Financial Statement Analysis

Common Financial Statements

 Balance Sheet
 Income Statement
 Statement of Retained Earnings
 Statement of Cash Flows
– Events?
Ratio Analysis
 What is the main benefit of conducting ratio
analysis?
 What are the major limitations of ratio
analysis? See page 83.
Liquidity Ratios
 Current Ratio
 Quick (Acid Test) Ratio
Asset Management Ratios
 Inventory Turnover Ratio
 Days Sales Outstanding
 Fixed Asset Turnover
 Total Assets Turnover
Debt Management Ratios
 Why is it important to have a good
understanding of a firm’s leverage position?
 Debt to Assets
 Times Interest Earned
 Fixed Charge Coverage
Profitability Ratios
 Profit Margin on Sales
 Basic Earning Power (BEP)
 Return on Total Assets
 Return on Common Equity
Market Value Ratios
 Price to Earnings
 Market to Book
 Look at summary for MicroDrive on p. 75.
Trend Analysis
 What can be learned from trend analysis?
 What makes trend analysis so difficult in
the short run?
Du Pont Equation
 Look at Du Pont chart on page 77.
 Du Pont analysis allows us to see what is
driving ROE.
 Why is that important?
Comparative Ratios and
Benchmarking
 What is benchmarking and why is it of
value?
Looking Behind the Numbers!!
 Are the company’s revenues tied to one key
customer?
 To what extent are the company’s revenues
tied to one key product?
 To what extent does the company rely on a
single supplier?
 What percentage of the company’s business
is generated overseas?
 What is the competition like?
 What are the future prospects of the firm?
 What is the legal and regulatory
environment like?