FINANCIAL STATEMENT

ANALYSIS
Presented by Syarief Fauzie
Summarize From Books:
1.Modern Financial Management(8th ed);Ross,
Westerfield, Jaffe & Jordan; McGrawHill 2008
2.Principles of Corporate Finance(9th ed);Breadley,
Myers & Allen; McGrawHill 2008

Learning Objectives
Explain

the purpose
of analysis.
Identify the building
blocks of analysis.
Describe standards
for comparisons in
analysis.
Identify the tools of
analysis.

Explain

and apply
methods of horizontal
analysis.
Describe and apply
methods of vertical
analysis.
Define and apply
ratio analysis.

Basics of Analysis
Application of
analytical tools

Reduces
uncertainty

Involves
transforming
data

Purpose of Analysis
Financial
Financial statement
statement analysis
analysis helps
helps users
users
make
make better
better decisions.
decisions.

Internal Users
Managers
Officers
Internal Auditors

External Users
Shareholders
Lenders
Customers

Building Blocks of Analysis

Ability to meet
short-term
obligations and
to efficiently
generate
revenues

Ability to provide
financial rewards
sufficient to
attract and retain
financing

Liquidity
and
Efficiency

Solvency

Market
Profitability
Prospects

Ability to
generate future
revenues and
meet long-term
obligations

Ability to
generate
positive
market
expectations

Information for Analysis

Income Statement
Balance Sheet
Statement of
Changes in Shareholders
Equity

Statement of Cash
Flows

Notes

Standards for Comparison

To help me interpret our financial
statements, I use several
standards of comparison.

Intracompany
Intercompany
Industry
Guidelines

Tools of Analysis

Horizontal
Horizontal Analysis
Analysis
Comparing a companys financial condition
and performance across time

Time

Tools of Analysis
Comparing a companys
financial condition and
performance to a base amount

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Tools of Analysis
Using key relations
among financial
statement items

Horizontal Analysis

Time

Now, lets
look at
some ways
to use
horizontal
analysis.

The term horizontal analysis arises from left-to-right

(or right-to-left) movement of our eyes as we review
comparative financial statements across time.

Comparative Statements
Calculate Change in Dollar Amount
Dollar
Change

Analysis Period
Amount

Base Period
Amount

Since we are measuring the amount of

the change between 2003 and 2004, the
dollar amounts for 2003 become the
base period amounts.

Comparative Statements
Calculate Change as a Percent
Percent
Change

Dollar Change
Base Period Amount

100%

$12,000 $23,500 = $(11,500)

($11,500 $23,500) 100% = 48.9%

Now, lets review the dollar

and percent changes for
the liabilities and
shareholders equity
accounts.

Now, lets
look at trend
analysis!

Trend Analysis
Also called trend
percent analysis
or index number
trend analysis.

Trend
Trend analysis
analysis is
is used
used to
to reveal
reveal patterns
patterns in
in data
data
covering
covering successive
successive periods.
periods.

Trend
Percent

Analysis Period Amount

Base Period Amount

100%

Trend Analysis
Berry Products
Income Information
For the Years Ended 31 December
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 is the base period so its

amounts will equal 100%.

2000
$ 275,000
190,000
85,000

Trend Analysis
Berry Products
Income Information
For the Years Ended 31 December
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

Item
Revenues
Cost of sales
Gross profit

2004

2003

2002

(290,000 275,000)
(198,000 190,000)
(92,000 85,000)

100% = 105%
100% = 104%
100% = 108%

2001
$ 290,000
198,000
92,000
2001
105%
104%
108%

2000
$ 275,000
190,000
85,000
2000
100%
100%
100%

Trend Analysis

Berry Products
Income Information
For the Years Ended 31 December
Item
Revenues
Cost of sales
Gross profit

Item
Revenues
Cost of sales
Gross profit

2004
$ 400,000
285,000
115,000

2004
145%
150%
135%

2003
$ 355,000
250,000
105,000

2003
129%
132%
124%

2002
$ 320,000
225,000
95,000

2002
116%
118%
112%

2001
$ 290,000
198,000
92,000

2001
105%
104%
108%

How would this trend analysis

look on a line graph?

2000
$ 275,000
190,000
85,000

2000
100%
100%
100%

Trend Analysis
We can use the trend percentages to
construct a graph so we can see the
trend over time.

