SirLoin's ACC Ch 17 Financial Statement Analysis

8/9/2019 SirLoin's ACC Ch 17 Financial Statement Analysis

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PRESENTED BY:

AIDA N UR F ITRIA

N OV IA L US IA NA

STEV EN SUR YA K UN CORO

Financial StatementAnalysis


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The aim of financial statement analysis is to find

out the changes that happened between the prior

year and current year.

From the analysis, we can know the amount and

percentage of changes.


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HORIZONTAL ANALYSIS

y The method to analyze financial condition of a firmby knowing the difference between prior year andcurrent year but the prior year become the basic of

counting.y Amount of increase or decrease.

y Percent of increase or decrease.


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VERTICAL ANALYSIS

y The method to analyze financial condition of a firmby knowing the difference between prior year andcurrent year by percentage but the calculation of

each item percentage based on certain items.

y Example : Asset Total Assets

Liabilities / Total Liabilities

Stockholders +

Equity Stockholders Equity


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COMMON-SIZE STATEMENT

y Common-size statement is used to compare between

two companies or more but we only can see it from

the percentage.


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COMMON SIZED INCOME STATEMENT


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OTHER ANALYTICAL MEASURES

y A company should not only analyze from financial

and operating data but also they have to analyze

some other factors such as trend in industry, general

economic conditions.


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SOLVENCY ANALYSIS

y Solvency is the ability of a business to meet itsfinancial obligations or debts.

y There are 6 major analysis:1) Current Position Analysis

2) Accounts Receivable Analysis

3) Inventory Analysis

4) The Ratio of Fixed Assets to Long-Term Liabilities

5) The Ratio of Liabilities to Stockholders equity

6) TheNumber of Times Interest Charges are Earned


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1) CURRENT POSITION ANALYSIS

y Current Position Analysis

The Method to calculate solvency by usingcomparison between current assets and current

liabilities.

y Current Position include determining The WorkingCapital, The Current Ratio, and The Quick Ratio.


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1.1 Working Capital

y The excess of the current asset of a business over itscurrent liabilities.

y Working Capital = CurrentAssetsCurrentLiabilities

2010 2009

Current assets $750,000 $650,000

Current liabilities ($250,000) ($200,000)Working capital $500,000 $450,000


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1.2 Current Ratio

y Ratio that express the relationship between currentassets and current liabilities.

y Current ratio better

y Current Ratio = Current Assets

Current Liabilities

2009 2010

Current assets $550000 $533000Current liabilities $210000 $243000

Current ratio 2.6 2.2


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1.3 Quick Ratio

y Ratio that measures the instant debt-paying ability of acompany.

y Quick ratio better

y

Quick Ratio = quick assetscurrent liabilities2010 2009

Quick ratio (a b) 1.3 1.0

Quick assets:

Cash $ 90,500 $ 64,700Temporary Investments 75,000 60,000Accounts receivable (net) 115,000 120,000

a. Total quick assets $280,500 $244,700

b. Current liabilities $210,000 $243,000


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2) ACCOUNT RECEIVABLE ANALYSIS

y The Method to calculate solvency by usingrelationship between Sales and Account Receivables.

y Account Receivable analysis can be calculated withtwo ways:

Account Receivable Turnover

Number of Days Sales in Receivable


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2.1 Account Receivable Turnover

Accounts Receivable Turnover =NetSales

Average Accounts

Receivable

Accounts receivable turnover(a b) 12.7 9.2

2010 2009

a. Net sales $1,498,000 $1,200,000Accounts receivable (net):

Beginning of year $ 120,000 $ 140,000

End of year 115,500 120,000Total $ 235,000 $ 260,000

b. Average (Total 2) $ 117,500 $ 130,000

Account receivable turnover better


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2.2 Number of Days Sales in Receivable

