BKAL 1013 Chapter 7 Financial Statement Analysis

Topic 7 Financial Statement Analysis
Learning Objectives
1. Users of Financial Statement
2. Importance of Financial Statement Analysis
3. Basic Analytical Procedures
4. Solvency Analysis
5. Profitability Analysis
6. Efficiency Analysis
7. Summary of Analytical Measures
C6
C6- 1
USERS OF FINANCIAL STATEMENT
Employees
and Managers
Internal
Stockholders Stakeholders
Business
and Creditors
Entity
Suppliers and Government

Customers Taxation
Regulatory
Bodies
C6- 2
DIFFERENT USERS NEED OF INFORMATION
Planning and organizing

MANAGER
business
Banks To approve loan application
Determine credit term and

vendors
credit limit
Predict investment return &

Shareholders
Future risk
C6- 3
IMPORTANCE OF FINANCIAL STATEMENT ANALYSIS
Analysis helps user to…..
generate more meaningful information

for making decision.
analyse relationship between financial

statement components and the trend.
measure company’s performance & to predict

potential risk in the future
C6- 4
BASIS OF COMPARISONS
Intra company
to compare one company’s performance
for several years (3 to 5 years)
Inter company (competitor)

Compare company’s performance with
other company (similar industries)
Industrial average
to compare company’s performance with
industrial average performance (average
performance of the companies in similar
industries)
C6- 5
BASIC ANALYTICAL PROCEDURES
PERCENTAGE ANALYSIS
HORIZONTAL VERTICAL COMMON-SIZE
C6- 6
PERCENTAGE
ANALYSIS
C6- 7
HORIZONTAL ANALYSIS
Analysing performance change by percentage in

related items in comparative financial statements.
C6- 8
Tanjak Holding Sdn Bhd
Comparative Balance Sheet
December 31, 2008 and 2007 Increase
(Decrease)
2008 2007 Amount Percent
Assets
Current assets RM 550,000RM 533,000 RM 17,000 3.2%
Long-term investments 95,000 177,500 (82,500) (46.5%)
Fixed assets (net) 444,500 470,000 (25,500) (5.4%)
Intangible assets 50,000 50,000 —
RM1,139,500RM1,230,500RM (91,000) (7.4%)
Liabilities
Current liabilities RM 210,000 RM 243,000RM (33,000) (13.6%)
Long-term liabilities 100,000 200,000 (100,000) (50.0%)
RM 310,000 RM 443,000RM(133,000) (30.0%)
Stockholders’ Equity
Preferred 6% stock,RM100RM150,000 RM 150,000 —
Common stock, RM10 par 500,000 500,000 —
Retained earnings 179,500 137,500 RM42,000 30.5%
Total stockholders’ equity RM829,500RM 787,500 RM42,000 5.3%
Total liabilities and
C6- 9
Stockholders’ equity RM1,139,500RM1,230,500 RM(91,000) (7.4%)
December 31, 2008 and 2007 Increase
(Decrease)
