4CHAPTER

Foundations of Ratio and Financial Analysis

1. Introduction

Financial statements users

Equity investor

Creditor

Long term earning power

short term creditor

long term creditor

liquidity solvency

Purpose and use of ratio analysis:

Can be used to compare the risk and return relationships of firms of different sizes;

Can provide a profile of a firm:

economic characteristics and competitive strategies

unique operating, financial and investment characteristics.

Categories of ratios:

Activity analysis Liquidity analysis solvency analysis Profitability analysis

evaluates revenue and output generated by the firm’s assets.

measures the adequacy of a firm’s cash resources to meet its near-term cash obligation.

ability of the firm to satisfy its longer-term debt and investment obligations

measures the income of the firm relative to its revenues and invested capital.

Four categories:

Cautionary Notes

Economic assumptions

Benchmarks

Timing and window dressing

Negative Numbers

Accounting methods

Manipulation of ratios

Ratio Management (window dressing)

Examples are:• Press the collection of receivables

at year-end• Call in advances to officers for

temporary repayment• Reduce inventory below normal

levels• Delay normal purchases

Proceeds from these activities are then used to pay off current liabilities

Negative Numbers

Return on equity=income/equity

income equity ROE

Company A 10000 100000 10%

Company B (10000) (100000) 10%

Dividend payout ratio=dividend/income

dividend income Payout ratio

A 10000 50000 20%

B 10000 30000 33%

C 10000 (50000) 20%

2. Common-size statements

Purpose :

Evaluation of internal makeup of financial statements

Evaluation of financial statement accounts across companies

Output:

Proportionate size of assets, liabilities, equity, revenues, & expenses

Pfizer Takeda Roche

Cash and cash equivalents 4 24 23

Short-term investments and loans 19 17 3

Accounts receivable 19 17 9

Inventory 8 8 9

Prepaid expenses and taxes 5 3 4

Current assets 54% 69% 49%

Long-term investments 8 9 3

Net property land and equipment 26 17 20

Net goodwill and other intangibles 4 0 22

Total assets 100% 100% 100%

Common size balance sheetP 115

Short-term debt 24 1 8

Accounts and notes payable 5 9 3

Income taxes payable 4 3 1

Other current liabilities 11 9 9

Current liabilities 45% 21% 21%

Long-term debt 3 1 23

Other non current liabilities 8 8 8

Deferred income taxes 1 0 6

Total liabilities 57% 29% 57%

Minority interests - 2 4

Common stock and APIC 27 9 0

Retained earnings 65 59 38

Accumulated other comprehensive income

(2) 0 0

Reserves and trusts (14) 1 0

Treasury stock (33) 0 0

Total equity 43% 71% 43%

Total liabilities and equities 100% 100% 100%

Pfizer Takeda Roche

Sales 100% 100% 100%

COGS 16 52 32

Gross profit 84% 48% 68%

SG&A 39 22 37

R&D Expenses 17 9 14

Other operating expenses (1) 0 0

Income from operations 29% 17% 17%

Other income 0 5 15

Income before interest and taxes 29 22 32

Interest expenses 1 0 4

Income before taxes 27% 22% 27%

Provisions for taxes 8 11 7

Income from continuing operations 20% 11% 20%

Common size income statement

ABC Common-Size Income Statements

2001 2000

Sales 100.0% 100.0%Cost of goods sold 65.5 59.9 Gross profit

0.6%

Selling, general and administrative expenses 21.0 19.0Research and development costs 5.9 5.6Restructuring Costs 5.0 (0.3)Earnings from operations

Interest expense and other costs (credits) 1.8 0.6Earnings before income taxesProvision for income taxes 0.2 5.2Net earnings

34.5%

0.8%

2.6% 15.8%

40.1%

15.2%

10.0%

Example:

3. Discussion of Ratios by Category

I. Activity analysis:

Activity ratios describe the relationship between the firm’s level of operations (usually defined as sales) and the assets needed to sustain operating activities.

The higher the ratio, the more efficient the firm’s operations.

Trends in these ratios over time and in comparison to other firms in the same industry can indicate potential deficiencies or opportunities.