Numberof Days

Sales in Receivables

Average Accounts

Receivable

Average Daily

Sales

=

Number of days sales inreceivables (a b) 28.6 39.5

a. Average accounts receivable

(Total accounts

receivable 2) $ 117,500 $ 130,000

Net sales $1,498,000 $1,200,000

b. Average daily sales(Sales 365) $ 4,104 $ 3,288

2010 2009


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3) INVENTORY ANALYSIS

y The method how to calculate solvency by seeing thetotal amount of inventory and comparing with theinventory that has been sold is inventory turnover.

y inventory turnover cost of goods sold

inventory

y Inventory turnover better

=


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Inventory turnover (a b) 3.8 2.8

2010 2009

a. Cost of goods sold $1,043,000 $ 820,000Inventories:

Beginning of year $ 283,000 $ 311,000End of year 264,000 283,000Total $ 547,000 $ 594,000

b. Average (Total 2) $ 273,500 $ 297,000


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y Another measure of the relationship between cost ofgoods sold and inventory is the number of days

sales in inventory.

y Number of days average inventory

Sales in inventory average daily COGS

=

Number of days sales ininventory (a b) 95.7 132.2

a. Average inventory (Total 2) $ 273,500 $ 297,000

Cost of goods sold $1,043,000 $ 820,000

b. Average daily cost of goods

sold (COGS 365 days) $2,858 $2,247

2010 2009


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4) THE RATIOOF FIXED ASSETS TO LONG-TERM LIABILITIES

y The method to determine solvency by seeing theratio between fixed asset and long-term liabilities.

y Ratio of fixed assets to net fixed assetsLong term liabilities long term liabilities

=

2010 2009

Ratio of fixed assets tolong-term liabilities (a b) 4.4 2.4

a. Fixed assets (net) $444,500 $470,000b. Long-term liabilities $100,000 $200,000


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5) THE RATIOOF LIABILITIES TOSTOCKHOLDERS EQUITY

y The method to determine solvency by looking thecomparison between liabilities and stockholdersequity.

y Ratio of liabilities to total liabilities

Stockholders equity total stockholders equity=

Ratio of liabilities tostockholders equity ( a b) 0.4 0.6

a. Total liabilities $310,000 $443,000b. Total stockholders equity $829,500 $787,500

2010 2009


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6) NUMBEROF TIMES INTEREST CHARGESEARNED

y The method to know the firms ability to pay interestto lender.

y Number of times (income before income tax + interest expense )

Interest charges earned interest expense

=

2010 2009

Income before income tax $162,500 $134,600a. Add interest expense 6,000 12,000

b. Amount available to meetinterest charges $168,500 $146,600

Number of times interestcharges earned (b a) 28.1 12.2


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PROFITABILITY ANALYSIS

y Profitability is the ability of a company to earnincome.

y There are 8 common profitability analyses:1. Ratio of net sales to assets

2. Rate earned on total assets

3. Rate earned on stockholders equity

4. Rate earned on common stockholders equity

5. Earnings per share on common stock6. Price-earnings ratio

7. Dividends per share

8. Dividend yield


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1) Ratio ofNet Sales to Assets

y To measures how effectively a company uses itsassets.

Ratioof NetSales to AssetsNetSales

Average TotalAssets

=

2010 2009

a. Net sales $1,498,000 $1,200,000Total assets:

Beginning of year $1,053,000 $1,010,000End of year 1,044,500 1,053,000Total $2,097,500 $2,063,000

b. Average (Total 2) $1,048,750 $1,031,500

Ratio of net sales to assets (a b) 1.4 1.2


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2) Rate Earned on Total Assets

y Measuring the profitability of total assets, withoutconsidering how the assets are financed.

Rate Earnedon Total AssetsNetIncome + InterestExpense

Average Total Assets=

Rat ar t tal

assets (a ) . % . %

010 009

Net i c me $ 91,000 $ 6,500Plus i terest expense 6,000 1 ,000a. T tal $ 9 ,000 $ ,500T tal assets:

Beginning f year $1, 0,500 $1,1 ,500End f year 1,1 9,500 1, 0,500T tal $ , 0,000 $ ,41 ,000

. Average (T tal ) $1,1 5,000 $1, 09,000


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3) Rate Earned on Stockholders Equity

y Measuring the rate of income earned on the amountinvested by stockholders.

