chapter3financialanalysis.ppt

Part2FinancialAnalysisandPlanning,Chapter3FinancialAnalysis,Summary,Thethrustofthischapteristwotwofold.First,theuseoffinancialratiostoevaluatethesuccessofafirmisexamined.Second,theimpactofinflationanddisinflationonbusinessoperationsisassessedandexplored.,1.RatioAnalysis.,A.Usesofratios.1.Provideabasisforevaluatingtheoperatingperformanceofafirm.2.Facilitatecomparisonwithotherfirms.B.Sourcesofcomparativeratios.1.Dun&Bradstreet.2.RobertMorrisAssociates.3.Tradeorganizations.4.Standard&PoorsIndustrySurveys.5.ValueLineInvestmentSurvey.6.MoodysCorporation.7.ComputerdatabasesuchasCOMPUSTAT.,1.RatioAnalysis.,C.Classificationandcomputation.1.Profitability:Measuresofreturnsonsales,totalassets,andinvestedcapital.a.ProfitMargin=Netincome/Salesb.Returnonassets(investment)=Netincome/TotalAssetsc.ReturnonEquity=Netincome/Stockholdersequity=ReturnonAssets/(1-Debt/Assets),1.RatioAnalysis.,2.Assetutilization:Measureofthespeedatwhichthefirmisturningoveraccountsreceivable,inventories,andtheproductivityoflonger-termassets.a.Receivablesturnover=Sales/Receivablesb.AverageCollectionPeriod=AccountsReceivable/AverageDailyCreditSales=365/Receivablesturnoverc.InventoryTurnover=Sales/InventoryorCOGS/Inventoryd.FixedAssetTurnover=Sales/FixedAssetse.TotalAssetsTurnover=Sales/Totalassets,1.RatioAnalysis.,3.Liquidityratios:Measureofthefirmsabilitytopayoffshort-termobligationsastheycomedue.a.CurrentRatio=CurrentAssets/CurrentLiabilitiesb.QuickRatio=(Currentassets-Inventory)/CurrentLiabilities,1.RatioAnalysis.,4.Debt-utilizationratios:Measuresofthefirmsdebtpositionevaluatedinlightofitsassetbaseandearningpower.a.Debttototalassets=TotalDebt/TotalAssetsb.TimesInterestEarned=EarningsbeforeInterestandtaxes(EBIT)/Interestc.FixedChargeCoverage=Earningsbeforefixedchargesandtaxes/fixedchargesFixedcharges=leasepayment+interestexpenseEarningsbeforefixedchargesandtaxes=EBIT+Leasepayment,1.RatioAnalysis.,D.Interpretingfinancialratios.1.Individually,financialratiosconveylittlemeaning.2.Collectively,financialratiosprovideanevaluationforthefirmsinvestors,creditors,andmanagement.E.DuPontsystem.1.TheDuPontCompanywasoneofthefirstfirmstostresstherelationshipofprofitabilityandassetturnoverindeterminingreturnoninvestment.,1.RatioAnalysis.,2.Theprofitabilityofafirmisdeterminedbyitsabilitytoutilizeitsassetsefficientlybygeneratingprofitablesales.ReturnonAssets(Investment)=ProfitMarginAssetTurnoverNetincome/Totalassets=(netincome/sales)(sales/totalassets)3.Profitmarginistheprofit-per-dollarofsales.,1.RatioAnalysis.,4.Assetturnoverindicatesthedollarsalesgeneratedperdollarofassetsemployed.5.Thereturnonequityisafunctionofafirmsreturnonassetsanditsfinancingplan.Returnonequity=(returnonassets)/(1-Debt/Assets),1.RatioAnalysis.,F.Trendanalysisconsistofcomputingthefinancialratiosofafirmatvariouspointsintimetodetermineifitisimprovingordeteriorating.G.Comparativeanalysisprovidesthemanagementandexternalevaluatorswithinformationastohowsuccessfulthefirmisrelativetootherfirmsintheindustry.,2.ImpactofInflationandDisinflationonfinancialAnalysis.,A.Impactonprofits.1.First-in,first-out(FIFO)inventoryvaluationduringinflationperiods“understates”costofgoodssoldandcauses“inventoryprofits”.2.Theuseofreplacementcostaccountingreducesincomeandinterestcoverageduringinflationaryperiods.,2.ImpactofInflationandDisinflationonfinancialAnalysis.,3.Alevelingoff(平整，稳定)ofprices,referredtoasdisinflation,maycauseareductioninprofits.Someareasoftheworld,suchasRussia,haveexperienceddeflation,adeclineinpricesthatresultsinwidespreadbankruptciesandaseverenegativeimpactontheeconomy.B.Impactonassetvalue.1.Assetsonthebalancesheetarerecordedatcost.,2.ImpactofInflationandDisinflationonfinancialAnalysis.,2.Ininflationaryperiods,thereplacementcostoflong-termassetsmaygreatlyexceedthereportedvalues.3.Theuseofreplacementcostaccountingincreasesassetvaluesduringinflationaryperiods.Thisincreaselowersthedebt-to-assetratiobutdoesnotnecessarilyenhancethefirmsabilitytoserviceitsdebt.,2.ImpactofInflationandDisinflationonfinancialAnalysis.,C.Raisingcapital.1.Investorsgenerallyrequirehigherratesofreturnduringperiodsofinflation.2.Althoughearningsmaydropbecauseofdisinflation,thedecliningrateofreturndemandedbyinvestorsmaycausethevalueofafirmssecuritiestoincrease.,2.ImpactofInflationandDisinflationonfinancialAnalysis.,3.Themovementawayfromfinancialassets(stocksandbonds)intotangibleassets(gold,silver,etc.)byinvestorsduringperiodsofinflationmakesitdifficultandmoreexpensiveforfirmstoraisecapital.Likewise,thereversetrendduringperiodsofdisinflationenhancesafirmsabilitytoissuesecurities.,3.OtherElementsofDistortioninReportedIncome.,A.Recognitionofrevenue.1.Aconservativefirmmayrecognizelong-terminstallmentsalesrevenueswhenpaymentsarereceived,whereasotherfirmsreportthefullamountofthesaleassoonaspossible.2.Firmsthatleaseassetsmayreportalong-termleaseasasale.,3.OtherElementsofDistortioninReportedIncome.,B.Extraordinarylossesarereportedintotalasdeductionsfromoperatingincomebysomefirmsbutshownasdeductions(netoftaxes)fromnetincomebyothers.,Conclusion,1.Ratioanalysisprovidesameaningfulcomparisonofacompanytoitsindustry.2.Ratioscanbeusedtomeasureprofitabili