Bài giảng Kế toán, kiểm toán - Chapter 3: Fundamental interpretations made from financial statement data

© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Chapter 3Fundamental Interpretations Made from Financial Statement DataPowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPAFinancial Ratios and Trend AnalysisA ratio is simply the relationship between two numbers.The large dollar amounts reported on the financial statements of many companies, and the varying size of companies, make ratio analysis the only sensible method of evaluating various financial characteristics.LO 13-3Trend Analysis Trend analysis compares a single observation over several years.LO 13-4Rate of ReturnThis ratio provides the return on a given investment alternative. All other things being equal, the higher the rate of return, the more profitable the alternative. Rate of returnAmount of return Amount of investment=The rate of return calculation is derived from the interest calculation.Interest = Principal × Rate × TimeHigher rates of return are associated with greater risk!LO 23-5Return on Investment (R.O.I.)This ratio describes the rate of return management was able to earn on the assets that it had available during the year. Return on investmentNet income Average total assets=An informed judgment about the firm’s profitability requires relating net income to the assets used to generate that net income.LO 23-6The DuPont ModelThe DuPont model is an expansion of the basic ROI calculation.The developers of the model reasoned that profitability from sales and utilization of assets to generate sales revenue were both important factors to be considered when evaluating profitability. Return on investmentNet income Sales= Sales Average total assets×MarginTurnover Return on investment=×LO 33-7The DuPont ModelLO 3 Return on investmentNet income Sales= Sales Average total assets×MarginTurnover Return on investment=×3-8The DuPont ModelA rule of thumb useful for putting ROI in perspective is that average ROI, based on net income, for most American merchandising and manufacturing companies is between 8% and 12%.LO 3 Return on investmentNet income Sales= Sales Average total assets×MarginTurnover Return on investment=×3-9Return on Equity (ROE)Stockholders are interested in expressing the profits of the firm as a rate of return on the amount of stockholders' equity. Return on equityNet income Average stockholders' equity=As a rule of thumb, average ROE for most American merchandising and manufacturing companies has historically ranged from 10% to 15%.LO 43-10Measures of LiquidityLO 5Liquidity refers to a firm’s ability to meet its current obligations and is measured by relating its current assets and current liabilities as reported on the balance sheet.Working CapitalCurrent RatioAcid-Test Ratio3-11Working CapitalWorking capital is the excess of a firm’s current assets over its current liabilities.LO 63-12Current RatioThis ratio measures the abilityof the company to pay currentdebts as they become due.Currentratio Current assets Current liabilities=As a rule of thumb, a current ratio of 2.0 is considered indicative of adequate liquidity.LO 63-13Acid-Test RatioQuick assets Current liabilities=Acid-testratioQuick assets are cash (including temporary cash investments) and accounts receivable.This ratio provides information about an almost worst-case situation—the firm’s ability to meet its current obligations even if none of the inventory can be sold. As a rule of thumb, an acid-test ratio of 1.0 is considered indicative of adequate liquidity.The acid-test ratio is also known as the quick ratio.LO 63-14Trend AnalysisLO 73-15Trend AnalysisLO 7We can also use the trend analysis to construct graphs so we can see trends over time. 3-16End of Chapter 33-17