财务管理基础(2).ppt

1、Chapter 6,Financial Statement Analysis,After Studying Chapter 6, you should be able to:,Understand the purpose of basic financial statements and their contents. Understand what is meant by “convergence” in accounting standards. Explain why financial statement analysis is important to the firm and to

2、 outside suppliers of capital. Define, calculate, and categorize (according to liquidity, financial leverage, coverage, activity, and profitability) the major financial ratios and understand what they can tell us about the firm. Define, calculate, and discuss a firms operating cycle and cash cycle.

3、Use ratios to analyze a firms health and then recommend reasonable alternative courses of action to improve the health of the firm. Analyze a firms return on investment (i.e., “earning power”) and return on equity using a DuPont approach. Understand the limitations of financial ratio analysis. Use t

4、rend analysis, common-size analysis, and index analysis to gain additional insights into a firms performance.,Financial Statements A Possible Framework for Analysis Balance Sheet Ratios Income Statement and Income/Balance Sheet Ratios Trend Analysis Common-Size and Index Analysis,Financial Statement

5、 Analysis,Trade Creditors Focus on the liquidity of the firm. Bondholders Focus on the long-term cash flow of the firm. Shareholders Focus on the profitability and long-term health of the firm.,Examples of External Uses of Statement Analysis,Plan Focus on assessing the current financial position and

6、 evaluating potential firm opportunities. Control Focus on return on investment for various assets and asset efficiency. Understand Focus on understanding how suppliers of funds analyze the firm.,Examples of Internal Uses of Statement Analysis,Convergence of Accounting Standards: Aims to narrow or r

7、emove differences so that investors can better understand financial statements prepared under different accounting frameworks IASB International Accounting Standards Board has the responsibility of IFRS IFRS International Financial Reporting Standards (EU countries adopted) US GAAP US Generally Acce

8、pted Accounting Principles determined by FASB FASB Financial Accounting Standards Board determines accounting standards for financial statements,Global Accounting Standards,Income Statement A summary of a firms revenues and expenses over a specified period, ending with net income or loss for the per

9、iod.,Balance Sheet A summary of a firms financial position on a given date that shows total assets = total liabilities + owners equity.,Primary Types of Financial Statements,a. How the firm stands on a specific date. b. What BW owned. c. Amounts owed by customers. d. Future expense items already pai

10、d. e. Cash/likely convertible to cash within 1 year. f. Original amount paid. g. Acc. deductions for wear and tear.,Cash $ 90 Acct. Rec.c 394 Inventories 696 Prepaid Exp d 5 Accum Tax Prepay 10 Current Assetse $1,195 Fixed Assets (Cost)f 1030 Less: Acc. Depr. g (329) Net Fix. Assets $ 701 Investment

11、, LT 50 Other Assets, LT 223 Total Assetsb $2,169,Basket Wonders Balance Sheet (thousands) Dec. 31, 2007a,Basket Wonders Balance Sheet (Asset Side),a. Note, Assets = Liabilities + Equity. b. What BW owed and ownership position. c. Owed to suppliers for goods and services. d. Unpaid wages, salaries,

12、etc. e. Debts payable 1 year. g. Original investment. h. Earnings reinvested.,Notes Payable $ 290 Acct. Payablec 94 Accrued Taxes d 16 Other Accrued Liab. d 100 Current Liab. e $ 500 Long-Term Debt f530 Shareholders Equity Com. Stock ($1 par) g200 Add Pd in Capital g729 Retained Earnings h 210 Total

13、 Equity $1,139 Total Liab/Equitya,b $2,169,Basket Wonders Balance Sheet (thousands) Dec. 31, 2007,Basket Wonders Balance Sheet (Liability Side),a. Measures profitability over a time period. b. Received, or receivable, from customers. c. Sales comm., adv., officers salaries, etc. d. Operating income.

14、 e. Cost of borrowed funds. f. Taxable income. g. Amount earned for shareholders.,Net Sales $ 2,211 Cost of Goods Sold b 1,599Gross Profit $ 612 SG&A Expenses c 402 EBITd $ 210 Interest Expensee 59 EBT f $ 151 Income Taxes 60 EATg $ 91 Cash Dividends 38 Increase in RE $ 53,Basket Wonders Statement o

15、f Earnings (in thousands) for Year Ending December 31, 2007a,Basket Wonders Income Statement,Analytical Tools Used Sources and Uses Statement Statement of Cash Flows Cash Budgets,1. Analysis of the funds needs of the firm.,Trend/Seasonal Component How much funding will be required in the future? Is

16、there a seasonal component?,Framework for Financial Analysis,Health of a Firm Financial Ratios 1. Individually 2. Over time 3. In combination 4. In comparison,1. Analysis of the funds needs of the firm.,2. Analysis of the financial condition and profitability of the firm.,Framework for Financial Ana

17、lysis,Examples: Volatility in sales Volatility in costs Proximity to break-even point,1. Analysis of the funds needs of the firm.,2. Analysis of the financial condition and profitability of the firm.,3. Analysis of the business risk of the firm.,Business risk relates to the risk inherent in the oper