Activity ratio can also be used to forecast a firm’s capital requirements(both operating and long-term).

activity ratios

Short-term (operating)

activity ratios

Long-term(investment)activity ratios

inventory

receivables

payables

Working capital

Fixed assets

Total assets

Short-term( operating) activity ratios:

(1) Inventory Turnover:

inventory Average

sold goods of Cost

Measure the efficiency of the firm’s inventory management.

This ratio is affected by the choice of accounting method.

0 5 10 15 20 25 30 35 40

农林牧渔

采掘业

制造业

电力煤气及水

建筑业

交通运输业

信息技术业

批零贸易业

社会服务业

文化传播

综合类

部分行业存货周转率

turnoverInventory

365Average No. Days of Inventory in Stock=

Selected financial information from Macon Resources, Inc., for the end of Year 8 is reproduced below:

Sales $1,800,000Cost of goods sold 1,200,000Beginning inventory 200,000Ending inventory 400,000

Example:

Calculate :Inventory Turnover

Average No. Days of Inventory in Stock

360

0 20 40 60 80 100 120

农林牧渔

采掘业

制造业

电力煤气及水

建筑业

交通运输业

信息技术业

批零贸易业

社会服务业

文化传播

综合类

部分行业存货周转天数

【思考题（ Questions）】

1. 假设你是咨询师。假设你在 King 娱乐公司做管理咨询。你的一项任务是使存货成本更加合理。在考察了前期业绩和存货报告之后，你建议通过加强存货管理以减少存货。你预期现有的存货周转率将从 20 提高到 25 。节省下来的资金用于偿还流动负债——持有流动负债的年成本为 10% 。假设预期销售收入为 1.5 亿美元，预期销货成本为 1 亿美元，你预计会节约多少成本？

(2) Receivable Turnover:

Sales

Average trade receivables

Average No. Days receivables outstanding =365

Receivable Turnover

Measure the effectiveness of the firm’s credit policies;

Indicate the level of investment in receivables needed to maintain the firm’s sales level.

Accounts Receivable Turnover

360

0 100 200 300 400 500 600 700

农林牧渔

采掘业制造业

电力煤气及水

建筑业交通运输业

信息技术业批零贸易业

房地产业社会服务业文化传播

综合类

各行业应收账款周转率

0 20 40 60 80 100

农林牧渔

采掘业

制造业

电力煤气及水

建筑业

交通运输业

信息技术业

批零贸易业

房地产业

社会服务业

文化传播

综合类

各行业应收账款收款期

Amazon和 Wal-mart公司收款期比较

Amazon Wal-mart

应收账款收款期 0.0 4.0

Purchases

Average amounts payable

Cost of good sold plus change in inventory

Average No. Days Payables outstanding =365

Payables Turnover

(3) Payables turnover

(4) Working Capital Turnover:

Sales

Average Working Capital Only operating assets and

liabilities are included

Working capital is

defined as the excess of current assets over current liabilities Widely used measure of short-term liquidity Deficient when current liabilities exceed current assets In surplus when current assets exceed current liabilities A margin of safety for creditors A liquid reserve to meet contingencies and uncertainties

A constraint for technical default in many debt agreements

Working capital is

defined as the excess of current assets over current liabilities Widely used measure of short-term liquidity Deficient when current liabilities exceed current assets In surplus when current assets exceed current liabilities A margin of safety for creditors A liquid reserve to meet contingencies and uncertainties

A constraint for technical default in many debt agreements

long-term (investment) activity ratios:

(1) Fixed assets turnover =Sales

Average fixed assets

(2) Total assets turnover =Sales

Average Total assets

II. Liquidity analysis:

Company Liquidity refers to the ability to meet short-term obligations

Liquidity is the ability to convert assets into cash or to obtain cashShort term is the longer of one-year or the company operating cycle

Company Liquidity refers to the ability to meet short-term obligations

Liquidity is the ability to convert assets into cash or to obtain cashShort term is the longer of one-year or the company operating cycle

Liquidity is a matter of degree

Lack of liquidity can limit

• Advantages of favorable discounts• Profitable opportunities• Management actions• Coverage of current obligations

Liquidity is a matter of degree

Lack of liquidity can limit

• Advantages of favorable discounts• Profitable opportunities• Management actions• Coverage of current obligations

Length of cash cycle

•Operating cycle

•Cash cycle

sliabilitie Current

assets Current=ratio Current

Rule of Thumb Analysis (2:1)

> 2:1 superior coverage of current liabilities (but not too high, suggesting inefficient use of resources and reduced returns)

< 2:1 deficient coverage of current liabilities

0. 00 0. 50 1. 00 1. 50 2. 00 2. 50 3. 00

各行业流动比率

Current Ratio — Limitations:

If liquidity is the ability to meet cash outflows with adequate cash inflows, then does the current ratio: Measure and predict the pattern of future cash inflows and

outflows?