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Now, lets look at some vertical

analysis tools!

Vertical Analysis is also called as

common-size analysis

The term vertical analysis arises from the up-down (down-up)

movement of our eyes as we review common-size financial
statements.

Vertical Analysis

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Common-Size Statements
Calculate Common-size Percent
Common-size
Percent

Analysis Amount
Base Amount

Financial
FinancialStatement
Statement
Balance
BalanceSheet
Sheet
Income
IncomeStatement
Statement

Base
BaseAmount
Amount
Total
TotalAssets
Assets
Revenues
Revenues

100%

($12,000 $315,000) 100% = 3.8%

($23,500 $289,700) 100% = 8.1%

Liquidity
and
Efficiency

Solvency

Profitability

Market

Lets use the following financial

statements for Norton Corporation for
our ratio analysis.

Liquidity and Efficiency

Current
Current
Ratio
Ratio

Inventory
Inventory
Turnover
Turnover

Acid-test
Acid-test
Ratio
Ratio

Days
DaysSales
Sales
Uncollected
Uncollected

Accounts
Accounts
Receivable
Receivable
Turnover
Turnover

Days
DaysSales
Salesin
in
Inventory
Inventory

Total
TotalAsset
Asset
Turnover
Turnover

Use this
information to
calculate the
liquidity and
efficiency ratios for
Norton
Corporation.

Working Capital
Working capital represents current assets
financed from long-term capital sources
that do not require near-term repayment.

Current Ratio
Current
Current Assets
=
Ratio
Current Liabilities
Current
=
Ratio

$65,000
= 1.55 : 1
$42,000

This ratio measures the shortterm debt-paying ability of the

company.

Acid-Test Ratio
Quick Assets
Acid-Test =
Current Liabilities
Ratio
Quick assets are Cash, Short-Term Investments,
and Current Receivables.

Acid-Test = $50,000 = 1.19 : 1

$42,000
Ratio
This ratio is like the current
ratio but excludes current assets such as
inventories and prepaid expenses that may be
difficult to quickly convert into cash.

Accounts Receivable Turnover

Accounts
Receivable =
Turnover

Annual Credit Sales

Average Accounts Receivable

Accounts
$494,000
Receivable = ($17,000 + $20,000) 2 = 26.7 times
Turnover
This ratio measures how many times a
company converts its receivables into cash
each year.

Average Collection Period

Average
Collection
Period

Average
Collection
Periode

365
=
Account Receivable Turnover
365
=
26,7

= 13,7 days

This ratio measures the liquidity of

receivables.

Inventory Turnover
Inventory
Turnover
Inventory
Turnover

Cost of Goods Sold

=
Average Inventory

$140,000
=
= 12.73 times
($10,000 + $12,000) 2

This ratio measures the number

of times merchandise
is sold and replaced during the year.

Days Sales in Inventory

Days Sales
=
in Inventory

365
Inventory Turnover

Days Sales
365
=
in Inventory
12,73

= 28,68 days

This ratio measures the liquidity of

inventory.

Account Payable Turnover

Account
Payable
Turnover

Account
Payable
Turnover

Annual Credit Purchase

=
Average Account Payable

$140,000
=
= 3.55 times
($39.000 + $40,000) 2

This ratio measures the number

of times company pay
Payable during the year.

Average Age Account Payable

Average Age
Account Payable

Average Age
Account
Payable

365
Account Payable Turnover

365
=
3,55

= 102,82 days

This ratio measures how quikly we pay bill

to supplier or bank .

Total Asset Turnover

Total Asset
Net Sales
=
Turnover
Average Total Assets
Total Asset
$494,000
=
= 1.53 times
Turnover
($300,000 + $346,390) 2

This ratio measures the efficiency of assets

in producing sales.

Solvency
Debt
Debt
Ratio
Ratio

Equity
Equity
Ratio
Ratio
Pledged
PledgedAssets
Assetsto
to
Secured
SecuredLiabilities
Liabilities

Times
TimesInterest
Interest
Earned
Earned

Use this information to calculate the

solvency ratios for Norton
Corporation.
NORTON CORPORATION

2004
Net income before interest
expense and income taxes
Interest expense

84,000
7,300

Total shareholders' equity

234,390

Total liabilities

112,000

Total assets

346,390

Debt Ratio
Total Liabilities
Debt
Ratio =
Total Assets
Debt
Ratio =

$112,000
$346,390

=
32,34%

This ratio measures what portion of a companys

assets are contributed by creditors.