Assets 2008 2007 Amount Percent
Current assets RM 550,000RM 533,000 RM 17,000 3.2%
Long-term investments 95,000 177,500 (82,500) (46.5%)
Fixed assets (net) Horizontal
444,500 Analysis:
470,000 (25,500) (5.4%)
Intangible assets 50,000
Current 50,000RM550,000
year (2008) —
RM1,139,500RM1,230,500RM = 103.2%
(91,000) (7.4%)
Base year (2007) RM533,000
Liabilities
Current liabilities RMIncrease amount
210,000 RM17,000
RM 243,000RM (33,000) (13.6%)
= 3.2%
Long-term liabilities Base year (2007)
100,000 RM533,000
200,000 (100,000) (50.0%)
RM 310,000 RM 443,000RM(133,000) (30.0%)
Preferred stock,RM100 parRM150,000RM 150,000 —
Common stock, RM10 par 500,000 500,000 —
Retained earnings 179,500 137,500 RM42,000 30.5%
RM 829,500 RM 787,500 RM42,000 5.3%
RM1,139,500RM1230,500 RM(91,000) (7.4%)
C6- 10
Comparative Income Statement
Increase
For the Years Ended December 31, 2008 and 2007
(Decrease)
Sales RM1,530,500RM1,234,000RM296,500 24.0%
Sales returns 32,500 34,000 (1,500) (4.4%)
Net sales 1,498,000 1,200,000 298,000) 24.8%
Cost of goods sold 1,043,000 820,000 223,000 27.2%
Gross profit 455,000 380,000 75,000 19.7%
Selling expenses 191,000 147,000 44,000 29.9%
Administrative expenses 104,000 97,400 6,600 6.8%
Total operating expenses 295,000 244,400 50,600 20.7%
Operating income 160,000 135,600 24,400 18.0%
Other income 8,500 11,000 (2,500) (22.7%)
168,500 146,600 21,900 14.9%
Other expense 6,000 12,000 (6,000) (50.0%)
Income before income tax 162,500 134,600 27,900 20.7%
Income tax 71,500 58,100 13,400 23.1%
Net income 91,000 76,500 14,500 19.0%
C6- 11
For the Years EndedDecember 31, 2008 andIncrease
2007
(Decrease)
Sales RM1,530,500RM1,234,000RM296,500 24.0%
Sales returns 32,500 34,000 (1,500) (4.4%)
Net sales 1,498,000 1,200,000 298,000) 24.8%
Cost of goods sold 1,043,000 820,000 223,000 27.2%
Gross profit Horizontal
455,000 Analysis:
380,000 75,000 19.7%
Selling expenses 191,000
Current 147,000
year (2008) 44,000 29.9%
RM1,498,000
Administrative expenses Base 104,000 = 124.8%
year (2007)97,400 6,600
RM1,200,000 6.8%
Total operating expenses 295,000 244,400 50,600 20.7%
Operating income Increase
160,000amount RM298,000
135,600 24,400 18.0%
= 24.8%
Other income Base8,500
year (2007)RM1,200,000
11,000 (2,500) (22.7%)
168,500 146,600 21,900 14.9%
Other expense 6,000 12,000 (6,000) (50.0%)
Income before income tax 162,500 134,600 27,900 20.7%
Income tax 71,500 58,100 13,400 23.1%
Net income 91,000 76,500 14,500 19.0%
C6- 12
VERTICAL ANALYSIS
Analysing performance change by percentage of

