FINANCIAL

STATEMENT
Financial statements are written records
that convey the business activities and
the financial performance of a
company. Financial statements are often
audited by government agencies,
accountants, firms, etc. to ensure
accuracy and for tax, financing, or
investing purposes.
 Different Types of Financial
Statements
Income

Cash flow

statement. statement.
A cash flow statement is a
An income

financial statement that

statement shows a provides aggregate data
company's revenues, regarding all cash inflows
expenses and a company receives from
profitability over a its ongoing operations
period of time. and external investment
sources.
 Different Types of Financial
Statement of
Statements
Balance Note to
changes in
equity. sheet. financial
statements.

A statement of change in

The term balance TNotes

Strengths to the financial
equity (also referred to as statements disclose the
sheet refers

to a
statement of retained
financial statement detailed assumptions made by
earnings) is a business'
that reports a accountants when preparing a
financial statement that
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company's assets, company's: income statement,
measures the changes in
liabilities, and balance sheet, statement of
owners' equity throughout a
specific accounting period. It shareholder equity at changes of financial position
covers the following a specific point in or statement of retained
elements: Net profit or loss. time. earnings.
 Define the Measurement levels
Financial ratios are the most common tools of managerial decision making.
A ratio is a comparison rather than a calculation of numbers, Financial ratio
involve the comparison of various figures from the financial statements in
order to gain information about a companys performance.

DIFFERENT TYPES OF RATIOS

> Liquidity Ratios
> Solvency Ratios
> Profitability Ratios
> Stability Ratios
 LIQUIDITY RATIOS
LIQUIDITY IS THE CAPACITY OF A COMPANY TO PAY
ITS CURRENTLY MATURING OBLIGATIONS.
Working capital
1 Working capital is the difference between current assets and current
liabilities this is one of the simplest liquidity ratio
Current ratio
2 Current ratio is quotient of current assets diveded bu current
liabilities,As much as possible s " whole number " current ratio is
preferred
Acid test ratio
Acid test ratio is more strict variation of the current ratio
3 formula its removes inventory and prepaid expenses from the
numerator only cash receivable and trading securities will be
left
4
Continuation........
Larana, Inc.

Account receivable turnover ratio

4 This ratio measures the frequency of conversion of the
company accounta receivable to cash
Average collection period
5 The average collection period states the usual number of
the days that it would take before the company would be
able to collect a certain group of receivables

Inventory turnover ratio

6 This ratio measures the number of times the
company was able to sell the entire inventory to
consumers during the year
 Continuation........

Average days in inventory

7
This ratio computes the number of
days that of it will take before a
group of inventory will be entirely
sold by the company
Number of days in operating cycle
8 This is the measure on how it will take
for the company to transform it's
inventory back to cash
 SOLVENCY RATIOS

Solvency Ratios measure the capability of an entity to pay

long term obligations as they fall due.

A. Debt to total assets ratio

B. Debt to equity ratio
C. Times interest earned ratio
 Type of Solvency Ratios

Times interest
Debt to total assets Debt to equity
earned ratio
ratio ratio

As the term The times interest

Instead of assets,the
earned ratio shows the
implies,this is just the debt to equity ratio
proportio between the
proportion between compares the
earnings before
the total liabilities of liabilities of the
interest and taxes (EBIT)
the company with it's company with it's
of the company and its
total assets. equity.
interest expense.
 PROFITABILITY RATIOS

Investors make use of different profitability ratios in

choosing from diverse investment opportunities
available.
A. Gross profit ratio
B. Profit margin ratio
C. Operating ratio
D. Return on investment ratio
D1. Return on assets
D2. Return on equity
E. Assets turnover ratio
 TYPES OF PROFITABILITY
RATIOS
Gross profit Ratio
As the term implies,this is the proportion of the gross profit of the company
with it's net sales. Gross profit is the different between the next sales of the
company and its cost of goods sold.

Profit margin ratio

The profit being mentioned here is the Net Income after tax (NIAT). This ratio
measure the proportion between the NIAT and the set sales of the company.

Operating Ratio
Operating expenses,aside from the cost of goods sold, are the biggest
expense group of every company.
 TYPES OF PROFITABILITY
RATIOS
Return on investment Ratio
The return on investment ratio has two variation. One is the return assets and
the other is the return on shareholders equity.
Return on assets
In this case, assets will be used for the different projects of the company. The
goal is to generate as much profit based on available assets during the year
. Return On Equity
This is a slight variation of the earlier formula.

Assets Turnover Ratio

This ratio measures the correlation between the assets owned by
the company and the net sales generated by such properties.t
 9 STABILITY

Stability is the long term counterpart of

liquidity. Stability analysis investment
how much debt can be supported by
the company and whether debt and
equity are balance.
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