This chapter discusses financial statement analysis and various tools used to analyze a company's liquidity, profitability, and solvency. It defines key ratios such as the current ratio, acid-test ratio, inventory turnover, profit margin, return on assets, and times interest earned. The chapter explains how to perform horizontal analysis, vertical analysis, and compares financial metrics to industry averages and competitors. It also outlines the importance of financial statement analysis for various departments and cautions to consider when using ratio analysis.
The document discusses various techniques for analyzing financial statements, including horizontal analysis, vertical analysis, and ratio analysis. It provides examples of applying these techniques to sample financial statement data. Specific topics covered include liquidity ratios, profitability ratios, solvency ratios, earnings power, irregular items, discontinued operations, extraordinary items, and quality of earnings. Objectives are to understand how to perform financial statement analysis and calculate common financial ratios.
- Financial statement analysis is used by internal and external stakeholders to evaluate business performance and position. It includes tools like common size statements, trend analysis, ratio analysis, and other analytical techniques.
- Trend analysis refers to collecting and plotting financial data over multiple periods to identify patterns and project future trends. Ratio analysis compares various financial metrics like liquidity, asset management, leverage, and profitability ratios to evaluate a company's performance.
- Specific ratios discussed in the document include the current ratio, quick ratio, inventory turnover, receivables turnover, debt ratio, times interest earned, gross profit margin, net profit margin, return on investment, and return on equity. These ratios are calculated using figures from the sample
The document discusses ratio analysis, which involves calculating and interpreting various financial ratios to evaluate aspects of a company's performance and financial position. It defines key ratios including liquidity ratios, activity ratios, profitability ratios, and leverage ratios. It provides formulas and examples for specific ratios like current ratio, inventory turnover, debt-to-equity ratio, and return on equity. The purpose of ratio analysis is to help assess a company's liquidity, profitability, financial stability, and management quality.
This document provides a summary of key concepts and tools for analyzing financial statements, including horizontal analysis, vertical analysis, and ratio analysis. It includes sample true/false and multiple choice questions related to these topics to assess understanding. The document covers comparing financial data within and across periods, calculating percentage changes, analyzing statements like the income statement and balance sheet, and evaluating different measures of a company's liquidity, profitability, and solvency from the perspective of different stakeholders.
This document provides an overview of Chapter 18 on financial statement analysis from an ACC 206 accounting principles course. It includes study objectives, true-false questions, multiple choice questions, and financial information to analyze regarding horizontal analysis, vertical analysis, and ratio analysis. The key topics covered are the tools of financial statement analysis, comparative analysis techniques, and calculating and interpreting various liquidity, profitability, and solvency ratios.
Financial ratios and their use in understanding Financial StatementsPranav Dedhia
An introduction and in-depth understanding on the importance of Financial ratios in understanding financial statements of business entities along with relevant examples
Chapter 05(a) financial analysis-ratio and other analysisAl Sabbir
The document discusses various methods for analyzing the financial performance of a company through its financial statements, including ratio analysis, common size analysis, trend analysis, DuPont analysis, and other types of analyses. It provides examples of different types of ratios that can be used, such as liquidity ratios, activity ratios, leverage ratios, and profitability ratios. It also discusses how to interpret ratios and cautions that ratios must be compared to benchmarks and should account for differences in accounting methods.
This document provides an overview of finance basics and financial statement analysis. It discusses how finance relates to investment, financing, and cash flow decisions. It also explains how financial ratios can be used to analyze a company's short-term solvency, activity, financial leverage, profitability, and value based on its financial statements. Ratios like the current ratio, debt ratio, return on assets, and price-to-earnings ratio are defined to measure these various aspects of financial performance. The document emphasizes that financial analysis involves rearranging statement information into ratios to gain insights not evident from raw accounting numbers alone.
The document discusses various techniques for analyzing financial statements, including horizontal analysis, vertical analysis, and ratio analysis. It provides examples of applying these techniques to sample financial statement data. Specific topics covered include liquidity ratios, profitability ratios, solvency ratios, earnings power, irregular items, discontinued operations, extraordinary items, and quality of earnings. Objectives are to understand how to perform financial statement analysis and calculate common financial ratios.
- Financial statement analysis is used by internal and external stakeholders to evaluate business performance and position. It includes tools like common size statements, trend analysis, ratio analysis, and other analytical techniques.
- Trend analysis refers to collecting and plotting financial data over multiple periods to identify patterns and project future trends. Ratio analysis compares various financial metrics like liquidity, asset management, leverage, and profitability ratios to evaluate a company's performance.
- Specific ratios discussed in the document include the current ratio, quick ratio, inventory turnover, receivables turnover, debt ratio, times interest earned, gross profit margin, net profit margin, return on investment, and return on equity. These ratios are calculated using figures from the sample
The document discusses ratio analysis, which involves calculating and interpreting various financial ratios to evaluate aspects of a company's performance and financial position. It defines key ratios including liquidity ratios, activity ratios, profitability ratios, and leverage ratios. It provides formulas and examples for specific ratios like current ratio, inventory turnover, debt-to-equity ratio, and return on equity. The purpose of ratio analysis is to help assess a company's liquidity, profitability, financial stability, and management quality.
This document provides a summary of key concepts and tools for analyzing financial statements, including horizontal analysis, vertical analysis, and ratio analysis. It includes sample true/false and multiple choice questions related to these topics to assess understanding. The document covers comparing financial data within and across periods, calculating percentage changes, analyzing statements like the income statement and balance sheet, and evaluating different measures of a company's liquidity, profitability, and solvency from the perspective of different stakeholders.
This document provides an overview of Chapter 18 on financial statement analysis from an ACC 206 accounting principles course. It includes study objectives, true-false questions, multiple choice questions, and financial information to analyze regarding horizontal analysis, vertical analysis, and ratio analysis. The key topics covered are the tools of financial statement analysis, comparative analysis techniques, and calculating and interpreting various liquidity, profitability, and solvency ratios.
