Documente Academic
Documente Profesional
Documente Cultură
Chapter
17
McGraw-Hill/Irwin
17-2
Basics of Analysis
Application of analytical tools
Reduces uncertainty
McGraw-Hill/Irwin
17-3
Purpose of Analysis
Financial statement analysis helps users make better decisions.
17-4
Solvency
17-5
McGraw-Hill/Irwin
17-6
Intracompany Competitor
Industry
Guidelines
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-7
Tools of Analysis
Horizontal Analysis
Comparing a companys financial condition and performance across time
Time
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-8
Tools of Analysis
Comparing a companys financial condition and performance to a base amount
V e r t i c a l A n a l y s i s
McGraw-Hill/Irwin
17-9
Tools of Analysis
Using key relations among financial statement items
McGraw-Hill/Irwin
17-10
Horizontal Analysis Now, lets look at some ways to use horizontal analysis.
Time
McGraw-Hill/Irwin
17-11
CLOVER CORPORATION Comparative Balance Sheets December 31, 2004 Assets Current assets: Cash and equivalents Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets 2003 Dollar Change Percent Change
McGraw-Hill/Irwin
17-12
Comparative Statements
Calculate Change in Dollar Amount
Dollar Change
Since we are measuring the amount of the change between 2003 and 2004, the dollar amounts for 2003 become the base period amounts.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-13
Comparative Statements
Calculate Change as a Percent
Percent Change = Dollar Change Base Period Amount
100%
McGraw-Hill/Irwin
17-14
CLOVER CORPORATION Comparative Balance Sheets December 31, 2004 2003 Dollar Change Percent Change*
Assets Current assets: Cash and equivalents $ 12,000 $ 23,500 $ (11,500) (48.9) Accounts receivable, net 60,000 40,000 Inventory 80,000 100,000 Prepaid expenses 3,000 1,200 $12,000 $23,500 = $(11,500) Total current assets $ 155,000 $ 164,700 Property and equipment: ($11,500 $23,500) 100% = 48.9% Land 40,000 40,000 Buildings and equipment, net 120,000 85,000 Total property and equipment $ 160,000 $ 125,000 Total assets $ 315,000 $ 289,700 * Percent rounded to first decimal point.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-15
CLOVER CORPORATION Comparative Balance Sheets December 31, 2004 Assets Current assets: Cash and equivalents $ 12,000 Accounts receivable, net 60,000 Inventory 80,000 Prepaid expenses 3,000 Total current assets $ 155,000 Property and equipment: Land 40,000 Buildings and equipment, net 120,000 Total property and equipment $ 160,000 Total assets $ 315,000 * Percent rounded to first decimal point.
McGraw-Hill/Irwin
2003
Dollar Change
Percent Change*
$ 23,500 $ (11,500) 40,000 20,000 100,000 (20,000) 1,200 1,800 $ 164,700 $ (9,700) 40,000 85,000 35,000 $ 125,000 $ 35,000 $ 289,700 $ 25,300
17-16
Now, lets review the dollar and percent changes for the liabilities and shareholders equity accounts.
McGraw-Hill/Irwin
CLOVER CORPORATION Comparative Balance Sheets December 31, 2004 Liabilities and Shareholders' Equity Current liabilities: Accounts payable Notes payable Total current liabilities Long-term liabilities: Bonds payable, 8% Total liabilities Shareholders' equity: Preferred stock Common stock Additional paid-in capital Total paid-in capital Retained earnings Total shareholders' equity Total liabilities and shareholders' equity * Percent rounded to first decimal point.
McGraw-Hill/Irwin
17-17
2003
Dollar Change
Percent Change*
$ 67,000 $ 44,000 $ 23,000 3,000 6,000 (3,000) $ 70,000 $ 50,000 $ 20,000 75,000 $ 145,000 80,000 (5,000) $ 130,000 $ 15,000
52.3 (50.0) 40.0 (6.3) 11.5 0.0 0.0 0.0 0.0 14.8 6.4 8.7
20,000 20,000 60,000 60,000 10,000 10,000 $ 90,000 $ 90,000 80,000 69,700 10,300 $ 170,000 $ 159,700 $ 10,300 $ 315,000 $ 289,700 $ 25,300
17-18
McGraw-Hill/Irwin
17-19
Trend Analysis
100%
17-20
Trend Analysis
Berry Products Income Information For the Years Ended December 31,
Item Revenues Cost of sales Gross profit 2004 $ 400,000 285,000 115,000 2003 $ 355,000 250,000 105,000 2002 $ 320,000 225,000 95,000 2001 $ 290,000 198,000 92,000 2000 $ 275,000 190,000 85,000
McGraw-Hill/Irwin
17-21
Trend Analysis
Berry Products Income Information For the Years Ended December 31,
Item Revenues Cost of sales Gross profit 2004 $ 400,000 285,000 115,000 2003 $ 355,000 250,000 105,000 2002 $ 320,000 225,000 95,000 2001 $ 290,000 198,000 92,000 2000 $ 275,000 190,000 85,000
2004
2003
2002
17-22
Trend Analysis
Berry Products Income Information For the Years Ended December 31,
Item Revenues Cost of sales Gross profit 2004 $ 400,000 285,000 115,000 2003 $ 355,000 250,000 105,000 2002 $ 320,000 225,000 95,000 2001 $ 290,000 198,000 92,000 2000 $ 275,000 190,000 85,000
17-23
Trend Analysis
160 150
We can use the trend percentages to construct a graph so we can see the trend over time.
