FINANCIAL STATEMENT ANALYSIS

TOOLS AND TECHNIQUES

Horizontal Vertical Trends

Analysis Analysis Analysis

Financial
Ratio Analysis
FINANCIAL STATEMENT ANALYSIS
TOOLS AND TECHNIQUES

Horizontal Vertical
Analysis Analysis

Trends Financial
 CATEGORIES OF FINANCIAL RATIOS

Financial Ratios

Market Value or
Liquidity Solvency Profitability
Valuation
 CATEGORIES OF FINANCIAL RATIOS

Financial Ratios

Market Value or
Liquidity Solvency Profitability
Valuation
 CATEGORIES OF FINANCIAL RATIOS

Financial Ratios

Market Value or
Liquidity Solvency Profitability
Valuation
 SOLVENCY RATIOS

aka leverage ratios

measures the ability to pay its maturing long-term debts while sustaining
operations indefinitely
 SOLVENCY RATIOS

aka leverage ratios

measures the ability to pay its maturing long-term debts while sustaining
operations indefinitely
 TYPES OF SOLVENCY RATIO

Solvency Ratio

Debt Equity Debt to Times Interest

Ratio Ratio Equity Ratio Earned
DEBT RATIO

aka debt to assets ratio

measures business liabilities as percentage of total assets

DEBT RATIO

aka debt to assets ratio

measures business liabilities as percentage of total assets

Total Liabilities
Debt Ratio =
Total Assets
What is the debt ratio for years 2015-2017?

2017 2016 2015

EQUITY RATIO

measures the percentage of total assets financed by the owner’s investment

EQUITY RATIO

measures the percentage of total assets financed by the owner’s investment

Total Equity
Equity Ratio =
Total Assets
What is the equity ratio for years 2015-2017?

2017 2016 2015

DEBT TO EQUITY RATIO

aka financial leverage ratio

measures the financing provided by the creditors against those provided by

the owner
DEBT TO EQUITY RATIO

aka financial leverage ratio

measures the financing provided by the creditors against those provided by

the owner
DEBT TO EQUITY RATIO

aka financial leverage ratio

measures the financing provided by the creditors against those provided by

the owner

Total Liabilities
Equity Ratio =
Total Equity
What is the debt to equity ratio for years 2015-
2017?

2017 2016 2015

TIMES INTEREST EARNED

measures the company’s ability to pay the interest charged to the company
for its outstanding liabilities
TIMES INTEREST EARNED

measures the company’s ability to pay the interest charged to the company
for its outstanding liabilities

Income before Interest and Taxes

Times Interest Earned =
Interest Expense
What is the time interest earned ratio for years
2015-2017?

2017 2016 2015

INTERPRETATION OF DATA
How do you know if the results of the following
solvency ratio is favorable for the company?
1. Debt Ratio
2. Equity Ratio
3. Debt to Equity Ratio
4. Times Interest Earned
SEATWORK

Drill 2, pg 106