Financial Statement Analysis MIM 517 Class 4 Fall 2010.
Transcript of Financial Statement Analysis MIM 517 Class 4 Fall 2010.
Financial Statement Analysis
MIM 517Class 4
Fall 2010
Understanding a Company
What product line(s) is the company involved in? Is the product understandable?
Are there industry specific accounting rules? (e.g. oil & gas, financial services)
Does the company have one primary line of business?
Background & Industry Research - BizStats
Background & Industry Research – S&P
Background – Starbucks 10-K
Premier roaster & retailer of specialty coffee in the world
Offers coffee drinks, food items, roasted beans, coffee accessories, and teas in retail stores
Also sells coffee through grocery stores & licenses its brand for other products
Owns Seattle’s Best Coffee & Torrefazione Italia coffee brands
Background – Starbucks 10-K Industry
Increased competition from large well-known competitors (Dunkin, McDonalds)
Customers trading down to lower priced coffee beverages & related products due to economy
Starbucks Key Accounting Policies
“Application of Critical Accounting Policies” Asset Impairment Stock-based Compensation Operating Leases Self insurance reserves
Other issues Fair value accounting Multiple revenue streams
Financial Statement Analysis
Group by category Calculate numbers over time AND for
industry/peer Comment on “improving” or
“deteriorating” by category
Income Statement Analysis
Questions Size of company changed? Nature of operations changed? Unusual items? What is “quality of earnings”?
Tools Common sized I/S (% of net sales) Horizontal analysis Ratios Industry comparison
Balance Sheet Analysis
Questions Consistent with income statement “story”? Big changes?
Tools Common sized B/S (% of total assets) Horizontal analysis Industry comparison Ratios
Cash Flow Analysis
Tell the story…. What did the company use cash for?
Primary sources of cash Where did the company get cash from?
Primary uses of cash Did the company receive more cash than
it used?
Lets work through Starbucks
Common size and horizontal analysis Ratios Usefulness of financial web sites…
Morningstar, Yahoo finance, etc. http://quicktake.morningstar.com/StockNet/FinancialHealth10.aspx?Country=USA&Symbol
=SBUX
Why might there be differences? Is your 10K most current financials? Different categorization Ratio definitions
Liquidity Ratios
SBUX2009
SBUX2008
Tim Hortons
2009
Current Ratio 1.29 0.80 1.45Quick (Acid Test) Ratio 0.59 0.30 0.92Cash Flow Liquidity Ratio 1.30 0.72 1.53
Liquidity Ratios
SBUX2009
SBUX2008
Tim Hortons
2009
Net Trade Cycle102.25 days109.04 days
14.97 days
Average Collection Period 62.04 days 74.65 days
34.08 days
Days Inventory Held 67.22 days 64.77 days
21.30 days
Days Payable Outstanding 27.00 days 30.37 days
40.40 days
Operating Efficiency Ratios
SBUX2009
SBUX2008
Tim Hortons
2009
Accounts Receivable Turnover 5.88 4.89 3.57Inventory Turnover 5.43 5.64 17.14Accounts Payable Turnover 13.52 12.02 9.03Fixed Asset Turnover 3.85 3.51 1.67Total Asset Turnover 1.75 1.83 1.12
Leverage Ratios
SBUX2009
SBUX2008
Tim Hortons
2009
Debt Ratio 45.4% 56.1% 41.4%LT Debt to Total Capitalization 15.3% 18.1% 22.3%
Debt to Equity 0.83 1.28 0.71
Leverage Ratios
SBUX2009
SBUX2008
Tim Hortons
2009
Times Interest Earned
14.37
9.44 23.35
Cash Interest Coverage
40.0
29.8 27.99
Fixed Charge Coverage 1.69 1.57 3.80Cash Flow Adequacy 3.08 1.13 1.70
SBUX2009
SBUX2008
Tim Hortons
2009
Gross Profit Margin 55.8% 55.3% 421.2%Operating Profit Margin 5.7% 4.9% 212.1%Net Profit Margin 4.0% 3.0% 13.2%Cash Flow Margin 14.2% 12.1% 18.5%ROA or ROI 7.0% 5.6% 14.8%Return on Equity 12.8% 12.7% 25.4%Cash Return on Assets 24.9% 22.2% 20.8%
Profitability Ratios