FINANCIAL ANALYSIS FINANCIAL ANALYSIS -Entails the use of historical financial statements to evaluate the past and current performances of the firm and to make financial forecast in the future. (Keown et al.) +Allows comparison of one company to another within the same industry.OLS AND TECHNIQUES +Analysts should be competent enough to use the common tools ACh Couiet SM MeUe UEDA uCmulsaecanemat eins the horizontal and vertical analysis. FINANCIAL RATIO ANALYSIS +Several financial ratios can be obtained from the financial 1h) Sa Vr] URL SOM ate AMIN SoM cnc SMM lets camel curse Mg reUm (Us anv numbers. + However, financial ratios for one period alone, without year-to-year or industry comparative ratios, are of little use in analyzing a business.TWO TYPES OF COMPARISON 1. Industry Comparison — FS Ratios are computed and compared with the industry average. 2. Trend Analysis - FS Ratios are computed and compared to past performance and prepare for the aiUh lke LIQUIDITY RATIOS + Liquidity — ability to meet short-term obligations. *Creditors and suppliers take interest in liquidity ratios to determine whether to grant credit or not.LIQUIDITY RATIOS rat ue oral en) Ce eee napa CIPD RS CECE EU Lea nA aU) Clie a We CEEOL IAA U EES te = SAU pest TTT GGT LIQUIDITY RATIOSACTIVITY RATIOS + Also known as Asset Management Ratios + Determines length of the Normal Operating Cycle. RECEIVABLE TURNOVER (ARTO) + Estimates how often (turnover) accounts receivable is collected in a year.AVERAGE COLLECTION PERIOD + Estimates how many days it takes to collect accounts receivable. INVENTORY TURNOVER (IN-TO) + Estimates how often (turnover) inventory is sold in a year.AVERAGE AGE OF INVENTORY « Estimates how many days it takes to sell inventory NORMAL OPERATING CYCLE (NOC) + Estimates the time it takes to convert inventory into receivable into cash.SSET TURNOVER (ATO) + Measures an entity's efficiency in using its assets to fel Taller lest (oon TIVITY RATIOS Se Ly SS oe = a TTT ae NCO LULGTES 360 EOD einer erence PRC ees i ae TE TOL. NORMAL OPERATING CYCLE = AVE. COLLECTION PERIOD + AVEAGE OF INVENTORYjo Wile Géleley ale Gosles ACTIVITY RATIOS ACTIVITY RATIOSLEVERAGE RATIOS + Indicate the capital structure used to finance the EI Ce Ree SL Ve UL Lary ROY OLN COC snore OUI. ve neo Oven ny PGS ENE WERE BM eS TaUG EPSPROFITABILITY RATIOS + Indicates how effectively an entity is managed to earn satisfactory profits. PROFITABILITY RATIOS GROSS PROFIT MARGIN «Measurement of an entity's manufacturing and efficiency during the production process Oke eS CT u DaraPROFITABILITY RATIOS PROFIT MARGIN SPN oN Cale) (a= lM C1 OG RST= ioe NaN} DUO lions PROFITABILITY RATIOS RETURN ON ASSETS * Measure of income generated for every peso of R18 Reedy Le NTT PadPROFITABILITY RATIOS RETURN ON EQUITY + Measure of income generated for every peso of (Toler aya ESE Mee asset a DAs eee NTT aa eT TUS TCT MARKET VALUE RATIOS + Measures the entity's performance as perceived by Maal) 8MARKET VALUE RATIOS EARNINGS PER SHARE + Measure of income generated per common stock lat=lleR REN Cie uA eRe [= PE Ce ee MARKET VALUE RATIOS PRICE/EARNINGS RATIO «Investor's perceived value of the entity's future prospects. Rue BS LeyMARKET VALUE RATIOS BOOK VALUE PER SHARE + Measures of an entity's value per share on an accounting perspective. DLL VAL LUA eer LS R= Se eee Li CONOR Ee ODI MARKET VALUE RATIOS MARKET TO BOOK VALUE RATIO « Measures of an entity's value on the accounting perspective as against market valuation. a baa eY MV TO BV =DIVIDEND RATIOS + Measures the percentage of dividends declared. + Dividends can be in the form of the following: * Cash dividends * Stock dividends * Scrip dividends * Property dividends MARKET VALUE RATIOS DIVIDEND YIELD * Measures the rate of return on the stockholder’s investment. OAD ed ae Gay MUST Ts MARKET PRICE PER SHAREMARKET VALUE RATIOS DIVIDEND PAYOUT RATIO + Measures the dividends declared relative to the earnings. PUNE Dah ae LN a Wet = PAD Zw OL ew) EARNINGS PER SHARE