Financial ratios and their use in understanding Financial StatementsPranav Dedhia
An introduction and in-depth understanding on the importance of Financial ratios in understanding financial statements of business entities along with relevant examples
Chapter 05(a) financial analysis-ratio and other analysisAl Sabbir
The document discusses various methods for analyzing the financial performance of a company through its financial statements, including ratio analysis, common size analysis, trend analysis, DuPont analysis, and other types of analyses. It provides examples of different types of ratios that can be used, such as liquidity ratios, activity ratios, leverage ratios, and profitability ratios. It also discusses how to interpret ratios and cautions that ratios must be compared to benchmarks and should account for differences in accounting methods.
This document provides an overview of finance basics and financial statement analysis. It discusses how finance relates to investment, financing, and cash flow decisions. It also explains how financial ratios can be used to analyze a company's short-term solvency, activity, financial leverage, profitability, and value based on its financial statements. Ratios like the current ratio, debt ratio, return on assets, and price-to-earnings ratio are defined to measure these various aspects of financial performance. The document emphasizes that financial analysis involves rearranging statement information into ratios to gain insights not evident from raw accounting numbers alone.
Financial statement analysis involves analyzing financial documents like income statements, balance sheets, and cash flow statements to evaluate a business's performance and financial position over time and in comparison to industry averages. It provides information on profitability, liquidity, asset management, financial structure, and market value. For Walker Ltd, an investor is considering shares, so the summary evaluates the company's performance, position, and recommends purchasing shares based on acceptable ratios, strong industry prospects, sales growth, cash flows, and favorable return on equity compared to industry averages.
This document discusses key concepts in finance and financial statement analysis. It explains that finance involves analyzing long-term asset investment, capital raising, and cash flow management. Financial statement analysis uses ratios to measure short-term solvency, activity, financial leverage, profitability, and value based on information from financial statements. Various ratios are defined, such as the current ratio, inventory turnover, debt ratio, net profit margin, and price-to-earnings ratio. Financial ratios are interlinked and provide information about a firm's performance and value.
This document discusses various types of financial ratios used in ratio analysis. It defines ratio analysis as a systematic use of ratios to interpret a firm's performance and financial condition. It then provides examples of different types of ratios, including liquidity ratios, capital structure ratios, profitability ratios, activity/efficiency ratios, and growth ratios. For each type of ratio, it lists specific ratios calculated (e.g. current ratio, debt-to-equity ratio, profit margin, inventory turnover) and how they are used to analyze a firm's financials.
Acc 291 Effective Communication / snaptutorial.comHarrisGeorg3
1. The term “receivables” refers to
cash to be paid to debtors.
merchandise to be collected from individuals or companies.
cash to be paid to creditors.
amounts due from individuals or companies.
The document discusses various techniques for analyzing financial statements including horizontal analysis, vertical analysis, and ratio analysis. It provides examples of applying these techniques to analyze a company's liquidity, profitability, and solvency using ratios such as the current ratio, profit margin, return on assets, and debt to total assets ratio. The chapter aims to help readers understand how to use financial statement analysis tools to evaluate a company's performance and financial condition.
This document provides an overview of financial statement analysis techniques including horizontal analysis, vertical analysis, common-size statements, trend percentages, and ratio analysis. It discusses various liquidity, profitability, and market ratios and provides an example of calculating ratios for Norton Corporation using information from their financial statements. Key ratios discussed include the current ratio, acid-test ratio, accounts receivable turnover, inventory turnover, equity ratio, return on sales, and return on equity.
This document provides an overview of financial statement analysis and various methods used for analysis. It discusses the key users and purposes of analysis, as well as common analysis techniques like horizontal analysis, vertical analysis, trend analysis, and ratio analysis. It then provides an example of calculating ratios for a company called Norton Corporation using information from their financial statements.
Analysis of Financial Statment Activity and Solvency ratios week 4.pptxNawalTahaaa
This document discusses various types of financial ratios used to evaluate companies. It describes liquidity ratios that measure a company's ability to meet short-term obligations, activity ratios that assess asset usage and efficiency, and solvency ratios that evaluate financial leverage and long-term debt obligations. Specific ratios covered include the current, quick, and cash ratios for liquidity; receivables turnover, inventory turnover, and total asset turnover for activity; and debt-to-equity, interest coverage, and cash coverage ratios for solvency. The document provides formulas for calculating each ratio and interpreting the results.
Financial statement analysis involves analyzing a company's financial statements to assess its performance and financial position. It is done by both internal managers and external parties such as investors and creditors. Key aspects of financial statement analysis include ratio analysis, trend analysis, and comparative analysis. Ratio analysis calculates and analyzes financial ratios to evaluate aspects such as liquidity, asset efficiency, debt levels, profitability, and investor returns. Trend analysis examines changes in financial metrics over several periods. Comparative analysis compares financial results to other companies or years. The overall goal is to evaluate the company's financial health and identify strengths and weaknesses.
Financial interpretations with models & formats (unit 2)finance1rkh
The document discusses analyzing financial performance through ratios. It defines ratios as comparing two figures and outlines their uses, including comparing results over time, against competitors, and industry averages. Ratios are grouped into performance (profitability), position (liquidity), and potential (future outlook). Key ratios discussed for each category include ROCE, current ratio, quick ratio, trade payable/receivable days. The document emphasizes interpreting ratios by examining changes, interactions between ratios, and limitations of the analysis.
The document discusses analyzing financial performance through the use of ratios. It identifies key ratios used to measure performance, position, and potential. Ratios are calculated using figures from the financial statements and compared over time, against competitors, or industry averages to analyze how well a business is performing. The document provides examples of important ratios like return on capital employed, operating profit margin, current ratio, quick ratio, and receivable/payable days and how they are interpreted.
