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Chap 6 (Ratio Analysis)
Chap 6 (Ratio Analysis)
Financial
Financial Statement
Statement
Analysis
Analysis
6.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
After Studying Chapter 6,
you should be able to:
1. Understand the purpose of basic financial statements and their contents.
2. Understand what is meant by “convergence” in accounting standards.
3. Explain why financial statement analysis is important to the firm and to
outside suppliers of capital.
4. Define, calculate, and categorize (according to liquidity, financial leverage,
coverage, activity, and profitability) the major financial ratios and
understand what they can tell us about the firm.
5. Define, calculate, and discuss a firm’s operating cycle and cash cycle.
6. Use ratios to analyze a firm's health and then recommend reasonable
alternative courses of action to improve the health of the firm.
7. Analyze a firm’s return on investment (i.e., “earning power”) and return on
equity using a DuPont approach.
8. Understand the limitations of financial ratio analysis.
9. Use trend analysis, common-size analysis, and index analysis to gain
additional insights into a firm's performance.
6.2 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Examples
Examples of
of External
External Uses
Uses
of
of Statement
Statement Analysis
Analysis
• Trade Creditors – Focus on the
liquidity of the firm.
• Bondholders – Focus on the
long-term cash flow of the firm.
• Shareholders – Focus on the
profitability and long-term health of
the firm.
6.4 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Examples
Examples of
of Internal
Internal Uses
Uses
of
of Statement
Statement Analysis
Analysis
• Plan – Focus on assessing the current
financial position and evaluating
potential firm opportunities.
• Control – Focus on return on investment
for various assets and asset efficiency.
• Understand – Focus on understanding
how suppliers of funds analyze the firm.
6.5 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Primary
Primary Types
Types of
of
Financial
Financial Statements
Statements
Balance Sheet
• A summary of a firm’s financial position on
a given date that shows total assets = total
liabilities + owners’ equity.
Income Statement
• A summary of a firm’s revenues and
expenses over a specified period, ending
with net income or loss for the period.
6.7 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Basket
Basket Wonders’
Wonders’ Balance
Balance
Sheet
Sheet (Asset
(Asset Side)
Side)
Basket Wonders Balance Sheet (thousands) Dec. 31, 2007 a
Cash $
90 a. How the firm stands on
Acct. Rec.c 394 a specific date.
Inventories 696 b. What BW owned.
Prepaid Exp d 5 c. Amounts owed by
Accum Tax Prepay 10 customers.
d. Future expense items
Current Assetse $1,195 already paid.
Fixed Assets (@Cost)f 1030 e. Cash/likely convertible
Less: Acc. Depr. g (329) to cash within 1 year.
Net Fix. Assets $ 701 f. Original amount paid.
Investment, LT 50 g. Acc. deductions for
Other Assets, LT 223 wear and tear.
6.8
Total Assets b $2,169
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Basket
Basket Wonders’
Wonders’ Balance
Balance
Sheet
Sheet (Liability
(Liability Side)
Side)
Basket Wonders Balance Sheet (thousands) Dec. 31, 2007
Notes Payable $ 290 a. Note, Assets =
Acct. Payablec 94 Liabilities + Equity.
Accrued Taxes d 16 b. What BW owed and
Other Accrued Liab. d 100 ownership position.
Current Liab. e $ c. Owed to suppliers for
500 Long-Term Debt f goods and services.
530 Shareholders’ d. Unpaid wages,
Equity Com. Stock ($1 salaries, etc.
par) g 200 Add Pd in Capital g e. Debts payable < 1 year.
729 Retained f. Debts payable > 1 year.
Earnings h 210 Total g. Original investment.
Equity $1,139 h. Earnings reinvested.
6.9
Total Liab/Equitya,b $2,169
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Basket
Basket Wonders’
Wonders’
Income
Income Statement
Statement
Basket Wonders Statement of Earnings (in thousands)
for Year Ending December 31, 2007a
Net Sales $ 2,211 a. Measures profitability
Cost of Goods Sold b 1,599 over a time period.
Gross Profit $ 612 b. Received, or receivable,
SG&A Expenses c 402 from customers.
EBITd $ c. Sales comm., adv.,
210 Interest Expensee officers’ salaries, etc.
59 EBT f $ d. Operating income.
151 Income Taxes e. Cost of borrowed funds.
60 EATg $ 91 f. Taxable income.
Cash Dividends 38 g. Amount earned for
Increase in RE $ 53 shareholders.
