Bài giảng môn Kế toán, kiểm toán - Chapter 11: Financial statement analysis

© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Chapter 11Financial Statement AnalysisPowerPoint 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 Statement Ratios3Ratios are used to interpret the financial position and results of operations of an entity and may be grouped in the following four categories:Liquidity.Activity.Profitability.Debt, or financial leverage.11-3Consideration When Using Ratios4We should always look beyond the ratios.Economic factorsIndustry trendsChanges within the firmTechnological changesConsumer tastes11-4Consideration When Using Ratios5Differences in accounting methods between companies sometimes make comparisons difficult.We use the LIFO method to value inventory.We use the FIFO method to value inventory.L O 111-5Liquidity Measures6The liquidity measures of working capital, current ratio, and acid-test ratio were discussed in Chapter 3.L O 211-6Liquidity Measures7Is the firm paying its bills promptly?Are all cash discounts taken? What are the firm’s working capital and liquidity ratios?CreditorsSuppliersL O 211-7Turnover Ratios8Differences in inventory cost flow assumptions and depreciation methods will affect comparability of turnover ratios.We use the LIFO method to value inventory and an accelerated depreciation method.We use the FIFO method to value inventory and the straight-line depreciation method.We report lower inventory and net book value of depreciable assets.We have lower asset turnover ratiosL O 311-8Activity Measures9Focus primarily on relationships between asset levels and sales. The general model for calculating turnover is:Turnover = Sales ÷ Average assetsTurnover is often calculated for: (1) Accounts receivable; (2) Inventories; (3) Plant and equipment; (4) Total operating assets; and(5) Total assets.L O 311-9Financial Leverage Financial leverage involves acquiring assets with funds at a fixed rate of interest.Return onInvestment in assets>Fixed rate of return on borrowed fundsPositive financial leverage=Return on investment in assets<Fixed rate of return on borrowed fundsNegative financial leverage=L O 711-10Financial Leverage11Financial leverage (frequently called just leverage ) refers to the use of debt (and, in the broadest context of the term, preferred stock) to finance the assets of the entity. Leverage adds risk to the operation of the firm because if the firm does not generate enough cash to pay principal and interest payments, creditors may force the firm into bankruptcy. However, because the cost of debt (i.e., interest) is a fixed charge regardless of the amount of earnings, leverage also magnifies the return to the owners (ROE) relative to the return on assets (ROI).L O 711-11End of Chapter 1111-12