Financial interpretations with models & formats (unit 2)Sas_Bala
The document discusses analyzing financial performance through ratios. It defines ratios as comparing two figures and outlines their uses, including comparing results over time, against competitors, and industry averages. Ratios are grouped into performance (profitability), position (liquidity), and potential (future outlook). Key ratios discussed for each category include ROCE, current ratio, quick ratio, trade payable/receivable days. Calculating and interpreting ratios, considering changes over time and interacting factors, is presented as the approach for analyzing financial performance from statements.
Financial statement analysis is a technique used to analyze and extract useful information from a company's financial statements to evaluate its performance, financial position, and future prospects. It involves calculating and examining various financial metrics and ratios, comparing the company's performance over time and against industry benchmarks and competitors. The goal is to assess the company's profitability, liquidity, operational efficiency, and financial risk in order to make informed decisions. Common tools used include ratio analysis, comparative statement analysis, and trend analysis. While useful, financial statement analysis has some limitations and should not be relied on exclusively to predict a company's future.
This document provides an overview of Chapter 14 on financial statement analysis from the textbook. It begins with learning objectives that cover discussing the need for comparative analysis, identifying tools of analysis, explaining and applying horizontal and vertical analysis, computing liquidity, profitability, and solvency ratios, and understanding concepts like earning power and discontinued operations. The chapter then covers the basics of financial statement analysis and different analytical techniques. It provides examples and illustrations of applying horizontal analysis, vertical analysis, and calculating various ratios to evaluate a company's performance. Key ratios covered include current, acid-test, accounts receivable and inventory turnover, profit margins, returns on assets and equity, and debt ratios. The chapter concludes with sections on earning power, discontinued operations
This document outlines key concepts for analyzing financial statements. It discusses three perspectives to view statements from (stockholders, managers, creditors), how to prepare and use common-size statements and financial ratios to evaluate performance, and the DuPont system for linking the income statement and balance sheet using return on equity. Benchmarks are described as important references for interpreting ratio analysis results. Limitations include analysis not being exact and relying on historical accounting data.
For more classes visit
www.snaptutorial.com
1. The term “receivables” refers to
cash to be paid to debtors.
merchandise to be collected from individuals or companies.
cash to be paid to creditors.
amounts due from individuals or companies.
2. Three accounting issues associated with accounts receivable are
depreciating, valuing, and collecting.
depreciating, returns, and valuing.
For more classes visit
www.snaptutorial.com
1. The term “receivables” refers to
cash to be paid to debtors.
merchandise to be collected from individuals or companies.
cash to be paid to creditors.
amounts due from individuals or companies.
2. Three accounting issues associated with accounts receivable are
depreciating, valuing, and collecting.
This chapter discusses financial statement analysis and its importance in assessing the solvency and profitability of a business. It covers common analytical methods like horizontal analysis, vertical analysis, and calculating ratios using data from the income statement, balance sheet, and statement of cash flows. Key ratios examined include current ratio, inventory turnover, debt-to-equity, profit margin, and return on assets. The chapter also describes the typical contents of annual reports, including financial statements, management discussion and analysis, and the independent auditor's report.
This document discusses financial statement analysis and long-term planning. It covers calculating common-size financial statements to facilitate comparison, different types of ratio analysis including liquidity, leverage, asset management and profitability ratios, and using the Du Pont identity to examine a company's return on equity. Ratios need context and should be compared over time or to peer companies to be meaningful.
This document discusses financial statement analysis and long-term planning. It covers calculating common-size financial statements to facilitate comparison, different types of ratio analysis including liquidity, leverage, asset management and profitability ratios, and using the Du Pont identity to examine a company's return on equity. Ratios need context and should be compared over time or to peer companies to be meaningful. Potential issues include a lack of theory on relevant ratios and difficulties benchmarking due to accounting differences.
Corporations generally invest in debt or share securities for three main reasons: (1) to manage excess cash, (2) generate investment income, and (3) for strategic reasons. The accounting for investments depends on the type and ownership level. For debt investments and share investments where ownership is less than 20%, companies record investments at cost and recognize gains/losses upon sale. For share investments where ownership is 20-50%, companies use the equity method to adjust the investment balance for the investor's share of earnings and dividends. For share investments over 50% ownership, consolidated financial statements are prepared to combine the parent and subsidiary.
Financial statement analysis involves analyzing financial documents like income statements, balance sheets, and cash flow statements to evaluate a business's performance and financial position over time and in comparison to industry averages. It provides information on profitability, liquidity, asset management, financial structure, and market value. For Walker Ltd, an investor is considering shares, so the summary evaluates the company's performance, position, and recommends purchasing shares based on acceptable ratios, strong industry prospects, sales growth, cash flows, and favorable return on equity compared to industry averages.
This document discusses key concepts in finance and financial statement analysis. It explains that finance involves analyzing long-term asset investment, capital raising, and cash flow management. Financial statement analysis uses ratios to measure short-term solvency, activity, financial leverage, profitability, and value based on information from financial statements. Various ratios are defined, such as the current ratio, inventory turnover, debt ratio, net profit margin, and price-to-earnings ratio. Financial ratios are interlinked and provide information about a firm's performance and value.
This document discusses various types of financial ratios used in ratio analysis. It defines ratio analysis as a systematic use of ratios to interpret a firm's performance and financial condition. It then provides examples of different types of ratios, including liquidity ratios, capital structure ratios, profitability ratios, activity/efficiency ratios, and growth ratios. For each type of ratio, it lists specific ratios calculated (e.g. current ratio, debt-to-equity ratio, profit margin, inventory turnover) and how they are used to analyze a firm's financials.
Acc 291 Effective Communication / snaptutorial.comHarrisGeorg3
1. The term “receivables” refers to
cash to be paid to debtors.
merchandise to be collected from individuals or companies.
cash to be paid to creditors.
amounts due from individuals or companies.
The document discusses various techniques for analyzing financial statements including horizontal analysis, vertical analysis, and ratio analysis. It provides examples of applying these techniques to analyze a company's liquidity, profitability, and solvency using ratios such as the current ratio, profit margin, return on assets, and debt to total assets ratio. The chapter aims to help readers understand how to use financial statement analysis tools to evaluate a company's performance and financial condition.