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.

Debt to Equity Ratio

Total Debt
Debt to
Equity =

Total Equity

Debt
to =
Equity

$70,000
$234,390

This ratio measures financial leverage of a

company.

= 30%

Times Interest Earned

Times
Interest =
Earned

Net Income before Interest Expense

and Income Taxes
Interest Expense

Times
$84,000
Interest =
= 11.51
$7,300
Earned
This is the most common measure of the ability of a
firms operations to provide protection to the long-term
creditor.

Profitability
Basic
BasicEarnings
Earnings
per
perShare
Share

Profit
Profit
Margin
Margin

Gross
GrossMargin
Margin

Return
Returnon
onTotal
Total
Assets
Assets

Book
BookValue
Valueper
per
Common
CommonShare
Share

Return
Returnon
on
Common
Common
Shareholders
Shareholders
Equity
Equity

Use this
information
to calculate
the
profitability
ratios for
Norton
Corporation.

Profit Margin
Profit
=
Margin

Net Income
Net Sales

$53,690
Profit
= 10.87%
=
Margin $494,000
This ratio describes a companys ability to
earn a net income from sales.

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.

Return on Total Assets

Return on =
Total Assets
Return on
$53,690
=
Total Assets $346,390

Net Income
Total Assets
= 15.50%

This ratio is generally considered

the best overall measure of a
companys profitability.

The DuPont System

Method

to breakdown ROE into:

ROA and Equity Multiplier

ROA

is further broken down as:

Profit Margin and Asset Turnover

Helps

to identify sources of strength and

weakness in current performance
Helps to focus attention on value drivers

59

The DuPont System

ROE
ROA
P ro fit M a rg in

E q u ity M u ltip lie r

T o ta l A s s e t T u rn o v e r

60

The DuPont System

ROE
ROA
P ro fit M a rg in

ROA

E q u ity M u ltip lie r

T o ta l A s s e t T u rn o v e r

Profit Margin Total Asset Turnover

Net Income
Sales

Sales
Total Assets
6
1

The DuPont System

ROE
ROA
P ro fit M a rg in

E q u ity M u ltip lie r

T o ta l A s s e t T u rn o v e r

ROE Profit Margin Total Asset Turnover Equity Multiplier

Net Income
Sales
Total Assets

Sales
Total Assets Common Equity
6
2

The DuPont System: Norton

Net Income
Sales
Total Assets
ROE

Sales
Total Assets Common Equity
Profit Margin Total Asset Turnover Equity Multiplier
ROA Equity Multiplier

ROE

$53,690
$494,000 $346,390

$494,000 $346,390 $234,390

0.1087 1.43 1.48
0.1087 2.12
22,92%

6
3

Return on Common
Shareholders Equity
Return on
Common
Net Income - Preferred Dividends
Shareholders =
Average Common
Equity
Shareholders Equity

Return on
Common =
Shareholders
Equity

$53,690 - 0
$234,390

= 22,88%

This measure indicates how well the company

employed the owners investments to earn income.

Basic Earnings per Share/EPS

Basic
Earnings
Net Income - Preferred Dividends
=
per
Weighted-Average Common
Share
Shares Outstanding
Basic
Earnings
$53,690 - 0
=
= $1.96 per share
per
27,400
Share
This measure indicates how much
income was earned for each share of common
shares outstanding.

Market Prospects
Price-Earnings
Price-Earnings
Ratio
Ratio

Dividend
DividendYield
Yield

Market Prospects
Use this
information
to calculate
the market
ratios for
Norton
Corporation.

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 share values. Generally, the higher the price-earnings ratio,
the more opportunity a company has for growth.

Dividend Yield
Dividend
Annual Dividends Per Share
=
Yield
Market Price Per Share
Dividend = $2.00 = 13.3%
$15.00
Yield

This ratio identifies the return, in terms of cash

dividends, on the current market price of the share.

Market to Book Ratio

Market to
Book Value =
Ratio

Common Stock
Market Price Per Share
Common Stock
Commom Stock
Book Value Per Share

This ratio indetifies investor

interested for common stock

LONG TERM FINANCIAL

PLANNING

The Percentage of Sales

Approach
Pendekatan

ini meramalkan berapa dana

dari
luar
yang
diperlukan
untuk
membiayai pertumbuhan penjualan yang
akan terjadi.
Dalam perusahaan kita merencanakan
pertumbuhan penjualan tahun depan naik
sekitar ..%. Pertannyaannya berapa
dana dr luar yang dibutuhkan.

