ANALYSIS OF

FINANCIAL STATEMENTS
 Allied Food Products: December 31 Balance Sheet
(Million of Dollars)

ASSETS 2000 1999 LIABILITIES AND EQUITY 2000 1999

Allied Food Products: December 31 Balance Sheet

Cash and marketable securities $ 10 80 Account payable $ 60 30
Accounts receveible 375 315 Notes payable 110 60
Inventories 615 415 Accruals 140 130
Total current assets 1000 810 Total current liabilities 310 220

Net plant and equipment 1000 870 Long term bonds 754 580
Total debts 1064 800

(Million of Dollars)
Preffered stock (400000 share) 40 40
Common stock (50000000 share) 130 130
Retained earnings 766 710
Total common equity 896 840
Total assets 2000 1680 Total liabilities and equity 2000 1680

ASSETS 2002 2001 LIABILITIES AND EQUITY 2002 2001

Cash and marketable securities $ 10 80 Account payable $ 60 30

Accounts receivable 375 315 Notes payable 110 60
Inventories 615 415 Accruals 140 130
Total current assets 1000 810 Total current liabilities 310 220

Net plant and equipment 1000 870 Long term bonds 754 580
Total debts 1064 800

Preffered stock (400000 share) 40 40

Common stock (50000000 share) 130 130
Retained earnings 766 710
Total common equity 896 840
Total assets 2000 1680 Total liabilities and equity 2000 1680
 Al lied Foo d Pro ducts: Inco me Statements fo r Years Edi ng December 3 1
(M illion o f Do lla rs, E xcept fo r Per-Sh are D ata)

20 00 1 99 9

Net s ales $ 30 00 ,0 2 85 0,0

Op erating co sts exc lu d ing depreciatio n and am ort izatio n 26 16 ,2 2 49 7,0
Earning be fo re in terest , taxes , d epreciat ion , an d amo rtizatio n (EB ITDA) 38 3,8 35 3,0
Dep reciatio n 10 0,0 9 0,0
Amo rtizatio n 0,0 0,0
Dep reciatio n and amo rtizat io n 10 0,0 9 0,0
Earning be fo re in terest an d tax es (EBIT, o r o p erating inco me) 28 3,8 2 6 3,0
Les s interest 8 8,0 6 0,0
Earning be fo re taxes (EBT) 19 5,8 20 3,0
Taxes (40 %) 7 8,3 81,2
Net in co me b efo re p reffered div id end s 11 7,5 12 1,8
Preffered div idend s 4,0 4,0
Net in co me 11 3,5 11 7,8

Co mm on div ide nds 5 7,5 5 3,0

Ad dit io n to ret ain ed earning s 5 6,0 6 4,8

Allied Food Products: Statement of Retained Earning/Income Statements for Years Eding December 31
(Million of Dollars, Except for Per-Share Data)

2002 2001

Net sales $ 3000,0 2850,0

Operating costs excluding depreciation and amortization 2616,2 2497,0
Earning before interest, taxes, depreciation, and amortization (EBITDA) 383,8 353,0
Depreciation 100,0 90,0
Amortization 0,0 0,0
Depreciation and amortization 100,0 90,0
Earning before interest and taxes (EBIT, or operating income) 283,8 263,0
Less interest 88,0 60,0
Earning before taxes (EBT) 195,8 203,0
Taxes (40%) 78,3 81,2
Net income before preffered dividends 117,5 121,8
Preffered dividends 4,0 4,0
Net income 113,5 117,8

Common dividends 57,5 53,0

Addition to retained earnings 56,0 64,8
Allied Food Products: Statement of Retained Earnings for Year Ending
December 31, 2002 (Mil ion of Dollars)

Balanced of retained earnings, December 31 2001 $ 710,0

Add: Net Income, 2002 113,5
Less: Dividends to common stockholders (57,5)
Balanced of retained earnings, December 31, 2002 $ 766,0
Allied Food Products: Statement of Cash Flow for 2002
December 31, 2002 (Million of Dollars)
i
OPERATING CTIVITIES
Net Income before preferred dividends $ 117,5
Additions (Sources of Cash)
Depreciation and Amortization 100,0
Increase in accounts payable 30,0
Increase in accruals 10,0
Subtractions (Uses of Cash)
Increase in account receivable (60,0)
Increase in inventories (200,0)
Net cash provided by operating activities (2,5)

LONG-TERM INVESTING ACTIVITIES

Cash used to acquire fixed assets (230,0)

FINANCING ACIVITIES
Increase in notes payable 50,0
Increase in bond 174,0
Payment of commond and preferred dividends (61,5)
Net cach provided by financing activities 162,5
Net decrease in cash and marketable securuties (70,0)
Cash and securities at beginning of year 80,0
Cash and securities at end of year (10,0)
The primarily of Financial Statement

 Analysis of Common Size, Changes both

of the all of values in the balance sheet
and income statement, after (cb: Total
Assets) on balance sheet and (cb: Net
Sales) on income statement in percentage
by common base 100%.

 Analysis of Index, Changes the values in

the financial statement only for balance
sheet to 100 of the basis year (all of unit
in one hundred).
 ANALYSIS OF
FINANCIAL STATEMENT
 Financial statement analysis generally
begins with a set of financial ratio
design to reveal the strengths and
weaknesses of a companies as
compared with other companies in the
same industry, and to show whether its
financial position has been improving or
deteriorating over time.
 The primary goal of financial
management should be to maximize the
stock price over the long run, not to
maximize accounting measures such as
net income or EPS.

 If management is to maximize a firm’s

value, it must take advantage of the
firm’s strengths and correct its
weaknesses.
Financial statement analysis involves:
1. comparing the firm’s performance with
that of other firms in the same industry
2. evaluating trends in the firm’s
financial position over time.