This document provides an overview of financial statement analysis techniques including horizontal analysis, vertical analysis, common-size statements, trend percentages, and ratio analysis. It discusses various liquidity, profitability, and market ratios and provides an example of calculating ratios for Norton Corporation using information from their financial statements. Key ratios discussed include the current ratio, acid-test ratio, accounts receivable turnover, inventory turnover, equity ratio, return on sales, and return on equity.
This document provides an overview of financial statement analysis and various methods used for analysis. It discusses the key users and purposes of analysis, as well as common analysis techniques like horizontal analysis, vertical analysis, trend analysis, and ratio analysis. It then provides an example of calculating ratios for a company called Norton Corporation using information from their financial statements.
Analysis of Financial Statment Activity and Solvency ratios week 4.pptxNawalTahaaa
This document discusses various types of financial ratios used to evaluate companies. It describes liquidity ratios that measure a company's ability to meet short-term obligations, activity ratios that assess asset usage and efficiency, and solvency ratios that evaluate financial leverage and long-term debt obligations. Specific ratios covered include the current, quick, and cash ratios for liquidity; receivables turnover, inventory turnover, and total asset turnover for activity; and debt-to-equity, interest coverage, and cash coverage ratios for solvency. The document provides formulas for calculating each ratio and interpreting the results.
Financial statement analysis involves analyzing a company's financial statements to assess its performance and financial position. It is done by both internal managers and external parties such as investors and creditors. Key aspects of financial statement analysis include ratio analysis, trend analysis, and comparative analysis. Ratio analysis calculates and analyzes financial ratios to evaluate aspects such as liquidity, asset efficiency, debt levels, profitability, and investor returns. Trend analysis examines changes in financial metrics over several periods. Comparative analysis compares financial results to other companies or years. The overall goal is to evaluate the company's financial health and identify strengths and weaknesses.
Financial interpretations with models & formats (unit 2)finance1rkh
The document discusses analyzing financial performance through ratios. It defines ratios as comparing two figures and outlines their uses, including comparing results over time, against competitors, and industry averages. Ratios are grouped into performance (profitability), position (liquidity), and potential (future outlook). Key ratios discussed for each category include ROCE, current ratio, quick ratio, trade payable/receivable days. The document emphasizes interpreting ratios by examining changes, interactions between ratios, and limitations of the analysis.
The document discusses analyzing financial performance through the use of ratios. It identifies key ratios used to measure performance, position, and potential. Ratios are calculated using figures from the financial statements and compared over time, against competitors, or industry averages to analyze how well a business is performing. The document provides examples of important ratios like return on capital employed, operating profit margin, current ratio, quick ratio, and receivable/payable days and how they are interpreted.
Financial interpretations with models & formats (unit 2)Sas_Bala
The document discusses analyzing financial performance through ratios. It defines ratios as comparing two figures and outlines their uses, including comparing results over time, against competitors, and industry averages. Ratios are grouped into performance (profitability), position (liquidity), and potential (future outlook). Key ratios discussed for each category include ROCE, current ratio, quick ratio, trade payable/receivable days. Calculating and interpreting ratios, considering changes over time and interacting factors, is presented as the approach for analyzing financial performance from statements.
Financial statement analysis is a technique used to analyze and extract useful information from a company's financial statements to evaluate its performance, financial position, and future prospects. It involves calculating and examining various financial metrics and ratios, comparing the company's performance over time and against industry benchmarks and competitors. The goal is to assess the company's profitability, liquidity, operational efficiency, and financial risk in order to make informed decisions. Common tools used include ratio analysis, comparative statement analysis, and trend analysis. While useful, financial statement analysis has some limitations and should not be relied on exclusively to predict a company's future.
This document provides an overview of Chapter 14 on financial statement analysis from the textbook. It begins with learning objectives that cover discussing the need for comparative analysis, identifying tools of analysis, explaining and applying horizontal and vertical analysis, computing liquidity, profitability, and solvency ratios, and understanding concepts like earning power and discontinued operations. The chapter then covers the basics of financial statement analysis and different analytical techniques. It provides examples and illustrations of applying horizontal analysis, vertical analysis, and calculating various ratios to evaluate a company's performance. Key ratios covered include current, acid-test, accounts receivable and inventory turnover, profit margins, returns on assets and equity, and debt ratios. The chapter concludes with sections on earning power, discontinued operations
This document outlines key concepts for analyzing financial statements. It discusses three perspectives to view statements from (stockholders, managers, creditors), how to prepare and use common-size statements and financial ratios to evaluate performance, and the DuPont system for linking the income statement and balance sheet using return on equity. Benchmarks are described as important references for interpreting ratio analysis results. Limitations include analysis not being exact and relying on historical accounting data.
For more classes visit
www.snaptutorial.com
1. The term “receivables” refers to
cash to be paid to debtors.
merchandise to be collected from individuals or companies.
cash to be paid to creditors.
amounts due from individuals or companies.
2. Three accounting issues associated with accounts receivable are
depreciating, valuing, and collecting.
depreciating, returns, and valuing.
For more classes visit
www.snaptutorial.com
1. The term “receivables” refers to
cash to be paid to debtors.
merchandise to be collected from individuals or companies.
cash to be paid to creditors.
amounts due from individuals or companies.
2. Three accounting issues associated with accounts receivable are
depreciating, valuing, and collecting.
This chapter discusses financial statement analysis and its importance in assessing the solvency and profitability of a business. It covers common analytical methods like horizontal analysis, vertical analysis, and calculating ratios using data from the income statement, balance sheet, and statement of cash flows. Key ratios examined include current ratio, inventory turnover, debt-to-equity, profit margin, and return on assets. The chapter also describes the typical contents of annual reports, including financial statements, management discussion and analysis, and the independent auditor's report.
This document discusses financial statement analysis and long-term planning. It covers calculating common-size financial statements to facilitate comparison, different types of ratio analysis including liquidity, leverage, asset management and profitability ratios, and using the Du Pont identity to examine a company's return on equity. Ratios need context and should be compared over time or to peer companies to be meaningful.
