Financial Statement

Analysis II
 Profitability Ratios
Income Statement /
Gross Profit Margin
Balance Sheet Gross Profit
Ratios
Net Sales
Profitability Ratios
For Basket Wonders December
31, 19X3
Indicates the efficiency of
operations and firm pricing
policies. 612 = .277
2,211
 Profitability Ratios
Income Statement / Net Profit Margin
Balance Sheet
Net Profit after Taxes
Ratios
Net Sales

Profitability Ratios For Basket Wonders December

31, 19X3
Indicates the firm’s
profitability after taking
account of all expenses and 91 = .041
income taxes. 2,211
 Profitability Ratios
Income Statement / Return on Investment
Balance Sheet
Net Profit after Taxes
Ratios
Total Assets

Profitability Ratios For Basket Wonders December

31, 19X3
Indicates the profitability on
the assets of the firm (after
all expenses and taxes). 91 = .042
2,169
 Profitability Ratios
Income Statement / Return on Equity
Balance Sheet
Net Profit after Taxes
Ratios
Shareholders’ Equity

Profitability Ratios For Basket Wonders December

31, 19X3
Indicates the profitability to
the shareholders of the firm
(after all expenses and 91 = .08
taxes). 1,139
 Limitation of Ratio Analyses

• One Ratio may not be considered

sufficient to arrive at a Result.
• While comparing two Companies the
Two has the same depreciation and
Store issuance procedure for correct
result.
• One product line Company may not be
compared with multiple product line
Company
 Common-size Analysis
An analysis of percentage
financial statements where all
balance sheet items are
divided by total assets and all
income statement items are
divided by net sales or
revenues.
 • Every item of the asset is divided with the Total
HOW TO Assets of the same year and Multiplied by 100 to
arrive at common size e.g.
CALCULA • (Cash/Total Assets)X100
TE • For First Year 
COMMON • Year 19X1 Cash (148/1,223)x100= 12.10
• Year 19X1 AR (283/1,223)x100= 23.14
SIZE •  For Next year
ANALYSIS •  Year 19X2 Cash (100/2,044)x100= 4.89
• Year 19X2 AR (410/2,044)x100= 20.06
 Basket Wonders’ Common
Size Balance Sheets
Regular (thousands of $) Common-Size (%)
Assets 19X1 19X2 19X3 19X1 19X2 19X3
Cash 148 100 90 12.10 4.89 4.15
AR 283 410 394 23.14 20.06 18.17
Inv 322 616 696 26.33 30.14 32.09
Other CA 10 14 15 0.82 0.68 0.69
Tot CA 763 1,140 1,195 62.39 55.77 55.09
Net FA 349 631 701 28.54 30.87 32.32
LT Inv 0 50 50 0.00 2.45 2.31
Other LT 111 223 223 9.08 10.91 10.28
Tot Assets 1,223 2,044 2,169 100.0 100.0 100.0
 Index Analyses
An analysis of percentage financial
statements where all balance sheet
or income statement figures for a
base year equal 100.0 (percent)
and subsequent financial
statement items are expressed as
percentages of their values in the
base year.
HOW TO CALCULATE INDEX ANALYSIS
All the figures of the items of the Balance Sheet or Income Statement of the oldest year is
considered the base year and equals 100 (base point/Percent). All the subsequent years’
financial statement items’ figures are considered as index year and expressed as percentage
of their values in the base year as per the follows:
(Base year item/Index year Item) X 100
For the first year the index year and the Base year are same so the result will be 100 for
every item as follows:
19x1 Cash 148 is equated as 100 So (148/148)X100=100
19x1 AR 283 is equated as 100 So (283/283)X100=100
For the year 19x2
The index years' figure will change but the base year figure will remain the same as follows:
19x2 Cash 100 (100/148)X100=67.6
19x2 AR 410 (410/283)X100=144.9
 Basket Wonders’ Indexed
Balance Sheets
Regular (thousands of $) Indexed (%)
Assets 19X1 19X2 19X3 19X1 19X2 19X3
Cash 148 100 90 100.0 67.6 60.8
AR 283 410 394 100.0 144.9 139.2
Inv 322 616 696 100.0 191.3 216.1
Other CA 10 14 15 100.0 140.0 150.0
Tot CA 763 1,140 1,195 100.0 149.4 156.6
Net FA 349 631 701 100.0 180.8 200.9
LT Inv 0 50 50 100.0 inf. inf.
Other LT 111 223 223 100.0 200.9 200.9
Tot Assets 1,223 2,044 2,169 100.0 167.1 177.4
Trend Analysis
 THANKS
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