavorable changes in inventory.
Measures the extent to which the
company’s capital is in cash or cash
equivalents; shows how much of the
current obligations can be paid from
cash or near-cash assets.
Current assets – Inventory
————————————
Current liabilities
Inventory
———————————————
Current assets – Current liabilities
Cash + Cash equivalents
———————————
Current liabilities
Financial Ratios -Liquidity
Current ratio
Quick (acid test) ratio
Inventory to net
working capital
Cash ratio

11. How
Formula Expressed Meaning
Current assets
—————————
Current liabilities
Decimal
Decimal
Decimal
Decimal
A short-term indicator of the company’s
ability to pay its short-term liabilities
from short-term assets; how much of
current assets are available to cover
each dollar of current liabilities.
Measures the company’s ability to pay
off its short-term obligations from
current assets, excluding inventories.
A measure of inventory balance;
measures the extent to which the
cushion of excess current assets over
current liabilities may be threatened by
unfavorable changes in inventory.
Measures the extent to which the
company’s capital is in cash or cash
equivalents; shows how much of the
current obligations can be paid from
cash or near-cash assets.
Current assets –Inventory
————————————
Current liabilities
Inventory
———————————————
Current assets –Current liabilities
Cash + Cash equivalents
———————————
Current liabilities

12. Financial Ratios - Leverage
Debt to asset ratio
Debt to equity ratio
Long-term debt to
capital structure
Times interest earned
Coverage of fixed
charges
Current liabilities to
equity
How
Formula Expressed Meaning
Total debt———————
Total assets
Percentage
Percentage
Percentage
Decimal
Decimal
Percentage

13. Measures the extent to which borrowed
funds have been used to finance the
company’s assets.
Measures the funds provided by creditors
versus the funds provided by owners.
Measures the long-term component of
capital structure.
Indicates the ability of the company to
meet its annual interest costs.
A measure of the company’s ability to
meet all of its fixed-charge obligations.
Measures the short-term financing
portion versus that provided by owners.
Total debt—————————
Shareholders’ equity
Long-term debt—————————
Shareholders’ equity
Profit before taxes +
Interest charges + Lease charges
————————————————
Interest charges + Lease obligations
Profit before taxes + Interest charges————————————
————
Interest charges

14. Current liabilities—————————
Shareholders’ equity
Financial Ratios -Leverage
Debt to asset ratio
Debt to equity ratio
Long-term debt to
capital structure
Times interest earned
Coverage of fixed
charges
Current liabilities to
equity
How
Formula Expressed Meaning
Total debt
———————
Total assets
Percentage
Percentage
Percentage
Decimal
Decimal
Percentage
Measures the extent to which borrowed
funds have been used to finance the
company’s assets.
Measures the funds provided by creditors
versus the funds provided by owners.
Measures the long-term component of
capital structure.
Indicates the ability of the company to
meet its annual interest costs.
A measure of the company’s ability to
meet all of its fixed-charge obligations.
Measures the short-term financing

15. portion versus that provided by owners.
Total debt
—————————
Shareholders’ equity
Long-term debt
—————————
Shareholders’ equity
Profit before taxes +
Interest charges + Lease charges
————————————————
Interest charges + Lease obligations
Profit before taxes + Interest charges
————————————————
Interest charges
Current liabilities
—————————
Shareholders’ equity
Financial Ratios - Profitability
Net profit margin
Gross profit margin
Return on Asset
(ROA)
Return on equity
(ROE)
Earnings per share
(EPS)
How

16. Formula Expressed Meaning
Net profit after taxes
—————————
Net sales
Percentage
Percentage
Percentage
Percentage
Dollars per
share
Shows how much after-tax profits are
generated by each dollar of sales.
Indicates the total margin available to
cover other expenses beyond cost of
goods sold, and still yield a profit.
Measures the rate of return on the total
assets utilized in the company; a
measure of management’s efficiency, it
shows the return on all the assets
under its control regardless of source
of financing.
Measures the rate of return on the
book value of shareholders’ total
investment in the company.