This document discusses financial statement analysis and long-term planning. It covers calculating common-size financial statements to facilitate comparison, different types of ratio analysis including liquidity, leverage, asset management and profitability ratios, and using the Du Pont identity to examine a company's return on equity. Ratios need context and should be compared over time or to peer companies to be meaningful. Potential issues include a lack of theory on relevant ratios and difficulties benchmarking due to accounting differences.
Corporations generally invest in debt or share securities for three main reasons: (1) to manage excess cash, (2) generate investment income, and (3) for strategic reasons. The accounting for investments depends on the type and ownership level. For debt investments and share investments where ownership is less than 20%, companies record investments at cost and recognize gains/losses upon sale. For share investments where ownership is 20-50%, companies use the equity method to adjust the investment balance for the investor's share of earnings and dividends. For share investments over 50% ownership, consolidated financial statements are prepared to combine the parent and subsidiary.
This document is an introduction to human resource management (HRM) that covers key topics in several chapters. It defines HRM as the process of acquiring, training, appraising, and compensating employees while also attending to labor relations, health and safety, and fairness concerns. The role of HRM and skills needed for HRM professionals are discussed. Common challenges in HRM like containing costs and adapting to technological innovation are also reviewed. The document uses presentations and activities to engage the reader on these HRM concepts.
- Data flow diagrams (DFDs) graphically describe the flow of data within an organization using four basic elements: data sources and destinations, data flows, transformation processes, and data stores. DFDs are subdivided into lower levels to provide more detail. The highest-level DFD is called the context diagram.
- Flowcharts are used to describe business processes and document flows using standard symbols divided into four categories: input/output, processing, storage, and miscellaneous. Types of flowcharts include program, system, document, and internal control flowcharts.
- Business process diagrams visually describe the steps in a business process.
This document summarizes chapters from an accounting textbook. Chapter 1 discusses accounting for merchandising operations, including the recording of purchases and sales under a perpetual inventory system and the steps in the accounting cycle. Chapter 2 covers determining inventory quantities, cost flow assumptions, the lower-of-cost-or-market valuation method, and the inventory turnover ratio. Chapter 3 addresses cash controls, including controls over cash receipts, disbursements, bank reconciliations, and the presentation of cash on the balance sheet.
This document discusses the accounting treatment for savings accounts. It begins by defining savings accounts as accounts meant for non-trading customers to save money with limited transactions. The key steps in accounting for savings accounts are: 1) Open a savings account by depositing funds from cash or a checking account, 2) Withdraw funds from the savings account to cash or a checking account, and 3) Compute and record monthly interest earned on the minimum balance in the account. Interest is calculated using the minimum monthly balance and is recorded initially as an accrued interest account before being added to the savings account periodically. An example is provided to demonstrate computing minimum balances and recording deposits, withdrawals, and monthly interest for three months.
This chapter discusses the conceptual framework that underlies financial accounting. The conceptual framework is a coherent system of objectives and concepts that prescribe the nature, function and limits of financial reporting. It aims to increase users' understanding and confidence in financial reporting and enhance comparability. The FASB has issued several statements that relate to the conceptual framework and cover objectives of financial reporting, qualitative characteristics of accounting information, elements of financial statements, and recognition and measurement concepts. The conceptual framework also describes basic assumptions like economic entity, going concern, monetary unit and periodicity. It explains principles like historical cost, revenue recognition, matching and full disclosure. Constraints like cost-benefit relationship and materiality must also be considered in financial reporting.
The document describes three types of business activities:
1) Service businesses that provide services to customers and have no goods inventory, with a shorter operating cycle.
2) Merchandising businesses that buy and sell goods, having only finished goods inventory and a longer operating cycle.
3) Industrial businesses that transform raw materials into finished goods, having raw materials, work-in-process, and finished goods inventory, with restaurants and bakeries as examples. The type of activity relies primarily on the business's main source of revenue.
This chapter discusses the fundamentals of accounting including its nature, functions, users, principles, and key concepts. Accounting identifies, records, and communicates the financial events of a business. It provides information to internal users like managers and external users like investors and creditors. Companies follow generally accepted accounting principles to prepare four main financial statements - the income statement, balance sheet, statement of owner's equity, and statement of cash flows. The accounting equation forms the basis of recording transactions and showing a company's assets, liabilities, and owner's equity.
Accounting is the system that records and reports financial information about a business. It identifies, records, and communicates economic events to users. The chapter outlines key accounting concepts like the accounting equation, direct and indirect costs, fixed and variable costs, and the difference between inventoriable and period costs. It explains the four main financial statements - income statement, balance sheet, statement of owner's equity, and statement of cash flows - and how they are used to report on a business's financial performance and position.
This document provides information about accounting principles related to inventory, receivables, and property, plant, and equipment for Almarai, a Saudi dairy company. It discusses the perpetual and periodic inventory systems, methods for calculating cost of goods sold and inventory turnover. It also addresses calculating account receivable turnover and defines property, plant and equipment. Almarai uses an average cost method for inventory and the declining balance method for depreciating fixed assets.
This document provides an overview and analysis of balance sheet and cash flow statements for Suez Cement Company. It defines a balance sheet as a financial statement showing a company's assets, liabilities, and equity at a given date. Balance sheets are useful for computing return rates, evaluating capital structure, and assessing risk and future cash flows, though they have limitations like reporting historical costs and using estimates. The document also defines a cash flow statement as recording cash inflows and outflows during a period, including operating, investing, and financing activities. Operating activities reflect cash from providing products/services, while investing activities reflect long-term asset acquisitions and disposals. Financing activities reflect cash from investors, issuing/buying back shares
This document provides information about accounting principles related to inventory, receivables, and property, plant, and equipment for Almarai, a Saudi dairy company. It discusses the perpetual and periodic inventory systems, methods for calculating cost of inventory including average cost, inventory turnover metrics for 2023, types and calculation of accounts receivable turnover, and defines property, plant and equipment along with depreciation methods used by Almarai.
