Kế toán, kiểm toán - Chapter 17: Analysis of financial statements

ANALYSIS OF FINANCIAL STATEMENTSChapter 17BUILDING BLOCKS OF ANALYSISC 1Liquidity and efficiencySolvencyMarket prospectsProfitability Intracompany Competitors Industry GuidelinesSTANDARDS FOR COMPARISONC 1When we interpret our analysis, it is essential to compare the results we obtained to other standards or benchmarks. Horizontal AnalysisComparing a company’s financial condition and performance across time.TOOLS OF ANALYSISVertical AnalysisComparing a company’s financial condition and performance to a base amount.Ratio AnalysisMeasurement of key relations between financial statement items.C 2HORIZONTAL ANALYSISP 1VERTICAL ANALYSISCommon-Size StatementsCommon-size PercentAnalysis AmountBase Amount100=×Financial Statement Base AmountBalance Sheet Total AssetsIncome Statement RevenuesP 2($1,550,861 ÷ $10,204,409) × 100 = 15.2%($835,546 ÷ $8,101,372) × 100 = 10.3%COMMON-SIZE BALANCE SHEETP 2RATIO ANALYSISP 3Liquidity and efficiencySolvencyMarket prospectsProfitabilityCurrent RatioAcid-test RatioAccounts Receivable TurnoverInventory TurnoverDays’ Sales UncollectedDays’ Sales in InventoryTotal Asset TurnoverLIQUIDITY AND EFFICIENCYP 3This ratio measures the short-term debt-paying ability of the company. A higher current ratio suggests a strong liquidity position.CURRENT RATIOCurrent Ratio =Current AssetsCurrent LiabilitiesP 3DebtRatioEquityRatioPledged Assets to Secured LiabilitiesTimes Interest EarnedSOLVENCYP 3DEBT-TO-EQUITY RATIODebt-to-equity ratio = Total liabilities Total equity This ratio measures what portion of a company’s assets are contributed by creditors. A larger debt-to-equity ratio implies less opportunity to expand through use of debt financing.P 3Profit MarginReturn on Total AssetsReturn on Common Stockholders’ EquityPROFITABILITYP 3PROFIT MARGINProfit margin = Net income Net sales This ratio describes a company’s ability to earn net income from each sales dollar.P 3Price-Earnings RatioDividend YieldMARKET PROSPECTSP 3PRICE-EARNINGS RATIOPrice-earnings ratio = Market price per common share Earnings per share This measure is often used by investors as a general guideline in gauging stock values. Generally, the higher the price-earnings ratio, the more opportunity a company has for growth.P 3END OF CHAPTER 17