6.10 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Use
Use of
of Financial
Financial Ratios
Ratios
6.16 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
External
External Comparisons
Comparisons and
and
Sources
Sources of
of Industry
Industry Ratios
Ratios
This involves Examples:
comparing the ratios Risk Management
of one firm with those
Association
of similar firms or with
industry averages. Dun & Bradstreet
Almanac of
Similarity is important
as one should Business and
compare “apples to Industrial
apples.” Financial Ratios
6.17 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Liquidity
Liquidity Ratios
Ratios
Balance Sheet Ratios Current Ratio
Current Assets
Liquidity Ratios Current Liabilities
Shows a firm’s
For Basket Wonders
ability to cover its December 31, 2007
current liabilities
with its current $1,195 = 2.39
assets. $500
6.18 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Liquidity
Liquidity Ratio
Ratio
Comparisons
Comparisons
Current Ratio
Year BW Industry
2007 2.39 2.15
2006 2.26 2.09
2005 1.91 2.01
Ratio is stronger than the industry average.
6.19 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Liquidity
Liquidity Ratios
Ratios
Balance Sheet Ratios Acid-Test (Quick) Ratio
2.1
BW
1.9 Industry
1.7
1.5
2005 2006 2007
Analysis Year
6.23 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Acid-Test
Acid-Test Ratio
Ratio –– Trend
Trend
Analysis
Analysis Comparison
Comparison
Trend Analysis of Acid-Test Ratio
1.5
1.3
Ratio Value
1.0 BW
Industry
0.8
0.5
2005 2006 2007
Analysis Year
6.24 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Summary
Summary of
of the
the Liquidity
Liquidity
Trend
Trend Analyses
Analyses
• The current ratio for BW has been rising
at the same time the acid-test ratio has
been declining.
• The current ratio for the industry has
been rising slowly at the same time the
acid-test ratio has been relatively stable.
• This indicates that inventories are a
significant problem for BW.
BW
6.25 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Financial
Financial Leverage
Leverage Ratios
Ratios
Balance Sheet Ratios Debt-to-Equity
Total Debt
Financial Leverage Shareholders’ Equity
Ratios
For Basket Wonders
December 31, 2007
Shows the extent to
which the firm is $1,030 = 0.90
financed by debt. $1,139
6.26 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Financial
Financial Leverage
Leverage
Ratio
Ratio Comparisons
Comparisons
Debt-to-Equity Ratio
Year BW Industry
2007 0.90 0.90
2006 0.88 0.90
2005 0.81 0.89
BW has average debt utilization
relative to the industry average.
6.27 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Financial
Financial Leverage
Leverage Ratios
Ratios
Balance Sheet Ratios Debt-to-Total-Assets
Total Debt
Financial Leverage Total Assets
Ratios
For Basket Wonders
Shows the percentage December 31, 2007
of the firm’s assets
that are supported by $1,030 = 0.47
debt financing. $2,169
6.28 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Financial
Financial Leverage
Leverage
Ratio
Ratio Comparisons
Comparisons
Debt-to-Total-Asset Ratio
Year BW Industry
2007 0.47 0.47
2006 0.47 0.47
2005 0.45 0.47
BW has average debt utilization
relative to the industry average.
6.29 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Financial
Financial Leverage
Leverage Ratios
Ratios
Balance Sheet Ratios Total Capitalization
(i.e., LT-Debt + Equity)
9.0
Ratio Value
7.0 BW
Industry
5.0
3.0
2005 2006 2007
Analysis Year
6.34 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Summary
Summary of
of the
the Coverage
Coverage
Trend
Trend Analysis
Analysis
• The interest coverage ratio for BW has
been falling since 2005. It has been
below industry averages for the past
two years.
• This indicates that low earnings (EBIT)
may be a potential problem for BW.
BW
• Note, we know that debt levels are in line
with the industry averages.
6.35 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Activity
Activity Ratios
Ratios
Income Statement/ Receivable Turnover
(Assume all sales are credit sales.)
Balance Sheet
Ratios Annual Net Credit Sales
Receivables
Activity Ratios
For Basket Wonders
Indicates quality of December 31, 2007
receivables and how
successful the firm is in $2,211 = 5.61
its collections. $394
6.36 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Activity
Activity Ratios
Ratios
Income Statement/ Avg Collection Period
Balance Sheet
Ratios Days in the Year
Receivable Turnover
3.5
Ratio Value
3.0 BW
Industry
2.5
2.0
2005 2006 2007
Analysis Year
6.44 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Activity
Activity Ratios
Ratios
Income Statement/ Total Asset Turnover
Balance Sheet
Ratios Net Sales
Total Assets
Activity Ratios
For Basket Wonders
Indicates the overall December 31, 2007
effectiveness of the firm
in utilizing its assets to $2,211 = 1.02
generate sales. $2,169
6.45 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Activity
Activity
Ratio
Ratio Comparisons
Comparisons
Total Asset Turnover Ratio
Year BW Industry
2007 1.02 1.17
2006 1.03 1.14
2005 1.01 1.13
BW has a weak total asset turnover ratio.
Why is this ratio considered weak?
