Financial Analysis

Presented By:

Aileen Tabay-Rivera
 OBJECTIVES

At the end of the discussion,

the students should be able to:
• Know the different liquidity ratios

• To be able to compute the liquidity ratios

• To be able to apply the liquidity ratios.

© Mary Low
 World Currency Game
Scrambled Unscrambled
Word Clue Answer
Answer

The currency of Brazil is the Brazilian _______. LEAR REAL

1.

2. The currency of Britain is the __________. NODUP POUND

3. The currency of China is the Renminbi (RNB) ________. AYNU YUAN

4. The currency of Greece is the ________. RUOE EURO

5. The currency of India is the Indian _________. EUREP RUPEE

6. The currency of Japan is the Japanese ______. EYN YEN

7. The currency of Mexico is the Mexican ________. SEOP PESO

8. The currency of Saudia Arabia is the Saudi _________. YAILR RIYAL

The currency of Singapore is the Singapore

9. ROLALD DOLLAR
_______________.

10. The currency of South Korea is the _______. OWN WON

© Mary Low
 World Currency Game
Scrambled Unscrambled
Word Clue Answer
Answer

The currency of Brazil is the Brazilian _______. LEAR REAL

1.

2. The currency of Britain is the __________. NODUP POUND

3. The currency of China is the Renminbi (RNB) ________. AYNU YUAN

4. The currency of Greece is the ________. RUOE EURO

5. The currency of India is the Indian _________. EUREP RUPEE

6. The currency of Japan is the Japanese ______. EYN YEN

7. The currency of Mexico is the Mexican ________. SEOP PESO

8. The currency of Saudia Arabia is the Saudi _________. YAILR RIYAL

The currency of Singapore is the Singapore

9. ROLALD DOLLAR
_______________.

10. The currency of South Korea is the _______. OWN WON

© Mary Low
 Business Survival:
Two key factors:

Profitability
Solvency
FINANCIAL STATEMENT
ANALYSIS
• Financial Statement Analysis
– tools and techniques that are intended to provide relevant information to the
decision makers.

• The purpose
– to assess the financial health and performance of the company.
– will help business owners and other interested people
 Tools of Financial
Statement Analysis:
Financial Ratio Analy sis

 Vertical Analy sis

 Horizontal analy sis

 Trend Analy sis

 Financial Ratio
Analysis
 Financial ratio analysis involves calculating and
analysing ratios that use data from one, two or more
financial statements.

FINANCIAL RATIOS:
• Liquidity Ratio
• Solvency Ratio
• Profitability Ratio
 Financial Ratios
Liquidity Ratios

• Determine the company’s ability to generate

cash.

Solvency/Leverage Ratios

• Measure a company’s ability to pay its

maturing long-term debts while sustaining
operations indefinitely

Profitability Ratios

• Determine return for investors

© Mary Low
© Mary Low
 WORKING CAPITAL
 Working Capital = Current Assets – Current liabilities

EX:
250,000 – 100,000 = 150,000

*this roughly measures the company’s potential reservoir of cash.

* it signals the firm’s ability to meet short term debt obligations.
Current Ratio = Current Assets
Current Liabilities

Ex:
250,000 = 2.5
100,000

*To test the company’s ability to meet its short term obligation

© Mary Low
• Quick (Acid-Test) Ratio = Quick Assets
Current Liabilities

(Quick assets = CA- (inventory + prepaids))

Ex:
141,000 = 1.41
100,000

*to determine the company’s ability to meet sudden and immediate

demand on current assets.
© Mary Low
• Receivable Turn-over = Net Sales
Ave. Receivables

Ex:
800,000 = 9.94
80,500

*to measure efficiency with which receivables are being collected

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• Average Collection Period = No. of days in a year
Receivable Turn-over

Ex:
365 = 37 days
9.94

• to determine how many days it takes to collect receivables

© Mary Low
 Inventory Turnover = COGS
Average Inventory

Ex:
480,000 = 5.11
94,000

*The No. of times the inventory has been replaced.

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Days’ sales in inventories = 365 days
Inventory Turn-over

Ex:
365 days = 71 days
5.11

* measures the number of days to collect and pay its bills.

© Mary Low
 Limitations of Financial Statement Analysis
 We must be careful with financial statement analysis.

 Strong financial statement analysis does not necessarily mean that

the organisation has a strong financial future.
 Financial statement analysis might look good but there may be
other factors that can cause an organisation to collapse

 Financial Analy sis is only a Means

 Financial Statements are essentially Interim Reports
 Disclose only Monetary Facts

© Mary Low
Financial planning is biblical and is a means
to good stewardship, to freedom from the
god of materialism, and a means of
protection against the waste of the resources
God has entrusted to our care (Prov. 27:23-
24; Luke 14:28; 1 Cor. 14:40).

© Mary Low
THANK
YOU

© Mary Low