Financial Statements Analysis

Ratio Analysis
 Financial Statements and Financial Statements Analysis
Defined
 Financial Statements are written records that
presents the business activities and the financial
performance of a company. It basically include:
• Statement of Financial Position (Balance Sheet)
• Statement of Comprehensive Income (Income
Statement)
• Statement of Cash Flows
 Financial Statements and Financial Statements Analysis
Defined
 Financial Statement Analysis is the process of analyzing
a company's financial statements for decision-making
purposes. It is used as stakeholders to understand the
overall health of an organization as well as to evaluate
financial performance and business value.
 Ratio Analysis is a comparison in fraction, decimal or
percentage form of two significant figures taken from
financial statements.
Common Balance Sheet Ratios
• Current Ratio= Total Current Assets
Total Current Liabilities

• Acid Test Ratio= Total Quick Assets*

Total Current Liabilities

*Cash + Marketable Securities + Accounts Receivable

Common Balance Sheet Ratios
• Debt-to-assets Ratio= Total Liabilities
(Debt Ratio) Total Assets

• Working Capital Ratio= Working Capital*

Total Assets

*Current Assets-Current Liabilities

 Common Income Statement Ratios

Asset Turnover Receivable Turnover

Net sales (Net Credit Sales) Net sales (Net Credit Sales)
Average Trade Receivables*
Total Assets
*(Beginning Trade Receivables+ Ending
Trade Receivables)/2
 Common Income Statement Ratios

Rate of Return on Assets Gross Profit Margin

Net Profit_________ Gross Profit________

Average Total Assets Net Sales
For Practice
A skeleton of Harvest Company’s balance sheet appears as follows (amounts in
thousands):

Cash 75 Additional
Receivables (a) Information:
Inventories 725 *Harvest’s current
Prepaid Expense (b)
ratio is 0.80 and its
Total Current Assets (c )
Plant Assets (d)
acid test ratio is
Other assets 2000 0.40
Total Assets 6800
Required: Complete
Total current liabilities 1900 Harvest Company’s
Long-term note payable (e) balance sheet.
Other long-term liabilities 980
Stockholder’s equity 2325
Total Liabilities and
Stockholder’s Equity (f)____
For Practice
Given are the following information for the Coleman Machine Tools Corporation.

Sales (credit)-----------7200
Cash-----------------------300
Inventory ---------------2150
Current liabilities -----1400
Asset turnover---------1.20 times
Current Ratio-----------2.50 times
Debt-to-assets ratio--40%
Receivables turnover-8 times

*Current assets are composed of cash, marketable securities, accounts receivable, and inventory.
Calculate the following balance sheet items:

a. Accounts Receivable
b. Marketable Securities
c. Fixed Assets
d. Long-term debt