Measure the adequacy of future cash inflows to outflows?

Answer is generally no to both these questions

Current ratio Is a static measure Does not have a causal relation to future

cash inflows

Current Ratio — Limitations in Numerator

Adjustments often needed to counter various limitations such as

Failure to reflect open lines of credit

Adjust securities’ valuation since the balance sheet date

Reflect revolving nature of accounts receivable

Recognize profit margin in inventory

Adjust inventory values to market

Remove deferred charges of dubious liquidity from prepaid expenses

Three important qualifications

1. Liquidity depends to a large extent on prospective cash flows

2. No direct relation between working capital account balances and patterns of future cash flows

3. Managerial policies are directed primarily at efficient and profitable asset utilization and secondly at liquidity

4. Cash flow forecasts and pro forma financial statements are preferred over the current ratio for liquidity and

solvency analysis

5. Current ratio is a static measure of the ability of current assets to satisfy current liabilities

Two important elements are integral to use of the current ratio

1. Quality of both current assets and current liabilities

2. Turnover rate of both current assets and current liabilities

Acid-Test (Quick) Ratio

sliabilitieCurrent

receivable Accounts+securities Marketable+Cash

0. 00 0. 50 1. 00 1. 50 2. 00 2. 50

采掘业

传播与文化产业

电力、煤气及水的生产和供应业

房地产业

建筑业

交通运输、仓储业

农、林、牧、渔业

批发和零售贸易

社会服务业

信息技术业

制造业

综合类

Cash ratio =sliabilitieCurrent

securities Marketable+Cash

Cash flow from operations ratio =Cash flow from operations

Current liabilities

Measures liquidity by comparing actual cash flows with current liabilities.

esExpenditur Projected

receivable Accounts+securities Marketable+Cash

Defensive Interval =

365×

estimated outflows

Indicating the days a firm could maintain the current level of operations with is present cash resources but without considering any additional revenues.

案例分析

某企业 2007 年、 2008 年末的比较资产负债表中有关数据（单位：万元）如下表所示。

要求：根据上表资料对资产和权益的变动情况进行分析，并分析公司短期偿债能力的变动情况。

项目 2007 年末 2008 年末2008 年比 2007 年增减差额 百分比

流动资产：

速动资产 3000 2800 -200 -6.67

存货 5000 6200 1200 24

流动资产合计 8000 9000 1000 12.5

固定资产净额 14000 16000 2000 14.29

资产总计 22000 25000 3000 13.64

负债：

流动负债 4000 4600 600 15

长期负债 2000 2500 500 25

股东权益

股本 13000 13000 -- --

公积金 1800 2700 900 50

未分配利润 1200 2200 1000 83.33

股东权益合计 16000 17900 1900 11.88

负债和权益合计 22000 25000 3000 13.64

思考题

假设两家公司流动资产与流动负债金额相当，且流动资产和流动负债的构成相同，是否意味着两家公司具有相同的短期偿债能力？为什么？

假设某公司对存货的计价方法有先进先出法改为加权平均法，导致期末存货增加，进而增加公司流动资产。试问这种存货计价方法的改变是否影响到该公司的短期偿债能力？为什么？

某分析师指出，“流动比率越大公司的短期偿债能力越强，因此公司报告越高的流动资产越好。”你同意这一说法吗？试阐述理由。

III. Long-term Debt and Solvency analysis:

Debt ratios:

Debt to Total capital=Total debt

Debt + Equity

Debt to Equity =Total debt

Total Equity

0% 10% 20% 30% 40% 50% 60% 70% 80%

农林牧渔

采掘业

制造业

电力煤气及水

建筑业

交通运输业

信息技术业

批零贸易业

房地产业

社会服务业

文化传播

综合类

不同行业的资产负债率

0 0. 5 1 1. 5 2 2. 5 3 3. 5

农林牧渔

采掘业

制造业

电力煤气及水

建筑业

交通运输业

信息技术业

批零贸易业

房地产业

社会服务业

文化传播

综合类

不同行业的产权比率

Interest Coverage ratios:

Times Interest Earned=EBIT

Interest Expense

0 5 10 15 20

农林牧渔

采掘业

制造业

电力煤气及水

建筑业

交通运输业

信息技术业

批零贸易业

房地产业

社会服务业

文化传播

综合类

Interest coverageratio

Default rate （%）

Committed return（%）

Realized return（%）

Loss（%）

>3.0 2.1 4.0 4.9 -0.9

2.0~2.9 4.0% 4.3 5.1 -0.8

1.5~1.9 17.9 4.7 5.0 -0.3

1.0~1.4 34.1 6.8 6.4 0.4

<1.0 35.0 6.2 6.0 0.2

Interest coverage ratio Default rate

思考题 有两家公司具有相同的资产和负债规模，资产和负债的构

成以及盈利情况也相同，且两家公司出于同一行业，能够得出两家公司长期偿债能力相同的结论？为什么？

试讨论公司以抵押借款购买建筑物对本章所介绍的偿债能力评价指标具有什么样的影响？为什么？

成长型的公司可以通过债务融资来避免盈利稀释，试讨论这句话基本原理。

如果一家公司大量采用经营租赁租入资产，则可能会导致分析过程中高估其长期偿债能力，试讨论导致这种结果的原因。

Capital expenditure ratio:

=Cash from operations (CFO)

Capital expenditures

Measures the relationship between the firm’s cash-

generating ability and its investment expenditures.

To the extent the ratio exceeds 1, in indicates the firm has

cash left for debt repayment or dividends after capital

expenditures.

IV.Profitability Analysis:

Return on sales Return on investment

Gross margin

Operating margin

Margin before interest and tax

Pretax margin

Profit margin

Contribution margin

P132-134

Return on assets (ROA)

Return on total capital

Return on equity

Return on common equity

P134-135

Return on Sales:

Gross Margin=Gross Profit

Sales

Operating Margin=Operating Income

Sales

Profit Margin=Net Income

Sales

Margin before interest and tax=Operating Income

Sales

0% 10% 20% 30% 40% 50%

农林牧渔

采掘业

制造业

电力煤气及水

建筑业

交通运输业

信息技术业

批零贸易业

房地产业

社会服务业

文化传播

综合类

不同行业毛利率水平

Return on Investment:

Return on assets (ROA)=EBIT

Average total assets

ROA: measures operating efficiency/ performance reflects return from all financing does not distinguish return by financing sources

Disaggregation of ROA

sales

Average Total assets

EBIT

Sales×

0% 2% 4% 6% 8% 10% 12% 14% 16%

农林牧渔

采掘业

制造业

电力煤气及水

建筑业

交通运输业

信息技术业

批零贸易业

房地产业

社会服务业

文化传播

综合类

ROE= Net income

Average stockholder’s equity

ROE= Net income Sales

sales

Assets

Assets

Equity××

Disaggregation :

Operating and Financial Leverage:

Operating Leverage:

General Assumptions

Company V

Company F

Fixed assets $0 $40

Variable costs/sales

80% 40%

Assets $200 $200

Example:

A: Assuming 0% Financing, Debt $0, Equity $200

Scenario

No Leverage Operating Leverage

Company V Company F

A B C A B C

Sales (+50%) $50 $100 $150 $50 $100 $150

Variable cost 40 80 120 20 40 60

contribution 10 20 30 30 60 90

Fixed cost 0 0 0 40 40 40

Operating income 10 20 30 -10 20 50

Return

on sales 20% 20% 20% -20% 20% 33%

on assets 5% 10% 15% -5% 10% 25%

on equity 5% 10% 15% -5% 10% 25%

Contribution Margin Ratio =contribution

sales=1-

Variable costs

sales

Operating leverage effect (OLE):

OLE=Contribution Margin Ratio

Return on Sales

contribution

Operating Income=

% Change in income = OLE×% Change in Sales

Company F:

OLE=60%/20%= 3

B: Assuming 50% Financing, Debt $100, Equity $100,Interest Rate 5%

Scenario

Financial Leverage Total Leverage

Company V Company F

A B C A B C

Operating income 10 20 30 -10 20 50

Interest 5 5 5 5 5 5

Net income 5 15 25 -15 15 45

Return

on assets 5% 10% 15% -5% 10% 25%

on equity 5% 15% 25% -15% 15% 45%

Financial Leverage:

Scenario

No Leverage

Company V

A B C

Sales (+50%) $50 $100

$150

Variable cost 40 80 120

contribution 10 20 30

Fixed cost 0 0 0

Operating income 10 20 30

Return

on assets 5% 10% 15%

on equity 5% 10% 15%

Scenario

Financial Leverage

Company V

A B C

Operating income

10 20 30

Interest 5 5 5

Net income 5 15 25

Return

on assets 5% 10% 15%

on equity 5% 15% 25%

Financial leverage effect (FLE) :

FLE=Operating Income

Net Income

Total leverage effect (TLE) :

TLE= OLE× FLEcontribution

Net Income=

Company V:

FLE=1.333

Company F:

TLE=3×1.333=4

% Change in income = FLE×% Change in Sales

% Change in income = TLE×% Change in Sales

思考题

2006 年铜价大涨，某上市铜企盈利大增，在年度分红时实施了高送转。你如何看待这种由于价格上涨所带来的上市公司盈利的增加？

Other Ratios:

Earnings Per Share (EPS) :

EPS=Net income – Preferred Dividends

Weighted Average Common Shares Outstanding

Simple Capital Structure

EPS =

Net income lesspreferred dividendsWeighted average Common shares

-EPS impact of dilutive options &warrants

EPS impact of dilutive

convertibles-

Basic EPS

Diluted EPS

Complex Capital Structure:

Sources of Potential Dilution

0% 20% 40% 60% 80% 100%

Debt

Preferreed stock

Options

Warrants

ComputationsCapital structure

Options, warrants, orconvertible securities

outstanding?

Simple capital structure

Basic EPS

Net Income – Preferred dividendsWeighted average common shares

Complex capital structure

Diluted EPS

Net income to common shares adjusted for Interest (net of tax) and preferred dividends on dilutive securitiesWeighted average common shares including dilutiveSecurities

Example:

P152, Exhibit 4-15.

Dividend Payout Ratio:

Dividend Payout=Dividends

Net income

Generally , growth firms have low dividend payout ratios as they retain most of their income to finance expansion. More established, mature firms tend to have higher payout ratios.

案例：江西纸业（ 600053 ）是一家造纸及纸制品业上市公司，其 2000~2002 年利润表如下（单位：千元）：

2001 年，江西纸业巨亏，原因部分在于变更了坏帐计提政策，由原按应收款项余额 3% 计提改为帐龄分析法。更为重要的一个变更是，由于往来正常、规范，故对母公司的内部往来不计提坏帐准备，现变更为对母公司的应收款项也按账龄分析法计提准备。变更的结果就是对与大股东往来计提坏帐23371 万元，直接计入当年损益，致使当年巨亏2.99 亿。 2000 年公司刚刚完成了配股。

另外，公司对应收大股东款项由 2000 年末的 686万元增长为 2001 年末的 93859 万元。公司对期初报表进行了更正，其他应收款中增加应收大股东的欠款 70766 万元，应收账款由大股东原欠 483 万元增至 5798 万元。具体大股东欠款如下：

年份 项目 余额 帐龄 坏帐准备

2001年

应收账款 5799 2-3年 1740

其他应收 93279 1-4年 21632

小计 99078 23372

2002年

应收账款 5799 3 年以上 2899

其他应收 94522 1-5年 33085

小计 100320 35985

2003年

应收账款 5799 3 年以上 2899

其他应收 93555 1-6年 56968

小计 99354 59868

2001 年、 2002 年注册会计师审计意见为保留意见，保留事项均包括：公司应收大股东款项非常巨大，虽按账龄分析法计提了坏帐准备，但未能获取充分适当的证据对上述款项的可收回性做出判断。

要求： （ 1 ）评价公司 2000 年的盈利质量； （ 2 ）评价会计政策变更对公司盈利的影响，分析变

更的合理性。

Exercises:

P 154: 2.

P 155: 4

P 159: 18

P 162:27, a,b

Solutions: