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1.2 FS Analysis - Ratio Analysis - NA

The document provides an overview of financial statement analysis, detailing various ratios used to evaluate a company's financial health, including liquidity, solvency, activity, and profitability ratios. It includes calculations for different ratios, such as current ratio, debt ratio, and return on equity, using hypothetical data. The analysis aims to assist in decision-making regarding the financial position and performance of an entity.

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Mark Flores
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10 views43 pages

1.2 FS Analysis - Ratio Analysis - NA

The document provides an overview of financial statement analysis, detailing various ratios used to evaluate a company's financial health, including liquidity, solvency, activity, and profitability ratios. It includes calculations for different ratios, such as current ratio, debt ratio, and return on equity, using hypothetical data. The analysis aims to assist in decision-making regarding the financial position and performance of an entity.

Uploaded by

Mark Flores
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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FS Analysis - General

Toby Cabug
Financial Statement Analysis
• The process of examining financial statements to
evaluate the financial position and performance
of an entity for decision making purposes.
Financial Statement Ratios
• Liquidity Ratios
• Solvency Ratios
• Activity Ratios
• Profitability Ratios
CA : $22,000 CL : $12,000
14,000 5,000
10,000 $17,000
$46,000

NWC = CA – CL
= $46,000 - $17,000
= $29,000
Liquidity Ratios
• Measure the ability of the company to meet short term
obligations

Current Ratio = Current Assets / Current Liabilities

Acid-test Ratio = Quick Assets / Current Liabilities

Cash Ratio = Cash (incl Mkt Sec) / Current Liabilities


CR = CA Current Ratio:
CL A) 2.07
B) 1.57
C) 2.85 → most liquid
D) 2.39
Lowest CA
Current Ratio = $30 + $15 + $15
$15
=4

Cash Ratio = $30


$15
=2
Solvency Ratios
• Measure the ability of the company to meet long term
obligations

Debt Ratio = Liabilities / Assets

Debt-to-Eq. Ratio = Liabilities / Equity

Times Int. Earned = EBIT / Interest Expense


Debt to Asset ratio = $143,000 + $285,000
$817,000
= 52.87%
Opis Company has total assets of
$475,000 and total liabilities of
$130,000. The company's debt-to-
equity ratio is closest to

130,000
475,000 – 130,000

= 37.68%
Defaulting = failing to meet obligation to pay

* “lowest likelihood of defaulting” → highest TIE


TIE = EBIT
EBIT 621,000
Interest Interest (57,000)
Tax (146,000)
TIE = $621,000 NI $418,000
$57,000
= 10.89
50% 45% 45% 40%
DFL = EBIT EBIT (in millions) = 15 – 9 – 3
PBT =3

= 3,000,000
2,200,000
= 1.36
DOL = CM DFL = EBIT
EBIT PBT
= 20,000 = 12,000
12,000 10,000
= 1.67 = 1.2

DTL = DOL x DFL


= 1.67 x 1.2
=2
Op Cycle = D.I. + D.A.R.

Activity Ratios Cash CC = D.I. + D.A.R. – D.A.P.

• Measure the efficiency of a company in utilizing its


resources.

Total Asset Turnover = Revenues / Assets


Fixed Asset Turnover = Revenues / Fixed Assets

Inventory Turnover = CGS / Invty Days Inventory = Invty / D. CGS

AR Turnover = Cr. Sales / AR Days in AR = AR / D. Cr. Sales

AP Turnover = Cr. Purch / AP Days in AP = AP / D. Cr. Purch.


ATO = Sales
Ave Assets

Store 1 : 0.63
Store 2 : 0.67
Store 3 : 0.59  lowest
Store 4 : 0.68
FATO = 3,000,000
1,300,000

= 2.3
ARTO = 800,000
60,000

= 13.3
ARTO = 1,000,000 DSO = 365
70,000 14.29

= 14.29 times = 25.6 days


ITO = COGS
Ave Ivty

= 452,750 – 256,500
188,787.50

= 1.04
ARTO = 10 DSO = 36.5
APTO = 4 DAP = 91.25
ITO = 3.33 DSI = 109.61

CCC = DSO + DSI – DAP


= 36.5 + 109.61 – 91.25
= 54.86 days
Profitability Ratios
• Measure the earning-ability of the company
BVPS = SHE – Pref Equity
WA of CSO

= 24,209,306 – 3,554,405 + 2,861,003 – 223,551 – 412,917


12,195,799

= 1.88 *Include the NI and dividends for the adjustment in year 2001
RE, beg 500,000 SHE = 1,000,000 + 2,000,000 + 640,000
NI 200,000 = 3,640,000
(Dividends paid) (60,000)
RE, end 640,000 BVPS = 3,640,000 = 3.64
1,000,000

M = 3.64 * 2
= 7.28
EPS = 168,000 PE Ratio = 53.20
60,000 2.8

= 2.8 = 19
COGS = 7,000,000 x (1 – 40%)
= 4,200,000
ATO = Sales
Ave Asset

0.60 = Sales
4,500,000

Sales = 2,700,000
ROA = NI ROE = NI
Asset SHE

= 75,000 = 75,000
550,000 287,500
EPS = 42,390 – 6,000
18,000

= 2.02
High pe ratio = overvalued and high growth rate
Low pe ratio = undervalued and low growth rate
ROE = ROA x FL
FL = ROE
ROA

= 10% / 7%

= 1.43

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