18、ations of the firm.,Framework for Financial Analysis,A Financial Manager must consider all three jointly when determining the financing needs of the firm.,Determining the financing needs of the firm.,1. Analysis of the funds needs of the firm.,2. Analysis of the financial condition and profitability

19、 of the firm.,3. Analysis of the business risk of the firm.,Framework for Financial Analysis,Negotiations with suppliers of capital.,Determining the financing needs of the firm.,1. Analysis of the funds needs of the firm.,2. Analysis of the financial condition and profitability of the firm.,3. Analy

20、sis of the business risk of the firm.,Framework for Financial Analysis,Types of Comparisons Internal Comparisons External Comparisons,A Financial Ratio is an index that relates two accounting numbers and is obtained by dividing one number by the other.,Use of Financial Ratios,Examples: Risk Manageme

21、nt Association Dun & Bradstreet Almanac of Business and Industrial Financial Ratios,This involves comparing the ratios of one firm with those of similar firms or with industry averages. Similarity is important as one should compare “apples to apples.”,External Comparisons and Sources of Industry Rat

22、ios,Current Current Assets Current Liabilities For Basket Wonders December 31, 2007,Shows a firms ability to cover its current liabilities with its current assets.,Balance Sheet Ratios,Liquidity Ratios,$1,195 $500,= 2.39,Liquidity Ratios,BW Industry 2.392.15 2.262.09 1.912.01,Year 2007 2006 2005,Cur

23、rent Ratio,Ratio is stronger than the industry average.,Liquidity Ratio Comparisons,Acid-Test (Quick) Current Assets - Inv Current Liabilities For Basket Wonders December 31, 2007,Shows a firms ability to meet current liabilities with its most liquid assets.,Balance Sheet Ratios,Liquidity Ratios,$1,

24、195 $696 $500,= 1.00,Liquidity Ratios,BW Industry 1.001.25 1.041.23 1.111.25,Year 2007 2006 2005,Acid-Test Ratio,Ratio is weaker than the industry average.,Liquidity Ratio Comparisons,Strong current ratio and weak acid-test ratio indicates a potential problem in the inventories account. Note that th

25、is industry has a relatively high level of inventories.,RatioBWIndustry Current2.39 2.15 Acid-Test1.00 1.25,Summary of the Liquidity Ratio Comparisons,Current Ratio Trend Analysis Comparison,Acid-Test Ratio Trend Analysis Comparison,The current ratio for the industry has been rising slowly at the sa

26、me time the acid-test ratio has been relatively stable. This indicates that inventories are a significant problem for BW.,The current ratio for BW has been rising at the same time the acid-test ratio has been declining.,Summary of the Liquidity Trend Analyses,Debt-to-Equity Total Debt Shareholders E

27、quity For Basket Wonders December 31, 2007,Shows the extent to which the firm is financed by debt.,Balance Sheet Ratios,Financial Leverage Ratios,$1,030 $1,139,= 0.90,Financial Leverage Ratios,BW Industry 0.900.90 0.880.90 0.810.89,Year 2007 2006 2005,Debt-to-Equity Ratio,BW has average debt utiliza

28、tion relative to the industry average.,Financial Leverage Ratio Comparisons,Debt-to-Total-Assets Total Debt Total Assets For Basket Wonders December 31, 2007,Shows the percentage of the firms assets that are supported by debt financing.,Balance Sheet Ratios,Financial Leverage Ratios,$1,030 $2,169,=

29、0.47,Financial Leverage Ratios,BW Industry 0.470.47 0.470.47 0.450.47,Year 2007 2006 2005,Debt-to-Total-Asset Ratio,BW has average debt utilization relative to the industry average.,Financial Leverage Ratio Comparisons,Total Capitalization Total Debt Total Capitalization For Basket Wonders December

30、31, 2007,Shows the relative importance of long-term debt to the long-term financing of the firm.,Balance Sheet Ratios,Financial Leverage Ratios,$1,030 $1,669,= 0.62,(i.e., LT-Debt + Equity),Financial Leverage Ratios,BW Industry 0.620.60 0.620.61 0.670.62,Year 2007 2006 2005,Total Capitalization Rati

31、o,BW has average long-term debt utilization relative to the industry average.,Financial Leverage Ratio Comparisons,Interest Coverage EBIT Interest Charges For Basket Wonders December 31, 2007,Indicates a firms ability to cover interest charges.,Income Statement Ratios,Coverage Ratios,$210 $59,= 3.56

32、,Coverage Ratios,BW Industry 3.565.19 4.355.02 10.304.66,Year 2007 2006 2005,Interest Coverage Ratio,BW has below average interest coverage relative to the industry average.,CoverageRatio Comparisons,Coverage Ratio Trend Analysis Comparison,This indicates that low earnings (EBIT) may be a potential

33、problem for BW. Note, we know that debt levels are in line with the industry averages.,The interest coverage ratio for BW has been falling since 2005. It has been below industry averages for the past two years.,Summary of the Coverage Trend Analysis,Receivable Turnover Annual Net Credit Sales Receiv