This document summarizes key concepts from Principles of Accounting 2. It discusses Walmart's operations, perpetual inventory systems, cost of goods sold calculations using FIFO and LIFO. It also summarizes chapters on inventories, receivables, property and equipment. Specifics include Walmart's multiple income statements, inventory turnover ratios, accounts receivable aging and allowance for doubtful accounts. Finally, it provides the team members who prepared the document.
This document provides an overview of chapter 6 on inventories from the textbook "Financial Accounting, IFRS Edition". It outlines 6 study objectives related to determining inventory quantities, accounting for inventories using different cost flow methods, the financial effects of cost flow assumptions, the lower-of-cost-or-net realizable value basis, effects of inventory errors, and analyzing inventories using turnover ratios. The document contains slides with explanations, examples, and review questions to explain key inventory accounting concepts.
This document provides an overview of a project on accounting principles for Deraya University. It discusses chapters on accounting information and the recording process, adjusting accounts, and completing the accounting cycle. It also describes the accounting system of Ottimo Restaurant, including key financial statements, reports, users, and accounts in its general ledger.
This document provides an overview and analysis of key financial statements for Suez Cement Company, including the income statement, balance sheet, and cash flow statement. The income statement measures a company's performance over a period of time and can be used to evaluate past performance and predict future performance. The balance sheet shows a company's assets, liabilities, and equity at a point in time and can be used to compute rates of return, evaluate capital structure, and assess risk. The cash flow statement records cash inflows and outflows during a period across operating, investing, and financing activities.
This document provides summaries of key financial statements including the cash flow statement and statement of financial position. It discusses that the cash flow statement shows cash inflows and outflows from operating, investing, and financing activities over a period of time. It also explains that the statement of financial position presents the assets, liabilities, and equity of a company at a point in time. The purpose and usefulness of the statement of financial position is described along with some limitations.
Apple is an American technology company headquartered in California. It is the world's largest technology company by revenue, with over $200 billion in annual sales. Apple uses a perpetual inventory system to continuously update inventory records with each sale and purchase. It applies the first-in, first-out (FIFO) cost flow assumption. In 2020, Apple's net sales were $209.8 billion with gross profit of $80.3 billion. Net income was $44.7 billion and earnings per share increased to $10.25. Inventory turnover was 10.3 times with average days in inventory of 35 days. Property, plant and equipment totaled $103.5 billion in 2020, with accumulated depreciation of
This document discusses an accounting project for Nike company. It provides details on Nike's background, products, use of the perpetual inventory system and weighted average cost method. It also discusses plant assets and calculating ratios like inventory turnover and asset turnover for Nike. Plant assets are depreciated on a straight-line basis over 2-40 years for different asset types at Nike.
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This presentation is a curated compilation of PowerPoint diagrams and templates designed to illustrate 20 different digital transformation frameworks and models. These frameworks are based on recent industry trends and best practices, ensuring that the content remains relevant and up-to-date.
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These materials are perfect for enhancing your business or classroom presentations, offering visual aids to supplement your insights. Please note that while comprehensive, these slides are intended as supplementary resources and may not be complete for standalone instructional purposes.
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During the budget session of 2024-25, the finance minister, Nirmala Sitharaman, introduced the “solar Rooftop scheme,” also known as “PM Surya Ghar Muft Bijli Yojana.” It is a subsidy offered to those who wish to put up solar panels in their homes using domestic power systems. Additionally, adopting photovoltaic technology at home allows you to lower your monthly electricity expenses. Today in this blog we will talk all about what is the PM Surya Ghar Muft Bijli Yojana. How does it work? Who is eligible for this yojana and all the other things related to this scheme?
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The report *State of D2C in India: A Logistics Update* talks about the evolving dynamics of the d2C landscape with a particular focus on how brands navigate the complexities of logistics. Third Party Logistics enablers emerge indispensable partners in facilitating the growth journey of D2C brands, offering cost-effective solutions tailored to their specific needs. As D2C brands continue to expand, they encounter heightened operational complexities with logistics standing out as a significant challenge. Logistics not only represents a substantial cost component for the brands but also directly influences the customer experience. Establishing efficient logistics operations while keeping costs low is therefore a crucial objective for brands. The report highlights how 3PLs are meeting the rising demands of D2C brands, supporting their expansion both online and offline, and paving the way for sustainable, scalable growth in this fast-paced market.
1. Financial management chapter 3
• CHAPTER 3 : FINANCIAL STATEMEN ANALYSIS
• After studying this chapter, you should be able to:
• 1. Understand the importance of financial statement analysis
• 2. Discuss the need for comparative analysis.
• 3. Identify the tools of financial statement analysis.
• 4. Explain and apply horizontal analysis.
• 5. Describe and apply vertical analysis.
• 6. Identify and compute ratios used in analyzing a firm’s liquidity,
profitability, and solvency
1
2. Financial management chapter 3
Current Assets
Cash & Bank
Marketable securities
Accounts Receivables
Notes Receivables
Inventory
Current Liabilities
Accounts Payable
Notes Payable
Short term loans
Non Current Assets
Property , Plant and Equipment
Non current Liabilities
Long term Loans
Bonds
Owner’ Equity
Maximizing
Wealth
Financial Manager
2
3. Financial management chapter 3
The Importance of the Financial Statements Analysis
departments Needs
Accounting:
how to calculate and
interpret financial ratios
for decision making.
Management:
using financial ratio analysis;
and how the financial
statements affect the value of
the firm.
Marketing:
will affect the firm’s decisions
about levels of inventory, credit
policies, and pricing decisions.
Information systems:
what data are included in
the firm’s financial
statements to design
systems.
3
5. Financial management chapter 3
Basics of Financial Statement Analysis:
Analyzing
financial
statements
involves
evaluating
three
characteristics:
a company’s
liquidity,
profitability,
and
solvency.