Percentage
140 130 120 110 100 2000 2001 2002 Year 2003 2004 Revenues Cost of Sales Gross Profit
McGraw-Hill/Irwin
17-24
V e r t i c a l A n a l y s i s
McGraw-Hill/Irwin
17-25
Common-Size Statements
Calculate Common-size Percent
Common-size Percent
100%
17-26
2004
2003
Assets Current assets: Cash and equivalents $ 12,000 $ 23,500 3.8% 8.1% Accounts receivable, net 60,000 40,000 Inventory 80,000 100,000 Prepaid expenses 3,000 1,200 ($12,000 $315,000) 100% = 3.8% Total current assets $ 155,000 $ 164,700 Property and equipment: ($23,50040,000 $289,700) 100% = 8.1% Land 40,000 Buildings and equipment, net 120,000 85,000 Total property and equipment $ 160,000 $ 125,000 Total assets $ 315,000 $ 289,700 100.0% 100.0% * Percent rounded to first decimal point. The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin
17-27
2004 Assets Current assets: Cash and equivalents $ 12,000 Accounts receivable, net 60,000 Inventory 80,000 Prepaid expenses 3,000 Total current assets $ 155,000 Property and equipment: Land 40,000 Buildings and equipment, net 120,000 Total property and equipment $ 160,000 Total assets $ 315,000 * Percent rounded to first decimal point. McGraw-Hill/Irwin
2003
17-28
2004 Liabilities and Shareholders' Equity Current liabilities: Accounts payable Notes payable Total current liabilities Long-term liabilities: Bonds payable, 8% Total liabilities Shareholders' equity: Preferred stock Common stock Additional paid-in capital Total paid-in capital Retained earnings Total shareholders' equity Total liabilities and shareholders' equity * Percent rounded McGraw-Hill/Irwin to first decimal point.
2003
$ 67,000 3,000 $ 70,000 75,000 $ 145,000 20,000 60,000 10,000 $ 90,000 80,000 $ 170,000 $ 315,000
$ 44,000 6,000 $ 50,000 80,000 $ 130,000 20,000 60,000 10,000 $ 90,000 69,700 $ 159,700 $ 289,700
21.3% 1.0% 22.2% 23.8% 46.0% 6.3% 19.0% 3.2% 28.6% 25.4% 54.0% 100.0%
15.2% 2.1% 17.3% 27.6% 44.9% 6.9% 20.7% 3.5% 31.1% 24.1% 55.1% 100.0%
17-29
CLOVER CORPORATION Comparative Income Statements For the Years Ended December 31, Common-size Percents* 2004 2003 2004 2003 Revenues $ 520,000 $ 480,000 100.0% 100.0% Costs and expenses: Cost of sales 360,000 315,000 69.2% 65.6% Selling and admin. 128,600 126,000 24.7% 26.3% Interest expense 6,400 7,000 1.2% 1.5% Income before taxes $ 25,000 $ 32,000 4.8% 6.7% Income taxes (30%) 7,500 9,600 1.4% 2.0% Net income $ 17,500 $ 22,400 3.4% 4.7% Net income per share $ 0.79 $ 1.01 Avg. # common shares 22,200 22,200 * Rounded to first decimal point. The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin
17-30
Common-Size Graphics
This is a graphical analysis of Clover Corporations common-size income statement for 2004.
Interest expense 1.2%
Selling and administrative 24.7%
McGraw-Hill/Irwin
17-31
Solvency
Profitability
Market
McGraw-Hill/Irwin
Lets use the following financial statements for Norton Corporation for our ratio analysis.