6.46 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Profitability
Profitability Ratios
Ratios
Income Statement/ Gross Profit Margin
Balance Sheet
Ratios Gross Profit
Net Sales
Profitability Ratios
For Basket Wonders
December 31, 2007
Indicates the efficiency
of operations and firm $612 = 0.277
pricing policies. $2,211
6.47 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Profitability
Profitability
Ratio
Ratio Comparisons
Comparisons
Gross Profit Margin
Year BW Industry
2007 27.7% 31.1%
2006 28.7 30.8
2005 31.3 27.6
BW has a weak Gross Profit Margin.
6.48 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Gross
Gross Profit
Profit Margin
Margin ––
Trend
Trend Analysis
Analysis Comparison
Comparison
Trend Analysis of Gross Profit Margin
35.0
32.5
Ratio Value (%)
30.0 BW
Industry
27.5
25.0
2005 2006 2007
Analysis Year
6.49 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Profitability
Profitability Ratios
Ratios
Income Statement/ Net Profit Margin
Balance Sheet
Ratios Net Profit after Taxes
Net Sales
Profitability Ratios
For Basket Wonders
Indicates the firm’s December 31, 2007
profitability after taking
$91 = 0.041
account of all expenses
$2,211
and income taxes.
6.50 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Profitability
Profitability
Ratio
Ratio Comparisons
Comparisons
Net Profit Margin
Year BW Industry
2007 4.1% 8.2%
2006 4.9 8.1
2005 9.0 7.6
BW has a poor Net Profit Margin.
6.51 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Net
Net Profit
Profit Margin
Margin ––
Trend
Trend Analysis
Analysis Comparison
Comparison
Trend Analysis of Net Profit Margin
10
9
Ratio Value (%)
8
7 BW
Industry
6
5
4
2005 2006 2007
Analysis Year
6.52 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Profitability
Profitability Ratios
Ratios
Income Statement/ Return on Investment
Balance Sheet
Ratios Net Profit after Taxes
Total Assets
Profitability Ratios
For Basket Wonders
Indicates the December 31, 2007
profitability on the
assets of the firm (after $91 = 0.042
all expenses and taxes). $2,160
6.53 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Profitability
Profitability
Ratio
Ratio Comparisons
Comparisons
Return on Investment
Year BW Industry
2007 4.2% 9.6%
2006 5.0 9.1
2005 9.1 10.8
BW has a poor Return on Investment.
6.54 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Return
Return on
on Investment
Investment ––
Trend
Trend Analysis
Analysis Comparison
Comparison
Trend Analysis of Return on Investment
12
10
Ratio Value (%)
8 BW
Industry
6
4
2005 2006 2007
Analysis Year
6.55 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Profitability
Profitability Ratios
Ratios
Income Statement/ Return on Equity
Balance Sheet
Ratios Net Profit after Taxes
Shareholders’ Equity
Profitability Ratios
For Basket Wonders
Indicates the profitability December 31, 2007
to the shareholders of
the firm (after all $91 = 0.08
expenses and taxes). $1,139
6.56 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Profitability
Profitability
Ratio
Ratio Comparisons
Comparisons
Return on Equity
Year BW Industry
2007 8.0% 18.0%
2006 9.4 17.2
2005 16.6 20.4
BW has a poor Return on Equity.
6.57 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Return
Return on
on Equity
Equity ––
Trend
Trend Analysis
Analysis Comparison
Comparison
Trend Analysis of Return on Equity
21.0
Ratio Value (%)
17.5
14.0 BW
Industry
10.5
7.0
2005 2006 2007
Analysis Year
6.58 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Return
Return on
on Investment
Investment and
and
the
the Du
Du Pont
Pont Approach
Approach
Earning Power = Sales profitability ×
Asset efficiency
ROI = Net profit margin ×
Total asset turnover
ROI2007 = 0.041 × 1.02 = 0.042 or 4.2%
ROIIndustry = 0.082 × 1.17 = 0.096 or 9.6%
(Note: values are rounded)
6.59 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Return
Return on
on Equity
Equity and
and
the
the Du
Du Pont
Pont Approach
Approach
Return On Equity = Net profit margin X
Total asset turnover X
Equity Multiplier
Total Assets
Equity Multiplier =
Shareholders’ Equity
ROE2007 = 0.041 × 1.02 × 1.90 = 0.080
ROEIndustry = 0.082 × 1.17 × 1.88 = 0.180
(Note: values are rounded)
6.60 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Summary
Summary of
of the
the Profitability
Profitability
Trend
Trend Analyses
Analyses
• The profitability ratios for BW have ALL
been falling since 2005. Each has been
below the industry averages for the past
three years.
• This indicates that COGS and
administrative costs may both be too high
and a potential problem for BW.
BW
• Note, this result is consistent with the low
interest coverage ratio.