5
6. Financial management chapter 3
Need for Comparative Analysis:
Comparisons can be made on a number
of different bases as follows:.
1. Intracompany basis.
This basis compares an item or financial relationship
within a company in the current year with the same
item or relationship in one or more prior years.
Intracompany comparisons are useful
in detecting changes in financial
relationships and significant trends.
2. Industry averages.
This basis compares an item or financial relationship of a
company with industry averages (or norms) published by
financial ratings organizations
3. Intercompany basis. This
basis compares an item or financial relationship of one company
with the same item or relationship in one or more competing
6
7. Financial management chapter 3
Tools of Analysis:
Horizontal analysis:
also called trend analysis
evaluates a series of
financial statement data
over a period of time.
Vertical analysis:
evaluates financial statement
data by expressing each item
in a financial statement as a
percent of a base amount.
Ratio analysis:
expresses the relationship among
selected items of financial statement
data.
7
8. Financial management chapter 3
• Horizontal analysis
• Net Sales (in millions) In relation to base period 2015
• 2017 2016 2015
• $ 19,860 $ 19,903 $ 18,781
• 105.7% 106.0% 100.0% Penney
Company’s net sales in relation to base period
8
9. Financial management chapter 3
Ratio Analysis:
Ratio analysis
expresses the
relationship
among selected
items of financial
statement data.
A ratio expresses
the mathematical
relationship
between one
quantity and
another.
The relationship is
expressed in
terms of either a
percentage, a
rate, or a simple
proportion.
9
10. Financial management chapter 3
To discuss ratio :
1. Intracompany comparisons
for two years for Quality
Department Store.
2. Industry average
comparisons based on median
ratios for department stores.
3. Intercompany comparisons
based on J.C. Penney Company
as Quality Department Store’s
principal competitor. 10
11. Financial management chapter 3
What does the
ratio mean?
The current
ratio is a more
dependable
indicator of
liquidity than
working capital.
The current
ratio is only one
measure of
liquidity.
11
12. Financial management chapter 3
Liquidity Ratios
Liquidity ratios measure
the short-term ability of
the company to pay its
maturing obligations and
to meet unexpected
needs for cash.
12
13. Financial management chapter 3
1. Current ratio :
The current ratio is a widely
used measure for evaluating a
company’s liquidity and short-
term debt-paying ability.
1. Current ratio = (Current
assets / Current liabilities) working
capital = ( current assets - current
liabilities
Example : Current ratio =
( 200,000 / 100,000 ) = 2
/ 1 … 2 : 1
It means that for every 1$ that
company has obligation .. The
company has 2 $ to cover “ pay “
13
14. Financial management chapter 3
working capital
= ( current
assets - current
liabilities )
The current
ratio is a more
dependable
indicator of
liquidity than
working capital.
14
15. Financial management chapter 3
2. The acid-test
(quick) ratio is
a measure of a
company’s immediate
short-term liquidity.
The acid-test (quick) ratio = (Current
assets – Inventory ) / current liabilities
15
16. Financial management chapter 3
3. Receivables
turnover
Example page 68
liquidity could be
measured by how quickly
a company can convert
certain assets to cash.
. receivables turnover =
( net credit sales / the
average net receivables ).
16
17. Financial management chapter 3
Average Collection
Period.
= (365 / receivables
turnover ratio ) =
… days
collection period
less than payment
period.
17
18. Financial management chapter 3
4. Inventory Turnover:
Inventory turnover measures the number of
times, on average, the inventory is sold during
the period.
Its purpose is to measure the liquidity of the
inventory.
inventory turnover = ( cost
of goods sold / average inventory )
18
19. Financial management chapter 3
• Days in Inventory.
• days in inventory = 365 / inventory turnover
• For example, Quality’s 2017
inventory turnover of 2.3 times divided into 365 is approximately 159 days. An
average selling time of 159 days is also relatively high compared with the industry
average of 52.1 days (365 7.0) and J.C. Penney’s 104.3 days (365 3.5). Inventory
turnover ratios vary considerably among industries.
For example, grocery store
chains have a turnover of 10 times and an average selling period of 37 days. In
contrast, jewelry stores have an average turnover of 1.3 times and an average
selling period of 281 days
19
20. Financial management chapter 3
Profitability
Ratios:
measure the income or
operating success of a
company for a given period
of time.
Affects the company’s ability to obtain
debt and equity financing.
It also affects the company’s liquidity
position and the company’s ability to grow.
As a consequence, both
creditors and investors are
interested in evaluating
earning power—
profitability.
Analysts frequently use profitability
as the ultimate test of
management’s operating
effectiveness.
20
21. Financial management chapter 3
1. Profit Margin:
Profit margin is a measure of
the percentage of each dollar of
sales that results in net income.
= ( net income / net sales ).
21
22. Financial management chapter 3
• Quality experienced an increase in its profit margin from 2016 to 2017.
Its profit margin is unusually high in comparison with the industry
average of 3.7% and J.C. Penney’s 5.6%. High-volume (high inventory
turnover) enterprises such as grocery stores (Safeway or Kroger) and
discount stores (Kmart or WalMart) generally experience low profit
margins. In contrast, low-volume enterprises such as jewelry stores
(Tiffany & Co.) or airplane manufacturers (Boeing Co.) have high profit
margins.
22
23. Financial management chapter 3
2.
Asset Turnover:
measures how efficiently a company uses its assets to
generate sales.
= ( net sales / average assets )
The resulting number shows the dollars of sales
produced by each dollar invested in assets.
23
24. Financial management chapter 3
• Asset turnover shows that in 2017 Quality generated sales of $1.22 for
each dollar it had invested in assets. The ratio changed little from 2016
to 2017. Quality’s asset turnover is below the industry average of 2.14
times and J.C. Penney’s ratio of 1.47 times. Asset turnover ratios vary
considerably among industries. For example, a large utility company
like Consolidated Edison (New York) has a ratio of 0.49 times, and the
large grocery chain Kroger Stores has a ratio of 4.34 times.
