OUTLINE
Users
Percentage Analysis:
Vertical Horizontal
Ratio Analysis
Liquidity Profitability Efficiency Solvency
Co. C
TYPES OF ANALYSIS
Financial Statement Analysis Percentage Ratio i Liquidity Ratio i Profitability Ratio i Vertical Analysis i Efficiency Ratio i Solvency Ratio
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i Horizontal Analysis
HORIZONTAL ANALYSIS
} } Also known as trend analysis. Evaluates a series of financial statement data over a period of time. Purpose: to determine the increase or decrease that has taken place This change may be expressed as either an amount or a percentage.
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HORIZONTAL ANALYSIS
Evaluates: Income Statement
Balance Sheet
Formula:
Baling Crest Sdn Bhd Comparative Balance Sheet As At Dec. 31, 2008 and 2009 2008 2009 Inc. (Dec) Amount % Fixed Asset: Office Equipment (net) 55,000 63,000 8,000 14.5 Current Asset: Cash 7,000 9,700 2,700 38.6 Accounts Receivable 10,000 18,000 8,000 80.0 Current Liabilities Liabilities: (2,000) (22.2) Accounts Payable 9,000 7,000 63,000 83,700 20,700 32.9 Owners Equity 63,000 83,700 63,000 83,700 20,700 20,700 32.9 32.9
Baling Crest Sdn Bhd Comparative Income Statement For the Years Ended Dec. 31, 2008 and 2009 2008 2009 Inc. (Dec) Amount % 16,000 13,200 2,800 (1,800) 8,900 16.2 29.7 5.1 (10.7) 74.2
Net Sales Cost of Goods Sold Gross Profit Selling Expenses Admin Expenses Net Income
(4,300) (16.7)
VERTICAL ANALYSIS
} Evaluates financial statement data expressing each item in a financial statement as a percent of a base amount.
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Baling Crest Sdn Bhd Comparative Balance Sheet As At Dec. 31, 2008 and 2009 2008 Fixed Asset: Office Equipment (net) Current Asset: Cash Accounts Receivable Current Liabilities: Liabilities Accounts Payable Total Assets Long Term Liabilities Owners Equity Total Liab & Equities Amt 55,000 7,000 10,000 % 76.4 9.7 13.9 2009 Amt % 63,000 9,700 18,000 7,000 90,700 45,000 38,700 90,700 69.5 10.7 19.8 7.7 100 49.6 42.7 100
12.5 9,000 72,000 100 30,000 33,000 72,000 41.6 45.8 100
Baling Crest Sdn Bhd Comparative Income Statement For the Years Ended Dec. 31, 2008 and 2009 2008 Amt Net Sales Cost of Goods Sold Gross Profit Selling Expenses Admin Expenses Net Income 99,000 44,500 54,500 16,800 12,000 25,700 % 100 45.0 55.0 17.0 12.0 26.0 2009 Amt % 115,000 57,700 57,300 15,000 20,900 21,400 100 50.2 49.8 13.0 18.2 18.6
RATIO ANALYSIS
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Expresses the relationship among selected items of financial statement data. Classifications:
Liquidity Ratios Profitability Ratios Efficiency Ratios Solvency Ratios
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LIQUIDITY RATIOS
Measures of short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash. The ratios are: 5 Current Ratio (Working capital ratio) 5 Acid test ratio (Quick ratio)
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Current ratio
Quick asset includes cash, marketable securities and accounts receivable (excluding inventories).
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PROFITABILITY RATIOS
Measures of the income or operating success of a company for a given period of time. The ratios are: 5 Profit margin 5 Gross profit margin 5 Return on Assets 5 Return on Equity 5 Return on Common Equity 5 Earnings Per Share 5 Price - Earnings ratio
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Profit margin
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2008 45,000 20,200 24,800 Less: Operating Expenses Net income 14,200 10,600 = 10,600 45,000 = 23.56%
Profit margin
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Eg: Net Sales Less: Cost of Goods Sold Gross Profit Less: Operating Expenses Net income Gross profit margin =
Net income + Interest expense Return on assets = Average total assets Total assets year 1 + total assets year 2 2
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Eg: Net income Interest Expense Total Assets (2007 = 69,900) Return on Assets 2008 =
= Total equity year 1 + total equity year 2 h Average total stockholders equity 2
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Eg: Net income Total Equities: Preferred Shares Common Shares * Dividends paid to preferred share Return on Common Equity ( year 2009 ) =
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Eg: Net income Total Equities: Common Shares (RM1.00 per share) Dividends paid to preferred Shares Earnings per share ( year 2009 ) =
2008 10,600
2009 20,500
80,000
86,000
4,500
6,000
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Eg: Average market price for common stock Earnings Per Share
EFFICIENCY RATIOS
Measures of the efficiency and the ability of the company in managing its resources. The ratios are: 5 Inventory Turnover 5 Asset Turnover 5 Debtors Turnover / Receivable Turnover
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Inventory Turnover
Average inventory =
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Average assets =
Receivables turnover =
SOLVENCY RATIOS
Measures of the ability of the company to survive over a long period of time. The ratios are: 5 Debt ratio 5 Equity ratio 5 Times Interest Earned
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52,000 82,000 = 63 %
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Equity ratio =
69,000 75,000 = 92 %
69,000 82,000 = 84 %
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