each component to the total within a single
statements
C6- 13
December 31, 2008 and 2007
2008 2007
Amount Percent Amount Percent
Assets
Current assets RM 550,000 48.3% RM 533,000 43.3%
Long-term investments 95,000 8.3 177,500 14.4
Fixed assets (net) 444,500 39.0 470,000 38.2
Intangible assets 50,000 4.4 50,000 4.1
RM1,139,500 100.0% RM1,230,500 100.0%
Liabilities
Current liabilities RM 210,000 18.4% RM 243,000 19.7%
Long-term liabilities 100,000 8.8 200,000 16.3
RM 310,000 27.2% RM 443,000 36.0%
Preferred stock, RM100 parRM150,000 13.2% RM 150,000 12.2%
Common stock, RM10 par 500,000 43.9 500,000 40.6
Retained earnings 179,500 15.7 137,500 11.2
RM 829,500 72.8% RM 787,500 64.0%
RM1,139,500 100.0% RM1230,500 100.0%
C6- 14
Comparative Balance Sheets
2008 2007
Amount Percent Amount Percent
Assets
Fixed assets (net) 444,500 39.0 470,000 38.2
RM1,139,500 100.0% RM1,230,500 100.0%
Liabilities
Vertical Analysis: Asset items
2008 RM310,000 27.2% RM 443,000 36.0%
RM550,000 = 48.26%
Current assetsEquity
Stockholders’
Total assets
Preferred RM1,139,500
stock, RM100 parRM150,000 13.2% RM 150,000 12.2%
2007
= 43.32%
Current assets RM533,000 RM829,500 72.8% RM787,500 64.0%
Total assets RM1,230,500
RM1,139,500 100.0% RM1230,500 100.0%
C6- 15
2008 2007
Assets Amount Percent Amount Percent
Vertical Analysis: liability items
2008 : investments
Long-term 95,000 8.3 177,500 14.4
Current
Fixed assetsliabilities
(net) RM210,000444,500= 18.4%39.0 470,000 38.2
Liability assets
Intangible & equity RM1,139,500 50,000 4.4 50,000 4.1
RM1,139,500 100.0% RM1,230,500 100.0%
Liabilities
RM310,000 27.2% RM 443,000 36.0%
Preferred stock, RM100 parRM 150,000 13.2% RM 150,000 12.2%
RM829,500 72.8% RM787,500 64.0%
RM1,139,500 100.0% RM1230,500 100.0%
C6- 16
2008 2007
Vertical
Current Analysis: liability
assets RM items
550,000 48.3% RM 533,000 43.3%
Long-term
2007 : investments 95,000 8.3 177,500 14.4
Fixed assets (net) RM243,000 = 19.75%
444,500 39.0 470,000 38.2
Current liabilities
Intangible
Liabilityassets
& equityRM1,230,500 50,000 4.4 50,000 4.1
RM1,139,500 100.0% RM1,230,500 100.0%
Liabilities
RM310,000 27.2% RM 443,000 36.0%
RM829,500 72.8% RM787,500 64.0%
RM1,139,500 100.0% RM1230,500 100.0%
C6- 17
2008 2007
Vertical Analysis: Owner’s equity items
Long-term
2008: investments 95,000 8.3 177,500 14.4
Fixed assets earning
(net) RM179,500 = 15.75%
444,500 39.0 470,000 38.2
Retained
Intangible
Liabilityassets
& equity RM1,139,50050,000 4.4 50,000 4.1
RM1,139,500 100.0% RM1,230,500 100.0%
Liabilities
2008:
Current liabilities
Retained earning RM137,500 = 11.17%
RM 210,000 18.4% RM 243,000 19.7%
Long-term
Liabilityliabilities 100,000
& equity RM1,230,500 8.8 200,000 16.3
RM310,000 27.2% RM 443,000 36.0%
RM829,500 72.8% RM787,500 64.0%
RM1,139,500 100.0% RM1230,500 100.0%
C6- 18
For the Years Neded December 31, 2008 and Increase
2007
(Decrease)
Sales RM1,530,500RM1,234,000
Sales returns 32,500 34,000
Net sales 1,498,000 1,200,000
Cost of goods sold 1,043,000 820,000
Gross profit 455,000
vertical analysis:380,000
income statement items
Selling expenses 191,000 147,000
Administrative expenses 104,000 97,400
Net income (2008) RM 91,000
Total operating expenses 295,000 244,400 = 6.07%
Net sales (2008) RM1,498,000
Operating income 160,000 135,600
Other income 8,500 (2007)
Net income 11,000
RM 76,500
= 6.4%
Net 168,500
sales (2007)146,600
RM1,200,000
Other expense 6,000 12,000
Income before income tax 162,500 134,600
Income tax 71,500 58,100
Net income 91,000 76,500
C6- 19
COMMON-SIZE STATEMENTS
Useful to compare the current with prior periods,

