STATEMENTS
AN ALYSI S
BUS IN ESS
OBJ ECTI VES
Profit Motive – to create a value for its
shareholders while maintaining a sound
financial position
EXPERIENCE
BUDGETS
HISTORICAL / TREND
Horizontal analysis
Vertical analysis
SUMM ARY OF RA TIOS
OVERALL PERFORMANCE MEASURES:
State
Name of ratio Formula Results as
Net income
14.Return on shareholder’s equity --------------------------
Percent
SUMM ARY OF RA TIOS
PROFITABILITY MEASURES:
State
Name of ratio Formula Results as
Gross margin
5. Gross margin percentage --------------------------- Percent
Net sales revenues
Net income
6. Profit margin -----------------------
Percent
Net sales revenues
Net income
7. Earnings per share -------------------------------- Dollars
No. of shares outstanding
SUMM ARY OF RA TIOS
TESTS OF INVESTMENT UTILIZATION:
State
Name of ratio Formula Results as
Sales revenues
8. Asset turnover -----------------------
Times
Total assets
Sales revenues
9. Invested capital turnover ----------------------------------------------- Times
Long-term lia. + Shareholders’ equity
Sales revenues
10. Equity turnover ---------------------------- Times
Shareholders’ equity
SUMM ARY OF RA TIOS
TESTS OF INVESTMENT UTILIZATION (cont..):
State
Name of ratio Formula Results as
Sales revenues
11. Capital intensity ------------------------------------ Times
Property, plant & equipment
Cash
12. Days’ cash ---------------------------------- Days
Cash expenses / 365 days
Accounts receivables
13. Days’ receivables ---------------------------- Days
Sales / 365 days
SUMM ARY OF RA TIOS
TESTS OF INVESTMENT UTILIZATION (cont..):
State
Name of ratio Formula Results as
Inventory
14. Days’ inventory ------------------------------- Days
Cost of sales / 365 days
Cost of sales
15. Inventory turnover ---------------------- Times
Inventory
Sales revenues
16. Working capital turnover -----------------------
Times
Working capital
SUMM ARY OF RA TIOS
TESTS OF FINANCIAL CONDITION:
State
Name of ratio Formula Results as
Current assets
17. Current ratio -----------------------
Ratio
Current liabilities
Long-term liabilities
19. Debt/equity ratio --------------------------- Percent
Shareholders’ equity
or
Total liabilities
SUMM ARY OF RA TIOS
TESTS OF FINANCIAL CONDITION
(cont..): State
Name of ratio Formula Results as
Long-term liabilities
20. Debt/capitalization ----------------------------------------------
Percent
Long-term lia. + Shareholders’ equity
Dividends
24. Dividend payout ------------------ Percent
Net income
• reflects how much the firm has earned on the investment of all
the financial resources committed to the firm
1. Current Ratio
Current Assets
------------------------------------
Current Liabilities
7. Quick Ratio
- Tells the rapidity with which the inventory is turned over into
receivables thru sales
- The higher inventory turnover, the more efficient the inventory
management
- When the inventory turnover ratio is relatively low, it indicates
slow-moving inventory or obsolescence of stock
Total Debt
------------------------------------
Shareholder’s Equity
10.Long-term Capitalization
- All long-term debt, preferred stock, and shareholder’s equity
- Tells the relative importance of long-term debt in the capital
structure
Long-term Debt
---------------------------------------
Total Capitalization
3. Cash-flow-to-total-liabilities ratio
- Useful in assessing the creditworthiness of a company seeking debt funds
- Useful in predicting the deteriorating financial health of a company
4. Cash-flow-to-long-term ratio
- Used to evaluate the bonds of a company
- Helpful in corporate restructuring
- Useful in predicting the deteriorating financial health of a company