24
25. Financial management chapter 3
3. Return on
Assets:
An overall measure of
profitability is return on assets.
= ( net income / average assets )
25
26. Financial management chapter 3
4. Return on Common
Stockholders’ Equity.
It measures profitability from the common
stockholders’ viewpoint. This ratio shows how
many dollars of net income the company
earned for each dollar invested by the owners.
= ( net income / average common
stockholders’ equity ) .
26
27. Financial management chapter 3
• Quality’s rate of return on common stockholders’ equity is high at 29.3%,
considering an industry average of 19.2% and a rate of 23.1% for J.C. Penney.
With Preferred Stock. When
a company has preferred stock, we must deduct preferred dividend requirements
from net income to compute income available to common stockholders. Similarly,
we deduct the par value of preferred stock (or call price, if applicable) from total
stockholders’ equity to determine the amount of common stockholders’ equity
used in this ratio. The ratio then appears as follows.
27
28. Financial management chapter 3
• Table page 73
• Note that Quality’s rate of return on stockholders’ equity (29.3%) is substantially
higher than its rate of return on assets (15.4%). The reason is that Quality has
made effective use of leverage. Leveraging or trading on the equity at a gain
means that the company has borrowed money at a lower rate of interest than it
is able to earn by using the borrowed money. Leverage enables Quality
Department Store to use money supplied by non owners to increase the return
to the owners. A comparison of the rate of return on total assets with the rate of
interest paid for borrowed money indicates the profitability of trading on the
equity. Quality Department Store earns more on its borrowed funds than it has
to pay in the form of interest. Thus, the return to stockholders exceeds the
return on the assets, due to benefits from the positive leveraging.
28
29. Financial management chapter 3
5. Earnings Per Share (EPS)
(EPS) is a measure of the net income earned on each share
of common stock.
= ( net income / the number of weighted average common
shares outstanding during the year ) .
A measure of net income earned on a per share basis
provides a useful perspective for determining profitability.
29
30. Financial management chapter 3
• Note that no industry or J.C. Penney data are presented. Such comparisons are
not meaningful because of the wide variations in the number of shares of
outstanding stock among companies. The only meaningful EPS comparison is an
intracompany trend comparison: Quality’s earnings per share increased 20 cents
per share in 2017. This represents a 26% increase over the 2016 earnings per
share of 77 cents. The terms “earnings per share” and “net income per share”
refer to the amount of net income applicable to each share of common stock.
Therefore, in computing EPS, if there are preferred dividends declared for the
period, we must deduct them from net income to determine income available to
the common stockholders.
30
31. Financial management chapter 3
6. Price-Earnings Ratio
(P-E) ratio is an oft-quoted
measure of the ratio of the market
price of each share of common
stock to the earnings per share.
The price-earnings (P-E) ratio
reflects investors’ assessments of a
company’s future earnings.
= (market price per share of the stock / earnings per
share ) .
31
32. Financial management chapter 3
• In 2017 each share of Quality’s stock sold for 12.4 times the amount
that the company earned on each share. Quality’s price-earnings ratio
is lower than the industry average of 17.1 times, but 28% higher than
the ratio of 9.7 times for J.C. Penney. The average price-earnings ratio
for the stocks that constitute the Standard and Poor’s 500 Index (500
largest U.S. firms) in early 2017 was approximately 19.1 times.
32
33. Financial management chapter 3
7. Payout
Ratio
measures the percentage of earnings
distributed in the form of cash dividends.
= ( cash dividends / net income )
Companies that have high growth rates generally have low
payout ratios because they reinvest most of their net income
into the business.
33
34. Financial management chapter 3
Solvency Ratios:
measure the ability of a company to survive over a long
period of time.
Long-term creditors and stockholders are particularly
interested in a company’s ability to pay interest as it
comes due and to repay the face value of debt at maturity.
Debt to total assets and times interest earned are two
ratios that provide information about debt-paying ability.
34
35. Financial management chapter 3
1. Debt to
Total Assets
Ratio
measures the
percentage
of the total
assets that
creditors
provide.
= total debt
(both current
and long-
term
liabilities) /
total assets.
This ratio
indicates the
company’s
degree of
leverage.
It also
provides
some
indication of
the
company’s
ability to
withstand
losses
without
impairing the
interests of
creditors.
The higher
the
percentage of
debt to total
assets, the
greater the
risk that the
company may
be unable to
meet its
maturing
obligations.
35
36. Financial management chapter 3
• Table page 77
• A ratio of 45.3% means that creditors have provided 45.3% of Quality
Department Store’s total assets. Quality’s 45.3% is above the industry average of
40.1%. It is considerably below the high 62.9% ratio of J.C. Penney. The lower
the ratio, the more equity “buffer” there is available to the creditors. Thus, from
the creditors’ point of view, a low ratio of debt to total assets is usually
desirable. The adequacy of this ratio is often judged in the light of the
company’s earnings. Generally, companies with relatively stable earnings (such
as public utilities) have higher debt to total assets ratios than cyclical companies
with widely fluctuating earnings (such as many high tech companies).
36
37. Financial management chapter 3
2. Times Interest
Earned
provides an indication
of the company’s
ability to meet
interest payments as
they come due.
= ( income before
interest expense and
income taxes /
interest expense ).
37
38. Financial management chapter 3
Cautions About Using
Ratio Analysis Before
discussing specific
ratios
1- Ratios with large deviations from the norm only indicate
symptoms of a problem..
2- A single ratio does not generally provide sufficient information
from which to judge the overall performance of the firm.
38
39. Financial management chapter 3
3- The ratios being compared
should be calculated using
financial statements dated at the
same point in time during the
year..
4- It is
preferable
to use
audited
financial
statements
for ratio
analysis.
39
40. Financial management chapter 3
•6- Results can be distorted
by inflation, which can
cause the book values of
inventory and depreciable
assets to differ greatly from
their true (replacement)
values.
* 5- The
financial data
being
compared
should have
been
developed in
the same
way. 40