individual businesses, or one business with industry
percentages. All items are normally expressed
in percentages.
C6- 20
2008 2007
Assets Amount Percent Amount
Common-Size Percent
Statements
Fixed assets (net) 444,500 39.0 470,000 38.2
RM1,139,500 100.0% RM1,230,500 100.0%
Liabilities
RM310,000 27.2% RM 443,000 36.0%
Preferred stock, RM100 parRM150,000 13.2% RM 150,000 12.2%
RM829,500 72.8% RM787,500 64.0%
RM1,139,500 100.0% RM1230,500 100.0%
C6- 21
BUILDING BLOCKS OF
FINANCIAL STATEMENT ANALYSIS
RATIO ANALYSIS
SOLVENCY PROFITABILITY EFFICIENCY
C6- 22
Ratio
Analysis
C6- 23
Solvency Analysis
Solvency is the ability of a business to meet its

financial obligations (debts) as they are due.
Solvency analysis focuses on the ability of a
business to pay or otherwise satisfy its current
and noncurrent liabilities.
This ability is normally assessed by examining
balance sheet relationships.
C6- 24
Solvency Ratios
Solvency (short term/ liquidity)

• Working capital
• Current ratio
• Acid-test ratio
Solvency (long-term)
• Fixed assets to long term liabilities
• Ratio of liabilities to shareholder’s equity
• Times interest charges
• Debt ratio
• Equity ratio
C6- 25
Solvency Measures —
The Short-Term Creditor (liquidity)
Working
Working Capital
Capital and
andCurrent
Current Ratio
Ratio
2008 2007
Current assets RM550,000 RM533,000
Current liabilities 210,000 243,000
C6- 26
Solvency Measures — The Short-Term Creditor
Working
Working Capital
Capital and
and Current
CurrentRatio
Ratio
2008 2007
Current liabilities 210,000 243,000
Working capital RM340,000 RM290,000
Use:
Use: To
To indicate
indicatethe
the ability
ability to
to meet
meet
currently
currentlymaturing
maturing obligations.
obligations.
C6- 27
Working
Working Capital
Capital and
and Current
CurrentRatio
Ratio
2008 2007
Current liabilities 210,000 243,000 Divide
Divide
Working capital RM340,000 RM290,000 current current
Current ratio 2.6 2.2 assets
assetsby by
current
current
Use:
Use: To
To indicate
indicatethe
the ability
ability to
to meet
meet liabilities
liabilities
currently
currentlymaturing
maturing obligations.
obligations.
C6- 28
Acid-Test
Acid-TestRatio
Ratio
2008 2007
Quick assets:
Cash RM 90,500 RM64,700
Marketable securities 75,000 60,000
Accounts receivable (net) 115,000 120,000
Total RM280,500 RM244,700
Current liabilities RM210,000 RM243,000
C6- 29
Acid-Test
Acid-TestRatio
Ratio
2008 2007
Quick assets:
Cash RM 90,500RM 64,700
Marketable securities 75,000 60,000
Accounts receivable (net) 115,000 120,000
Total RM280,500RM244,700
Current liabilities RM210,000RM243,000
Acid-test ratio 1.3 1.0
Use:
Use: To
Toindicate