NORTON CORPORATION Balance Sheet December 31, 2004 Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets
McGraw-Hill/Irwin
17-32
2003
NORTON CORPORATION Balance Sheet December 31, 2004 Liabilities and Shareholders' Equity Current liabilities: Accounts payable Notes payable, short-term Total current liabilities Long-term liabilities: Notes payable, long-term Total liabilities Shareholders' equity: Common stock, $1 par value Additional paid-in capital Total paid-in capital Retained earnings Total shareholders' equity 2003
17-33
$ $
$ $
NORTON CORPORATION Income Statement For the Years Ended December 31,
17-34
Revenues Cost of sales Gross margin Operating expenses Net operating income Interest expense Net income before taxes Less income taxes (30%) Net income
McGraw-Hill/Irwin
$ $ $ $ $
2004 494,000 140,000 354,000 270,000 84,000 7,300 76,700 23,010 53,690
$ $ $ $ $
2003 450,000 127,000 323,000 249,000 74,000 8,000 66,000 19,800 46,200
17-35
Acid-test Ratio
Accounts Receivable Turnover Total Asset Turnover
McGraw-Hill/Irwin
17-36
30,000 17,000 20,000 10,000 12,000 65,000 42,000 300,000 346,390 494,000 140,000
Use this information to calculate the liquidity and efficiency ratios for Norton Corporation.
End of year Inventory Beginning of year End of year Total current assets Total current liabilities Total assets Beginning of year End of year Revenues Cost of sales
McGraw-Hill/Irwin
17-37
Working Capital
Working capital represents current assets financed from long-term capital sources that do not require near-term repayment.
$ $
17-38
Current Ratio
Current Current Assets = Ratio Current Liabilities Current = Ratio $65,000 = 1.55 : 1 $42,000
17-39
Acid-Test Ratio
Quick Assets Acid-Test = Current Liabilities Ratio
Quick assets are Cash, Short-Term Investments, and Current Receivables.
17-40
17-41
Inventory Turnover
Inventory Turnover Inventory Turnover Cost of Goods Sold = Average Inventory
This ratio measures the number of times merchandise is sold and replaced during the year.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-42
17-43
365
17-44
17-45
Solvency
Debt Ratio Equity Ratio Pledged Assets to Secured Liabilities Times Interest Earned
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-46
Use this information to calculate the solvency ratios for Norton Corporation.
NORTON CORPORATION 2004 Net income before interest expense and income taxes Interest expense Total shareholders' equity Total liabilities Total assets
McGraw-Hill/Irwin
17-47
Debt Ratio
Total Liabilities Debt = Ratio Total Assets Debt = Ratio $112,000 = 32.3% $346,390
This ratio measures what portion of a companys assets are contributed by creditors.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-48
Equity Ratio
Total Equity Equity = Ratio Total Assets Equity = Ratio $234,390 = 67.7% $346,390
This ratio measures what portion of a companys assets are contributed by owners.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-49
McGraw-Hill/Irwin
17-50
17-51
Profitability
Profit Margin Basic Earnings per Share Book Value per Common Share Return on Common Stockholders Equity
The McGraw-Hill Companies, Inc., 2005
Gross Margin
McGraw-Hill/Irwin
17-52
Use this information to Net income calculate the profitability Shareholders' equity Beginning of year ratios for Norton End of year Corporation.
Revenues Cost of sales Total assets Beginning of year End of year
McGraw-Hill/Irwin
17-53
Profit Margin
Profit = Margin Net Income Net Sales
This ratio describes a companys ability to earn a net income from sales.
McGraw-Hill/Irwin
17-54
Gross Margin
Gross Net Sales - Cost of Sales = Margin Net Sales Gross $494,000 - $140,000 = 71.66% = Margin $494,000
This ratio measures the amount remaining from $1 in sales that is left to cover operating expenses and a profit after considering cost of sales.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-55
This ratio is generally considered the best overall measure of a companys profitability.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-56
17-57
McGraw-Hill/Irwin
17-58
17-59
Market Prospects
PriceEarnings Ratio
Dividend Yield
McGraw-Hill/Irwin
17-60
Market Prospects
Use this information to calculate the market ratios for Norton Corporation.
NORTON CORPORATION December 31, 2004
Earnings per Share Market Price Annual Dividend per Share $ 1.96 15.00 2.00
McGraw-Hill/Irwin
17-61
Price-Earnings Ratio
Price-Earnings Market Price Per Share = Ratio Earnings Per Share Price-Earnings $15.00 = = 7.65 times Ratio $1.96
This measure is often used by investors as a general guideline in gauging stock values. Generally, the higher the price-earnings ratio, the more opportunity a company has for growth.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-62
Dividend Yield
Dividend Annual Dividends Per Share = Yield Market Price Per Share Dividend $2.00 = = 13.3% Yield $15.00
This ratio identifies the return, in terms of cash dividends, on the current market price of the stock.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2005
17-63
End of Chapter 17
McGraw-Hill/Irwin