Financial Statement Proforma

Based on Sales (Example)
Making proforma financial statemant based
on %sales. Contoh pada tahun ini LK
ROSENGARTEN CORPORATION
Income Stement
Sales

Percentage
of Sales

1.000

Cost

800

Taxable
Income

200

Taxes (34%)

68

Net Income

132

Dividen

44

Addition
Retain
Earning

88

80% of Sales

Example (continue)
ROSENGARTEN CORPORATION
Balance Sheet
Current Assets
-Cash

$ 160

%sls

Current Liabilities

16%

-Account Payable
-Notes Payable

-Account Receivable

440

44

-Inventory

600

60

Total

$1.200

120

Fixed Assets
-Net Plant Equipment

Total
Long-term Debt

%sls
$ 300
100

n/a

400

n/a

800

n/a

Owners Equity
$1.800

180

-Common stock
800

-Retained Earnings
Total
1.800
Total Aktiva

30%

$3.000

300

Total Passiva
$3.000

n/a
1.000

n/a
n/a
n/a

Financial Statement Proforma

Based on Sales (Example)
Perusahaan merencanakan pertumbuhan

sales 25% maka dana yg diperlukan brp?

ROSENGARTEN CORPORATION
Income Stement Proforma
Sales

1.250

Cost

1.000

Taxable
Income

250

Taxes (34%)

85

Net Income
Dividen
Addition
Retain
Earning

Percentage
of Sales

165
55
110

80% of Sales

External Financial Needed

(Continue example)
ROSENGARDEN
Balance Sheet Proforma

Current Assets
-Cash

$ 200

Current Liabilities

40

-Account Payable
-Notes Payable

-Account Receivable

550

110

-Inventory

750

150

Total

$1.500

300

Fixed Assets
-Net Plant Equipment

Total
Long-term Debt

375

$ 75

100

475

$ 75

800

Owners Equity
$2.250

450

-Common stock
800

-Retained Earnings
Total
1.910
Total Aktiva

$3.750

750

0
1.110

Total Passiva
$3.185
EFN

$ 110
$ 110
$ 185

$ 565

$ 565

FORMULA :
EFN = Assets/Sales x Sales
Spontaneous Liabilities/Sales x Sales
PM x Projected Sales x (1-d).
EFN = $3.000/1.000 x 250 300/1.000 x
250 0,132 x 1.250 x (1 1/3) = 565

FINANCING & GROWTH

Permasalahannya

sebelumnya
adalah
berapa dana dari luar

jika
yang

penjualan naik
diperlukan?
Sekarang kita balik dengan permasalahan :
Jika kita tidak ingin menambah dana dari
luar, brp pertumbuhan penjualan seharusnya?
(Internal Growth Rate)
Jika kita ingin menambah dana dari luar yang
berupa pinjaman dengan
mempertahankan debt
to equity ratio, berapa pertumbuhan penjualan
seharusnya?
(Sustainable Growth Rate)

INTERNAL GROWTH
RATE
(EXAMPLE)

Financial Statement Proforma Based on

Non EFN Needed (Internal Growth
LK tahun ini sbb :
Rate)
HOFFMAN COMPANY
Income Stement

Percentage
of Sales

Sales

500

Cost

400

Taxable
Income

100

Taxes (34%)

34

Net Income

66

Dividen

22

Addition
Retain
Earning

44

80% of Sales

Financial Statement Proforma

Based on Non EFN Needed
HOFFMAN COMPANY
Balance Sheet
%sls

%sls

Current Assets

200

40%

Total Debt

-Net Fixed Assets

300

60%

Owners Equity

250

n/a

500

100
%

Total Passiva

500

n/a

Total Aktiva

250

n/a

Financial Statement Proforma

Based on Non EFN Needed
Making proforma financial statemant based
on Non EFN

HOFFMAN COMPANY
Income Stement

Percentage
of Sales

Sales

548

Cost

439

Taxable
Income

109

Taxes (34%)