indicateinstant
instantdebt-paying
debt-payingability.
ability.
C6- 30
Solvency Measures — The Long-Term Creditor
Ratio
Ratio of
of Fixed
Fixed Assets
Assets to
to Long-Term
Long-Term Liabilities
Liabilities
2008 2007
Fixed assets (net) RM444,500 RM470,000
Long-term liabilities RM100,000 RM200,000
C6- 31
Ratio
Ratio of
of Fixed
Fixed Assets
Assets to
to Long-Term
Long-Term Liabilities
Liabilities
2008 2007
Fixed assets (net) RM444,500 RM470,000
Long-term liabilities RM100,000 RM200,000
Ratio of fixed assets to
long-term liabilities 4.4 2.4
Use:
Use: To
Toindicate
indicatethe
themargin
marginof ofsafety
safety
to
tolong-term
long-term creditors.
creditors.
C6- 32
Ratio
Ratio of
of Liabilities
Liabilitiesto
to Stockholders’
Equity
2008 2007
Total liabilities RM310,000 RM443,000
Total stockholders’ equityRM829,500RM787,500
C6- 33
Ratio
Ratio of
of Liabilities
Liabilitiesto
to Stockholders’
Equity
2008 2007
Total liabilities RM310,000 RM443,000
Total stockholders’ equityRM829,500RM787,500
Ratio of liabilities to
stockholders’ equity 0.37 0.56
Use:
Use: To
Toindicate
indicatethe
themargin
marginof
of safety
safetyto
tocreditors.
creditors.
C6- 34
Number
Number of
ofTimes
TimesInterest
Interest Charges
ChargesEarned
Earned
2008 2007
Income before income tax RM 900,000 RM 800,000
Add interest expense 300,000 250,000
Amount available for interest 1,200,000 1,050,000
C6- 35
Number
Number of
ofTimes
TimesInterest
Interest Charges
ChargesEarned
Earned
2008 2007
Income before income tax RM 900,000 RM 800,000
Add interest expense 300,000 250,000
Amount available for interest 1,200,000 1,050,000
Number of times earned 4.0 4.2
Use:
Use: To
To assess
assessthe
the risk
riskto
to debtholders
debtholdersin
in terms
terms
of
of number
number of
of times
times interest
interestcharges
charges were
were
earned.
earned.
C6- 36
Debt
Debt Ratio
Ratio
2008 2007
Total liabilities RM 310,000 RM
443,000 Total assets RM1,139,500 RM1,230,500
C6- 37
Debt
Debt Ratio
Ratio
2008 2007
Total liabilities RM 310,000 RM 443,000
Total assets RM1,139,500 RM1,230,500
Debt Ratio 0.27 0.36
Use:
Use: To
Tomeasure
measurethe theextent
extent of
of credit
credit
used
used to
to finance
financethe
theassets.
assets.
C6- 38
Equity
EquityRatio
Ratio
2008 2007
Stockholders’ equity RM 829,500 RM 787,500
C6- 39
Equity
EquityRatio
Ratio
2008 2007
Stockholders’ equity RM 829,500 RM 787,500
Equity Ratio 0.73 0.64
Use:
Use: To
Tomeasure
measurethe
theextent
extent of
of
owners’
owners’ equity
equity used
usedto
tofinance
finance
the
the assets.
assets.
C6- 40
Profitability Analysis
Profitability is the ability of an entity to earn profits.