34、ables For Basket Wonders December 31, 2007,Indicates quality of receivables and how successful the firm is in its collections.,Income Statement/ Balance Sheet Ratios,Activity Ratios,$2,211 $394,= 5.61,(Assume all sales are credit sales.),Activity Ratios,Avg Collection Period Days in the Year Receiva

35、ble Turnover For Basket Wonders December 31, 2007,Average number of days that receivables are outstanding. (or RT in days),Income Statement/ Balance Sheet Ratios,Activity Ratios,365 5.61,= 65 days,Activity Ratios,BW Industry 65.065.7 71.166.3 83.669.2,Year 2007 2006 2005,Average Collection Period,BW

36、 has improved the average collection period to that of the industry average.,ActivityRatio Comparisons,Payable Turnover (PT) Annual Credit Purchases Accounts Payable For Basket Wonders December 31, 2007,Indicates the promptness of payment to suppliers by the firm.,Income Statement/ Balance Sheet Rat

37、ios,Activity Ratios,$1551 $94,= 16.5,(Assume annual credit purchases = $1,551.),Activity Ratios,PT in Days Days in the Year Payable Turnover For Basket Wonders December 31, 2007,Average number of days that payables are outstanding.,Income Statement/ Balance Sheet Ratios,Activity Ratios,365 16.5,= 22

38、.1 days,Activity Ratios,BW Industry 22.146.7 25.451.1 43.548.5,Year 2007 2006 2005,Payable Turnover in Days,BW has improved the PT in Days. Is this good?,ActivityRatio Comparisons,Inventory Turnover Cost of Goods Sold Inventory For Basket Wonders December 31, 2007,Indicates the effectiveness of the

39、inventory management practices of the firm.,Income Statement/ Balance Sheet Ratios,Activity Ratios,$1,599 $696,= 2.30,Activity Ratios,BW Industry 2.303.45 2.443.76 2.643.69,Year 2007 2006 2005,Inventory Turnover Ratio,BW has a very poor inventory turnover ratio.,ActivityRatio Comparisons,Inventory T

40、urnover Ratio Trend Analysis Comparison,Total Asset Turnover Net Sales Total Assets For Basket Wonders December 31, 2007,Indicates the overall effectiveness of the firm in utilizing its assets to generate sales.,Income Statement/ Balance Sheet Ratios,Activity Ratios,$2,211 $2,169,= 1.02,Activity Rat

41、ios,BW Industry 1.021.17 1.031.14 1.011.13,Year 2007 2006 2005,Total Asset Turnover Ratio,BW has a weak total asset turnover ratio. Why is this ratio considered weak?,ActivityRatio Comparisons,Gross Profit Margin Gross Profit Net Sales For Basket Wonders December 31, 2007,Indicates the efficiency of

42、 operations and firm pricing policies.,Income Statement/ Balance Sheet Ratios,Profitability Ratios,$612 $2,211,= 0.277,Profitability Ratios,BW Industry 27.7%31.1% 28.730.8 31.327.6,Year 2007 2006 2005,Gross Profit Margin,BW has a weak Gross Profit Margin.,ProfitabilityRatio Comparisons,Gross Profit

43、Margin Trend Analysis Comparison,Net Profit Margin Net Profit after Taxes Net Sales For Basket Wonders December 31, 2007,Indicates the firms profitability after taking account of all expenses and income taxes.,Income Statement/ Balance Sheet Ratios,Profitability Ratios,$91 $2,211,= 0.041,Profitabili

44、ty Ratios,BW Industry 4.1%8.2% 4.98.1 9.07.6,Year 2007 2006 2005,Net Profit Margin,BW has a poor Net Profit Margin.,Profitability Ratio Comparisons,Net Profit Margin Trend Analysis Comparison,Return on Investment Net Profit after Taxes Total Assets For Basket Wonders December 31, 2007,Indicates the

45、profitability on the assets of the firm (after all expenses and taxes).,Income Statement/ Balance Sheet Ratios,Profitability Ratios,$91 $2,160,= 0.042,Profitability Ratios,BW Industry 4.2% 9.6% 5.0 9.1 9.110.8,Year 2007 2006 2005,Return on Investment,BW has a poor Return on Investment.,Profitability

46、 Ratio Comparisons,Return on Investment Trend Analysis Comparison,Return on Equity Net Profit after Taxes Shareholders Equity For Basket Wonders December 31, 2007,Indicates the profitability to the shareholders of the firm (after all expenses and taxes).,Income Statement/ Balance Sheet Ratios,Profit

47、ability Ratios,$91 $1,139,= 0.08,Profitability Ratios,BW Industry 8.0%18.0% 9.417.2 16.620.4,Year 2007 2006 2005,Return on Equity,BW has a poor Return on Equity.,Profitability Ratio Comparisons,Return on Equity Trend Analysis Comparison,ROI2007 = 0.041 1.02 = 0.042 or 4.2% ROIIndustry = 0.082 1.17 = 0.096 or 9.6% (Note: values are rounded),ROI = Net profit margin Total asset turnover,Earning Power = Sales profitabilit