37

Net Income

72

Dividen

24

Addition
Retain
Earning

48

80% of Sales

Financial Statement Proforma

Based on Non
EFNCOMPANY
Needed
HOFFMAN
Balance Sheet
%sls

%sls

Current Assets

219

40%

Total Debt

-Net Fixed Assets

329

60%

Owners Equity

Addition RE
Total Aktiva

548

100
%

Total Passiva

250
250

n/a
n/a

48
$

548

n/a

INTERNAL GROWTH RATE

FORMULA
IGR =

ROA x b
1-ROA x b

Example :
IGR =ROA x b/ 1- ROA x b
=0,132 x (2/3)
1 0,132 x (2/3)
= 9,65%

SUSTAINABLE GROWTH RATE

Financial Statement Proforma

Based on EFN Needed
LK Tahun ini
HOFFMAN COMPANY
Income Stement

Percentage
of Sales

Sales

500

Cost

400

Taxable
Income

100

Taxes (34%)

34

Net Income

66

Dividen

22

Addition
Retain
Earning

44

80% of Sales

Financial Statement Proforma

Based on EFN
Needed
HOFFMAN
COMPANY
Balance Sheet
%sls

%sls

Current Assets

200

40%

Total Debt

-Net Fixed Assets

300

60%

Owners Equity

250

n/a

500

100
%

Total Passiva

500

n/a

Total Aktiva

250

n/a

Financial Statement Proforma

Based on EFN Needed
Making proforma financial statemant based
on Non EFN

HOFFMAN COMPANY
Income Stement

Percentage
of Sales

Sales

606,8

Cost

485,4

Taxable
Income

121,4

Taxes (34%)

41,3

Net Income

80,1

Dividen

26,7

Addition
Retain
Earning

53,4

80% of Sales

Financial Statement Proforma

Based on EFN
Needed
HOFFMAN
COMPANY
Balance Sheet
%sls

%s
ls

Current Assets

242,7

40%

Total Debt

250

n/
a

-Net Fixed Assets

364,1

60%

Owners Equity

303,4

n/
a

606,8

100
%

Total Passiva

553,4

n/
a

EFN

53,4

Total Aktiva

SUSTAINABLE GROWTH RATE

FORMULA
SGR =

ROE x b
1-ROE x b

Example :
SGR =ROE x b/ 1- ROE x b
=0,264 x (2/3)
1 0,264 x (2/3)
= 21,36%

LETS RETURN TO ROI

ROI as of VALUE BASED

MANAGEMENT
FINANCIAL STATEMENTS FOR DUPONT
Income Statement
Sales

$8,912

COGS

$5,426 Cash

Gross Profit

$3,486 AR

SG&A Exp
Depreciation
EBIT
Interest
EBT
Taxes
Net Income

1,949 Inv
246 Total

Balance Sheet
$1,084 AP

$1,182

1,092 NP

28

1,469 Other

1,377

$3,646 Total

$2,587

$6,932 LT Debt

$5,388

$1,291
232 FA
$1,059
323 Total Asset
$736

Equity
$10,578

$2,603
$10,578

Retun on
Equity 28,3%
Return On
Assets 6,96%
Profit Margin 8,26%
Divided By
Net income
$736
Total Cost
$8,176
COGS
$5,426
SGA Exp
$1,949

Multiplied
By

Multiplied

Sales
$8,912
Sales
$8,912

Depreciation
$246

By

Equity
Multiplier 4,06
Total Asset Turnover
0,84
Sales
$8,912

Total Assets
$10,578

Fixed
Assets $
6,932

Cash
$1,084

Interest
$232
Taxes $323

Current
Assets
$3,646

Account
Receivable$1,092

Inventory
$,1469

ECONOMIC PROFIT
EP

= NOPAT (WACC x Capital)

= {(1-tax rate) x {(sales COGS) SG&A} WACC x Capital X
Sales
Sales
Market Share x Market Size

Superior Economic
Profit
Higher Gross
Profit

Lower SG&A to
Sales Ratio

COGS Advantage - Superior efficiencies

- Price premium due
in marketing or adm
to benefit
- ability to spread fixed
advantage
portion of SG&A due
to larger volumes
-

Lower Capital
to Sales Ratio

High Market
Share

- Superior manage
- Benefit ad
ment of working
vantage
capital.
- Lower price
- Efficiencies in uses
due to
of fixed assets
advantage

I LOVE FINANCE