This ability to earn profits depends on the
effectiveness and efficiency of operations as well
as resources available.
Profitability analysis focuses primarily on the
relationship between operating results reported in
the income statement and resources reported in
the balance sheet.
C6- 41
Profitability Ratios
• Profit margin
• Gross profit margin
• Rate earned on total assets (ROA)
• Rate earned on stockholders’s equity (ROE)
• Rate earned on common stockholder’s equity
• Earning per share
• Price earning ratio
• Dividends per share
• Dividend yield
C6- 42
Profitability Measures — Operating
Profit
ProfitMargin
Margin
2008 2007
Net profit RM 91,000 RM 76,500
Net sales 1,498,000 1,200,000
Profit margin 0.06 0.06
Use:
Use: To
To assess
assessthe
theefficiency
efficiencyofof
the
thebusiness
businessinincontrolling
controlling
all
all costs
costsrelating
relating to
to sales.
sales.
C6- 43
Profitability Measures — Operating
Gross
GrossProfit
Profit Margin
Margin
2008 2007
Gross profit RM 455,000 RM 380,000
Net sales 1,498,000 1,200,000
Gross profit margin 0.3 0.32
Use:
Use: To
To assess
assessthethe efficiency
efficiencyofof the
the
business
businessin indealing
dealingwith
with purchases
purchases
and
andits
itsrelated
related costs.
costs.
C6- 44
Profitability Measures — The Common Stockholder
Rate
Rate Earned
Earnedon
onTotal
Total Assets
Assets
2008 2007
Net income RM 91,000 RM 76,500
Plus interest expense 6,000 12,000
Total 97,000 88,500
Total assets:
Beginning of year 1,230,500 1,187,500
End of year 1,139,500 1,230,500
Total 2,370,000 2,418,000
Average 1,185,000 1,209,000
C6- 45
Rate
Rate Earned
Earnedon
onTotal
Total Assets
Assets
2008 2007
Plus interest expense 6,000 12,000
Total 97,000 88,500
Total assets:
End of year 1,139,500 1,230,500
Total 2,370,000 2,418,000
Average 1,185,000 1,209,000
Rate earned on total assets 8.2% 7.3%
Use:
Use: To
To assess
assessthe
the profitability
profitability of
of the
theassets.
assets.
C6- 46
Rate
Rate Earned
Earnedon
onStockholders’
Equity
2008 2007
Stockholders’ equity:
Beginning of year 787,500 750,000
End of year 829,500 787,500
Total 1,617,000 1,537,500
Average 808,500 768,750
C6- 47
Rate
Rate Earned
Earnedon
onStockholders’
Equity
2008 2007
Stockholders’ equity:
End of year 829,500 787,500
Total 1,617,000 1,537,500
Average 808,500 768,750
Rate earned on equity 11.3% 10.0%
Use:
Use: To
To assess
assessthe
the profitability
profitabilityof
ofthe
the
investment
investmentby
bystockholders.
stockholders.
C6- 48
Rate
RateEarned
EarnedononCommon
Common Stockholders’
Equity
2008 2007
Less preferred dividends 9,000 9,000
Remainder—common stock 82,000 67,500
Common stockholders’ equity:
End of year 679,500 637,500
Total 1,317,000 1,237,500
Average 658,500 618,750
C6- 49
Rate
RateEarned
EarnedononCommon
Common Stockholders’
Equity
2008 2007
Common stockholders’ equity:
End of year 679,500 637,500
Total 1,317,000 1,237,500
Average 658,500 618,750
Rate earned on common equity 12.5% 10.9%
Use:
Use: To
To assess
assessthe
theprofitability
profitabilityof
ofthe
the
investment
investment by
bycommon
commonstockholders.
stockholders.
C6- 50
Earnings
EarningsPer
Per Share
Share on
on Common
CommonStock
Stock
2008 2007
Shares of common stock 50,000 50,000
C6- 51
Earnings
EarningsPer
Per Share
Share on
on Common
CommonStock
Stock
2008 2007
Shares of common stock 50,000 50,000
Earnings per share on common RM1.64 RM1.35
Use:
Use: To
To assess
assessthe
theprofitability
profitabilityof
ofthe
the
investment
investment by
bycommon
commonstockholders.
stockholders.
C6- 52
Price-Earnings
Price-EarningsRatio
Ratio
2008 2007
Market price per share of common RM20.50 RM13.50
Earnings per share on common RM 1.64 RM 1.35
C6- 53
Price-Earnings
Price-EarningsRatio
Ratio
2008 2007
Market price per share of commonRM41.00 RM27.00
Earnings per share on common RM 1.64 RM 1.35
Price-earnings ratio on common 25 20
Use:
Use: To
Toindicate
indicatefuture
futureearnings
earningsprospects,
prospects,
based
based on
on the
therelationship
relationshipbetween
between
market
market value
valueofofcommon
commonstock
stock and
and
earnings.
earnings.
C6- 54
Dividends
Dividendsper
per Share
Share
2008 2007
Dividends on common stock RM40,000 RM30,000
Common stock outstanding 50,000 50,000
Dividends per share RM0.80 RM0.60
Use:
Use: To
Toindicate
indicatethe
therate
rateof
ofreturn
returntotocommon
common
stockholders
stockholdersininterms
termsofof dividends.
dividends.
C6- 55
Dividend
Dividend Yield
Yield
2008 2007
Dividends per share of common RM 0.80 RM 0.60
Market price per share of common RM41.00 RM27.00
C6- 56
Dividend
Dividend Yield
Yield
2008 2007
Dividends per share of common RM 0.80 RM 0.60
Market price per share of commonRM41.00 RM27.00
Dividend yield on common stock 1.95% 2.22%
Use:
Use: To
Toindicate
indicatethe
therate
rateof
ofreturn
returntotocommon
common
stockholders
stockholdersininterms
termsofof dividends.
dividends.
C6- 57
Efficiency Analysis
Efficiency is the ability of a business to manage