6.61 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Growth Ratios
Income Statement/ Growth Ratio
Balance Sheet
(Value of t+1) – (Value of t)
Ratios (Value of t)
x100
Growth Ratios For Basket Wonders
December 31, 2007
Indicates the firm’s
growth of any activities
6.62 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Stock Ratios
Earning/ Share =
(EPS)= Net Profit / # of
Shares
= 91,000 / 200,000 =0.455
6.63 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Stock Ratios
Dividends/Share
(Div.)=
Distributed profit / #
of Shares
38,000 / 200,000 = 0.19
6.64 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Stock Ratios
Price Earning Ratio
(Profit Multiplier)
(PE)= Market Price/ Earning/Share
= 6.00 / 0.455= 13.19
OR = 8.00 / 0.455 = 17.58
6.65 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Stock Ratios
BookValue= Shareholders’
Equity / # of Common
Shares
= 1,139,000 / 200,000
= 5.695
6.66 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Stock Ratios
Market Price to Book Value
= Market Price / Book Value
= 6.00 / 5.695 = 1.05
OR = 8.00 / 5.695 = 1.40
6.67 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Stock Ratios
ThePaid Price = 200,000 +
729,000 = 929,000
ThePaid Price / Share =
929,000 / 200,000 = 4.645
6.68 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Summary
Summary of
of Ratio
Ratio Analyses
Analyses
• Inventories are too high.
• May be paying off creditors
(accounts payable) too soon.
• COGS may be too high.
• Selling, general, and
administrative costs may be too
high.
6.69 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Common-Size
Common-Size Analysis
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.
6.70 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Basket
Basket Wonders’
Wonders’ Common
Common
Size
Size Balance
Balance Sheets
Sheets
Regular (thousands of $) Common-Size (%)
Assets 2005 2006 2007 2005 2006 2007
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
6.71 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Basket
Basket Wonders’
Wonders’ Common-
Common-
Size
Size Balance
Balance Sheets
Sheets
Regular (thousands of $) Common-Size (%)
Liab+Equity 2005 2006 2007 2005 2006 2007
Note Pay 290 295 290 23.71 14.43 13.37
Acct Pay 81 94 94 6.62 4.60 4.33
Accr Tax 13 16 16 1.06 0.78 0.74
Other Accr 15 100 100 1.23 4.89 4.61
Tot CL 399 505 500 32.62 24.71 23.05
LT Debt 150 453 530 12.26 22.16 24.44
Equity 674 1,086 1,139 55.11 53.13 52.51
Tot L+E 1,223 2,044 2,169 100.0 100.0 100.0
6.72 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Basket
Basket Wonders’
Wonders’ Common-
Common-
Size
Size Income
Income Statements
Statements
Regular (thousands of $) Common-Size (%)
2005 2006 2007 2005 2006 2007
Net Sales 1,235 2,106 2,211 100.0 100.0 100.0
COGS 849 1,501 1,599 68.7 71.3 72.3
Gross Profit 386 605 612 31.3 28.7 27.7
Adm. 180 383 402 14.6 18.2 18.2
EBIT 206 222 210 16.7 10.5 9.5
Int Exp 20 51 59 1.6 2.4 2.7
EBT 186 171 151 15.1 8.1 6.8
EAT 112 103 91 9.1 4.9 4.1
Cash Div 50 50 50 4.0 2.4 2.3
6.73 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Index
Index Analyses
Analyses
6.75 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Basket
Basket Wonders’
Wonders’
Indexed
Indexed Balance
Balance Sheets
Sheets
Regular (thousands of $) Indexed (%)
Liab+Equity 2005 2006 2007 2005 2006 2007
Note Pay 290 295 290 100.0 101.7 100.0
Acct Pay 81 94 94 100.0 116.0 116.0
Accr Tax 13 16 16 100.0 123.1 123.1
Other Accr 15 100 100 100.0 666.7 666.7
Tot CL 399 505 500 100.0 126.6 125.3
LT Debt 150 453 530 100.0 302.0 353.3
Equity 674 1,086 1,139 100.0 161.1 169.0
Tot L+E 1,223 2,044 2,169 100.0 167.1 177.4
6.76 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Basket
Basket Wonders’
Wonders’ Indexed
Indexed
Income
Income Statements
Statements
Regular (thousands of $) Indexed (%)
2005 2006 2007 2005 2006 2007
Net Sales 1,235 2,106 2,211 100.0 170.5 179.0
COGS 849 1,501 1,599 100.0 176.8 188.3
Gross Profit 386 605 612 100.0 156.7 158.5
Adm. 180 383 402 100.0 212.8 223.3
EBIT 206 222 210 100.0 107.8 101.9
Int Exp 20 51 59 100.0 255.0 295.0
EBT 186 171 151 100.0 91.9 81.2
EAT 112 103 91 100.0 92.0 81.3
Cash Div 50 50 50 100.0 100.0 100.0
6.77 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.