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8810 Lecture 6

8810 Lecture 6

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Published by saurabh060981

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Published by: saurabh060981 on Feb 03, 2010
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Financial Ratio Analysis
Applying analytical techniques to financial statementsand other relevant data to produce information usefulfor decision making.
Three Issues :Financial analysis:
 o c u s
Profitability, Liquidity, Safety (Solvency or Risk)
In general, each financial ratio is closely related to one of thethree fundamental issues.
This analysis is intended as a background review. See also “Merrill Lynch Howto Read A Financial Statement” which is available on the web.
Current Assets:Cash and cash equivalents$ 50,000 $ 35,000Trading securities (at fair value) 750,000 65,000Accounts receivable 300,000 290,000Inventory (at lower of cost or market) 290,000 275,000Total current assets 715,000 665,000Investments available-for-sale (at fair value) 350,000 300,000Fixed Assets:Property, plant, and equipment (at cost) 1,900,000 1,800,000Less: Accumulated depreciation (380,000) (350,000)1,520,000 1,450,000Goodwill 30,000 35,000Total assets$2,615,000$2,450,000Current Liabilities:Accounts payable$ 150,000$ 125,000Notes payable 325,000 375,000Accrued and other liabilities 220,000 200,000Total current liabilities 695,000 700,000Long-term debt:Bonds and notes payable 650,000 600,000Total liability 1,345,000 1,300,000Stockholders’ Equity:Common stock (100,000 shares outstanding) 500,000 500,000Additional paid-in capital 350,000 350,000Retained earnings 420,000 300,000Total equity 1,270,000 1,150,000Total liability and equity$2,615,000$2,450,000
December 31
Year 1 (Current year) Year 2 (Last year)
Balance Sheet
GI Company
Sales$1,800,000Cost of goods sold(1,000,000)Gross profit800,000Operating expenses(486,697)Interest expenseDepreciation and Amortization expense(10,000 )(13,303)Net income before income taxes290,000Income taxes (31%) ( 90,000)Net income after income taxes$ 200,000Earning per share$2Operating cash flow$255,000Dividends for the year$0.80 per shareMarket price per share$12
GI Company
Income Statement
Year – 1)

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