the resources available in an effective way.
Efficiency analysis focuses on the ability of a
business to manage its receivables and
inventories.
This ability is normally assessed by examining
balance sheet relationships.
C6- 58
Efficiency Ratios
• Account receivable turnover

• Number of days sales in receivables
• Inventory turnover
• Number of days sales in inventory
• Ratio of net sales to assets
C6- 59
Efficiency Measures — Receivable Analysis
Accounts
AccountsReceivable
Receivable Turnover
Turnover
2008 2007
Net sales on account RM1,498,000RM1,200,000
Accounts receivable (net):
End of year 115,000 120,000
Total 235,000 260,000
Average 117,500 130,000
C6- 60
Efficiency Measures — Receivable Analysis
Accounts
AccountsReceivable
Receivable Turnover
Turnover
2008 2007
Accounts receivable (net):
End of year 115,500 120,000
Total 235,000 260,000
Average 117,500 130,000
Accts. receivable turnover 12.7 9.2
Use:
Use: To
Toassess
assessthe
theefficiency
efficiency in
in collecting
collecting
receivables
receivablesand
and in
inthe
the management
managementof of credit.
credit.
C6- 61
Efficiency Measures — Receivables Analysis
Number
Number of
ofDays’
Days’ Sales
Sales in
inReceivables
Receivables
2008 2007
Accounts receivable (net)
end of year RM 115,000 RM 120,000
Net sales on account 1,498,000 1,200,000
Average daily sales on
on account (sales ÷ 365) 4,104 3,288
Number of days’ sales in
receivables 28 36.5
Use:
Use: To
To assess
assessthe
the efficiency
efficiencyinincollecting
collecting
receivables
receivables and
andinin the
themanagement
management of of credit.
credit.
C6- 62
Efficiency Measures — Inventory Analysis
Inventory
InventoryTurnover
Turnover
2008 2007
Cost of goods sold RM1,043,000RM 820,000
Inventories:
End of year 264,000 283,000
Total 547,000 594,000
Average 273,500 297,000
C6- 63
Inventory
InventoryTurnover
Turnover
2008 2007
Cost of goods sold RM1,043,000RM 820,000
Inventories:
End of year 264,000 283,000
Total 547,000 594,000
Average 273,500 297,000
Inventory turnover 3.8 2.8
Use:
Use: To
To assess
assessthe
the efficiency
efficiencyin
inthe
the
management
management ofof inventory.
inventory.
C6- 64
Number
Number of
ofDays’
Days’ Sales
Sales in
inInventory
Inventory
2008 2007
Inventories, end of year RM 264,000 RM 283,000
Cost of goods sold 1,043,000 820,000
Average daily cost of
goods sold
(COGS ÷ 365) 2,858 2,247
Number of days’ sales
in inventory 92.4 125.9
Use:
Use: To
To assess
assessthe
the efficiency
efficiencyin
inthe
the
management
management ofof inventory.
inventory.
C6- 65
Efficiency Measures — The Common Stockholder
Ratio
Ratio of
of Net
NetSales
Salesto
toAssets
Assets
2008 2007
Net sales RM1,498,000RM1,200,000
Total assets:
End of year 1,044,500 1,053,000
Total 2,097,500 2,063,000
Average 1,048,750 1,031,500
Excludes
Excludes long-term
long-terminvestments
investments
C6- 66
Efficiency Measures — The Common Stockholder
Ratio
Ratio of
of Net
NetSales
Salesto
toAssets
Assets
2008 2007
Total assets:
End of year 1,044,500 1,053,000
Total 2,097,500 2,063,000
Average 1,048,750 1,031,500
Ratio of net sales to assets 1.4 1.2
Use:
Use: To
To assess
assessthe
the effectiveness
effectiveness
of
of the
theuse
useof
ofassets.
assets.
C6- 67

BKAL 1013 Chapter 7 Financial Statement Analysis

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BKAL 1013 Chapter 7 Financial Statement Analysis

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Topic 7 Financial Statement Analysis

Suppliers and Government

Planning and organizing

Banks To approve loan application

Determine credit term and

Predict investment return &

Analysis helps user to…..

generate more meaningful information

analyse relationship between financial

measure company’s performance & to predict

Inter company (competitor)

HORIZONTAL VERTICAL COMMON-SIZE

Analysing performance change by percentage in

Analysing performance change by percentage of

Useful to compare the current with prior periods,

SOLVENCY PROFITABILITY EFFICIENCY

Solvency is the ability of a business to meet its

Solvency (short term/ liquidity)

Profitability is the ability of an entity to earn profits.

Efficiency is the ability of a business to manage

• Account receivable turnover

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