17. Shows the after-tax earnings
generated for each share of common
stock.
Sales – Cost of goods sold
—————————————
Net sales
Net profit after taxes
—————————
Shareholders’ equity
Net profit after taxes –
preferred stock dividends
————————————
Average number of
common shares
Net profit after taxes
—————————
Total assets
Financial Ratios -Profitability
Net profit margin
Gross profit margin
Return on Asset
(ROA)
Return on equity
(ROE)
Earnings per share

18. (EPS)
How
Formula Expressed Meaning
Net profit after taxes
—————————
Net sales
Percentage
Percentage
Percentage
Percentage
Dollars per
share
Shows how much after-tax profits are
generated by each dollar of sales.
Indicates the total margin available to
cover other expenses beyond cost of
goods sold, and still yield a profit.
Measures the rate of return on the total
assets utilized in the company; a
measure of management’s efficiency, it
shows the return on all the assets
under its control regardless of source
of financing.
Measures the rate of return on the
book value of shareholders’ total
investment in the company.
Shows the after-tax earnings
generated for each share of common
stock.
Sales –Cost of goods sold
—————————————
Net sales
Net profit after taxes
—————————
Shareholders’ equity
Net profit after taxes –

19. preferred stock dividends
————————————
Average number of
common shares
Net profit after taxes
—————————
Total assets
Financial Ratios
n Profitability
n Liquidity
n Leverage
n Activity
n Other
Financial Ratios
nProfitability
nLiquidity
nLeverage
nActivity
nOther
Financial Analysis
n Revenue
n Expenses
n Cash Flow
n Break Even
n Ratio Analysis
n Comparison to
Industry
n Projections using

20. Current Strategy
Current-Year-Trends
3-Year Averages
Financial Analysis
nRevenue
nExpenses
nCash Flow
nBreak Even
nRatio Analysis
nComparison to
Industry
nProjections using
Current Strategy
Current-Year-Trends
3-Year Averages
Internal Analysis
n Marketing Strategy
n Penetration Goals
n Price / Package
n Sales / Distribution
n Services
n Advertising / Promotions
Internal Analysis
nMarketing Strategy
nPenetration Goals
nPrice / Package
nSales / Distribution
nServices
nAdvertising / Promotions

21. Internal Analysis
n Products/Services
n Market Analysis
n Target Market Characteristics
n Sales/Distribution/Profits by Product/Service
n Competitive Analysis
n Competitor’s Profile
n Product/Service Comparison
n Market Niche and Share
n Competitor Strategies
Internal Analysis
nProducts/Services
nMarket Analysis
nTarget Market Characteristics
nSales/Distribution/Profits by Product/Service
nCompetitive Analysis
nCompetitor’s Profile
nProduct/Service Comparison
nMarket Niche and Share
nCompetitor Strategies
Marketing Analysis
n Market Share
n Size
n Demographics
n Advertising
Marketing Analysis
nMarket Share
nSize
nDemographics

22. nAdvertising
Marketing - Mix Variables
Product Place Promotion Price
Quality Channels Advertising List price
Features Coverage Personal selling Discounts
Options Locations Sales promotion Allowances
Style Inventory Publicity Payment periods
Brand name Transport Credit terms
Packaging
Sizes
Services
Warranties
Returns
Source: Philip Kotler, Marketing Management: Analysis,
Planning, and Control, 4th ed. (Englewood Cliffs, N.J.:
Prentice-Hall,
1980), p. 89. Copyright © 1980. Reprinted by permission of
Prentice-Hall, Inc.
Marketing -Mix Variables
Product Place Promotion Price
Quality Channels Advertising List price
Features Coverage Personal selling Discounts
Options Locations Sales promotion Allowances
Style Inventory Publicity Payment periods
Brand nameTransport Credit terms
Packaging
Sizes
Services
Warranties
Returns
Source:Philip Kotler, Marketing Management: Analysis,
Planning, and Control,4th ed. (Englewood Cliffs, N.J.: Prentice-