Rate Earnedon

Stockholders Equity

NetIncome

Average Total Stockholders Equity

=

Rate earned on stockholdersequity (a b) 11.3 10.0

a. Net income $ 91,000 $ 76,500Stockholders equity:

Beginning of year $ 787,500 $ 750,000

End of year 829,500 787,500Total $1,617,000 $1,537,500

b. Average (Total 2) $ 808,500 $ 768,750

2010 2009


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Leverage

y Involves using debt to increase the return on aninvestment. The rate earned on stockholders equityis normally higher than the rate earned on total

assets.


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4) Rate Earned onCommon Stockholders Equity

y Measuring the rate of profits earned on the amountinvested by the common stockholders.

Rate Earnedon Common

Stockholders Equity

NetIncomePreferred Dividends

Average Common Stockholders Equity=

Rate earned on common

stockholders equity (a b) 12.5 10.9

2010 2009

Net income $ 91,000 $ 76,500Less preferred dividends 9,000 9,000

a. Remaindercommon stock $ 82,000 $ 67,500Common stockholders equity:

Beginning of year $ 637,500 $ 600,000End of year 679,500 637,500Total $1,317,000 $1,237,500

b. Average (Total 2) $ 658,500 $ 618,750


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5) Earnings Per Share on Common Stock

y Measuring the share of profits that are earned by ashare of common stock.

Earnings per Share (EPS)

on Common Stock

NetIncome Preferred Dividends

Shares of Common Stock Outstanding

=

Earnings per share on commonstock (a b) $1.64 $1.35

2010 2009

Net income $91,000 $76,500Preferred dividends 9,000 9,000

a. Remainderidentified with

common stock $82,000 $67,500b. Shares of common stock 50,000 50,000


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6) Price-Earnings Ratio

y Measuring a companys future earnings prospects.

Price-earnings (P/E) ratioMarketPrice per Shareof Common Stock

Earnings per Shareon Common Stock=

Price-earnings ratio oncommon stock 25 20

2010 2009

Market price per share ofcommon stock $41.00 $27.00

Earnings per share on commonstock 1.64 1.35


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7) Dividends Per Share

y Measuring the extent to which earnings are beingdistributed to common stockholders.

Dividends per ShareDividends

Shares of Common StockOutstanding

=

Dividends per share of common stock(a b) $0.80 $0.60

2010 2009

a. Dividends $40,000 $30,000

b. Shares of common stock outstanding 50,000 50,000


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Dividends and Earnings Per Share ofCommon Stock


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8) Dividend Yield

y Measuring the rate of return to commonstockholders from cash dividends.

Dividend Yield

Dividends per Shareof

Common Stock

MarketPrice per Shareof

Common Stock

=

Dividend yield on

common stock 2.0 2.2

2010 2009

a. Dividends per share ofcommon stock $ 0.80 $ 0.60

b. Market price per share ofcommon stock 41.00 27.00


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Solvency Measures


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Profitability Measures


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CORPORATE ANNUAL REPORTS

Annual reports include the financial statement and

the accompanying notes. Annual reports normally include

the following sections:

Management discussion and analysis

Report on internal control

Report on fairness of the financial statement


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Management Discussion and Analysis

MD&A is required in annual reports filed with theSecurities and Exchange Commission. It includesmanagements analysis of current operation and its planfor the future.

Report on Internal ControlThe report states managements responsibility for

establishing and maintaining internal control. Inaddition, managements assessment of the effectiveness

of internal controls over financial reporting is included inthe report. Two reports on internal control are by management and by a public accounting firm.


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Report on Fairness of the FinancialStatement

All publicly held corporations are required tohave an independent audit (examination) of theirfinancial statement. The Certified Public

Accounting (CPA) firm that conducts the audit

renders an opinion, called the Report of Independent Registered Public Accounting Firm,on the fairness of the statement. The financialstatement present fairly the financial position,result of operations , and cash flows of thecompany is said to be an unqualified opinion,sometimes called a clean opinion.


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SirLoin's ACC Ch 17 Financial Statement Analysis

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