FINANCIAL STATEMENTS AND RATIO ANALYSIS



RATIO ANALYSIS

|Ratio |Formula |What It Means |

|Liquidity - ability to satisfy short-term debt |

|Current Ratio |Current Assets |Value of liquid assets available to cover short-term debt |

| |Current Liabilities | |

|Quick Ratio |Current Assets – Inventory |Same as current except inventory is not included in liquid assets |

| |Current Liabilities | |

|Activity – speed with which various accounts are converted into sales or cash |

|Inventory Turnover |Sales |How many times during the year the company turns over inventory (reorders) |

| |Average Inventory | |

|Average Age of Inventory |360 |How many days goods stay in stock before being sold |

| |Inventory Turnover | |

|Accounts Receivable Turnover |Total Credit Sales |How quickly customer accounts are paid |

| |A/R | |

|Average Collection Period |Accounts Receivable |Number of days it takes company to collect from customers |

| |Sales ÷ 360 | |

|Total Asset Turnover |Sales |How efficiently the company is using its assets to generate sales |

| |Total Assets | |

|Debt Ratios – degree of indebtedness and the ability of the firm to pay debts |

|Debt Ratio |Total Liabilities |Percentage of firms assets owned by others (creditors). |

| |Total Assets | |

|Times Interest Earned |Operating Income |How many times a year the company makes enough income to pay interest expenses |

| |Interest Expense | |

|Profitability – ability to earn income |

|Gross Profit Margin |Gross Profit |Percentage of sales dollar left after goods are purchased |

| |Sales | |

|Operating Profit Margin |Operating Profit |Percentage of sales dollar left after goods are purchased & operating expenses paid |

| |Sales | |

|Net Profit Margin |Net Income |Percentage of sales dollar left after all expenses are deducted |

| |Sales | |

|Return on Assets |Net Income |How much money the firm earned from each dollar of asset investment |

| |Total Assets | |

|Return on Equity |Net Income |How much money the firm earned from each dollar of shareholder investment |

| |CS Equity | |

|Market Ratios – relate a firm’s current price in the market to the accounting values |

|Earnings per Share |Net Income |Number of dollars earned on behalf of each shareholder. |

| |# CS shares outstanding | |

|Price/Earnings (P/E) |Market Price |How much money are investors willing to pay for each dollar of a firm’s earnings |

| |Earnings per Share | |

|Market to Book |Market Price |How much more investors are willing to pay for stock than the amount listed in the balance sheet |

| |CS Equity ÷ Issued Shares | |

FINANCIAL STATEMENT FORMATS

1 - Income Statement

Sales

- Cost of Goods Sold

Gross Profit

- Operating Expenses

Operating Profit

- Interest Expense

Income before taxes

- Tax Expense

Net Income

2 - Statement of Retained Earnings

Beginning Retained Earnings

+ Net Income

- Dividend Payments

Ending Retained Earnings

3 - Balance Sheet

Current Assets

+ Fixed Assets

Total Assets

Current Liabilities

+ Long-Term Liabilities

Total Liabilities

Preferred Stock

+ Common Stock*

+ Paid-In Capital in Excess of Par*

+ Retained Earnings*

Total Stockholders’ Equity

Total Liabilities and S/E

*Component of Common Stock Equity

4 - Cash Flow Statement

Cash Flow from Operations

Net Income

+ Payments from A/R

- Payments to A/P

- Cash Flow from Operations

Cash Flow from Investing

Purchase/Sale of Assets

+/- Purchase Sale of Marketable Sec.

Cash Flow from Investing

Cash Flow from Financing

Common Stock Issue/Repurchase

- Stock Dividends

+/- Bonds Issued/Paid

Cash Flow from Financing

Net Cash Flow

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download