23. Hall,
1980), p. 89. Copyright © 1980. Reprinted by permission of
Prentice-Hall, Inc.
Human Resource Analysis
n People and Staffing
n Types of Skills
n Organization Chart showing
n Number of Employees
n Employee Skills
n Payroll
n Union or Non-union
n Training
n Management Structure
Human Resource Analysis
nPeople and Staffing
nTypes of Skills
nOrganization Chart showing
nNumber of Employees
nEmployee Skills
nPayroll
nUnion or Non-union
nTraining
nManagement Structure
Operations Analysis
n Location
n Facilities
n Processes
n Functional Chart of Organization
n Capacity

24. n Inventory
n Distribution
Operations Analysis
nLocation
nFacilities
nProcesses
nFunctional Chart of Organization
nCapacity
nInventory
nDistribution
Financial Analysis
n Revenue
n Expenses
n Cash Flow
n Break Even
n Ratio Analysis
n Comparison to
Industry
n Projections using
Current Strategy
Current-Year-Trends
3-Year Averages
Financial Analysis
nRevenue
nExpenses
nCash Flow
nBreak Even
nRatio Analysis

25. nComparison to
Industry
nProjections using
Current Strategy
Current-Year-Trends
3-Year Averages
Internal Analysis
n Operations
n Human Resources
n Organizational Structure
n Marketing
n Finance
n Note: SWOT
n Identify Strengths and Weaknesses
Internal Analysis
nOperations
nHuman Resources
nOrganizational Structure
nMarketing
nFinance
nNote: SWOT
nIdentify Strengths and Weaknesses
Potential Internal Weaknesses
n Below-average marketing skills
n Unable to finance needed changes in
strategy
n Higher overall unit costs relative to key

26. competitors
n Other?
Potential Internal Weaknesses
nBelow-average marketing skills
nUnable to finance needed changes in
strategy
nHigher overall unit costs relative to key
competitors
nOther?
Potential Internal Weaknesses
n Sub par profitability
because- Lack of
managerial depth and
talent/Missing some key
skills or
competence/Poor track
record in implementing
strategy/Plagued with
internal operating
problems
n No clear
n Obsolete facilities
n Falling behind in R & D
n Too narrow a product
line
n Weak market image
n Weaker distribution
network

27. Potential Internal Weaknesses
nSub par profitability
because-Lack of
managerial depth and
talent/Missing some key
skills or
competence/Poor track
record in implementing
strategy/Plagued with
internal operating
problems
nNo clear
nObsolete facilities
nFalling behind in R & D
nToo narrow a product
line
nWeak market image
nWeaker distribution
network
Potential Internal Strengths
n Cost advantages
n Better advertising
campaigns
n Product innovation
skills
n Proven management
n Ahead on
experience curve
n Better
manufacturing

28. capability
n Superior
technological skills
n Other?
Potential Internal Strengths
nCost advantages
nBetter advertising
campaigns
nProduct innovation
skills
nProven management
nAhead on
experience curve
nBetter
manufacturing
capability
nSuperior
technological skills
nOther?
Potential Internal Strengths
n A distinctive
competence
n Adequate financial
resources
n Good competitive
skill
n Well thought of by

29. buyers
n An acknowledged
market leader
n Well-conceived
functional area
strategies
n Access to economies
of scale
n Insulated(at least
somewhat) from
strong competitive
pressures
Potential Internal Strengths
nA distinctive
competence
nAdequate financial
resources
nGood competitive
skill
nWell thought of by
buyers
nAn acknowledged
market leader
nWell-conceived
functional area
strategies
nAccess to economies
of scale
nInsulated(at least
somewhat) from
strong competitive

30. pressures