This study help management deficiencies

and then take actions to improve
performance.
Financial statement analysis is useful both to help
anticipate future conditions and, more important, as
a starting point for planning actions that will
improve the firm’s future performance.

Financial ratios are designed to help one evaluate

a financial statement.
For example, Firm A might have debt of $5,248,760 and
interest charges of $419,900, while Firm B might have debt
of $52,647,980 and interest charges of $3,948,600.
Which company is stronger?

The burden of these debts, and the companies’ ability to

repay them, can best be evaluated (1) by comparing each
firm’s debt to its assets and (2) by comparing the interest it
must pay to the income it has available for payment of
interest. Such comparisons are made by ratio analysis.
ANALYSIS OF FINANCIAL STATEMENT
RATIO ANALYSIS

LIQUIDITY RATIOS
Current Ratio Current assets
Current liabilities

Quick, or Acid Test Ratio Current assets - Inventories

Current liabilities

ASSET MANAGEMENT RATIOS

Inventory Turnover Sales
Inventories

Day sales outstanding (DSO) Receivables

Annual sales/360

Fixed Assets Turnover Sales

Net fixed assets

Total Assets Turnover Sales

Total assets
DEBT MANAGEMENT RATIOS

Total debt to total assets Total debt

Total assets

Times-interest-earned (TIE) Earning before interest and taxes (EBIT)

Interest charge

EBITDA coverage EBITDA + Lease payments

Interest + Principle payment + Lease payments
PROFITABILITY RATIOS
Profit margin on sales Net income available to common stockholders
Sales

Basic Earning Power (BEP) Earning before interest and taxes (EBIT)
Total Assets

Return on Total Assets (ROA) Net income available to common stockholders

Total Assets

Return on Common Equity (ROE) Net income available to common stockholders

Common Equity
MARKET VALUE RATIOS
Price/Earning (P/E) Price per share
Earnings per share

Price/Cash Flow Price per share

Cash flow per share

Market/Book (M/B) Market Price per Share

Book value per share
The Summary
LIQUIDITY RATIOS
 Liquidity ratios show the relationship of a firm’s current assets to
its current liabilities, and thus its ability to meet maturing debts.
The most commonly used liquidity ratio is the current ratio

ASSET MANAGEMENT RATIOS

 Asset management ratios measure how effectively a firm is
managing its assets.

DEBT MANAGEMENT RATIOS

 Debt management ratios reveal (1) the extent to which the firm is
financed with debt and (2) 2) its likelihood defaulting on its debts
obligations.

PROFITABILITY RATIOS
 Profitability ratios show the combined effect of liquidity, asset
management and debt management policies on operating results.

MARKET VALUE RATIOS

 Market value ratios relate the firm’s stock price to its earnings,
cash flow, and book value per share.
Du Pont Analysis
 The extended Du Pont Equation is
designed to show how the profit margin on
sales, the total assets turnover ratio, and
the use of debt interact to determine the
rate of return on equity (ROE).
 The firm’s management can use the
extended of Du Pont equation to analyze
way of improving the firm’s performance.
Modified Du Pont Chart

ROE

ROA Asset/Equity

Profit Margin Total Asset Turnover

Sales Net Income Total Assets Sales

Total Costs Sales Total Assets Total Assets

BREAK EVEN ANALYSIS

 The firm’s condition where the both

of total cost and total revenue have
same value for a financial reported .
(BEP = TC = TR)
1) The Break Even Point (BEP) in Graphic

R,C Where:
R = Revenue
TR
C = Cost
TC TR = Total Revenue
Gain
TC = Total Cost
VC = Variable Cost
BEP VC FC = Fixed Cost
BEP= Break Even Point
RC0 FC Q0 = Product quantity
Loss while BEP (in unit)
RC0= Revenue and
Cost while BEP (in
rupiah)
0 Q0 Q
2) The Break Even Point in Mathematic Method
BEP= When Total Revenue have a same value with Total Cost
TR = Price per unit times quantity = P x Q
TC = Fixed cost plus Variable cost = FC + VC
VC = Variable cost per unit times quantity,
Because TR = TC
Then/ P/u . Q = FC + VC/u . Q
so P/u . Q - VC/u . Q = FC
Q ( P/u – VC/u) = FC
FC
Until QBE =
P/u - VC/u

Where QBE is Quantity While Break Even point (BEP), BEP in unit is:
FC
BEP (unit) =
P/u - VC/u
BEP in rupiah is BEP Quantity times Sales Price, or by formula:
FC
In condition of QBE
=
P - VC
FC
Until PQBE = xP
P/P – VC/P

FC FC
PQBE = xP
1 – VC/P 1 - VC/S

Where PQBE is Revenue in BEP condition and VC/P or VC/S is Variable Cost
ratio to sales price, until the result BEP in Rupiah is:
FC FC
BEP (Rupiah) = or
1 - VC/P 1 - VC/S
 Breakeven Analysis identifies the
sales volume where total costs
equal total revenues by assessing
costs versus revenues at various
sales volumes and showing, at any
particular selling price, the amount
of loss or profit for each volume of
sales
 Breakeven Analysis: Cost-Volume-Profit Relationships Using cost-oriented
pricing, a firm will cover variable costs, costs that change with the number
of units of a product produced and sold, such as raw materials, sales
commissions, and shipping. Firms also need to pay fixed costs, such as
rent, insurance, and utilities, that must be paid regardless of the number
of units produced and sold.

 Costs, selling price, and the number of units sold determine how many
units a company must sell before all costs, both variable and fixed, are
covered, and it begins to make a profit. Breakeven analysis identifies the
sales volume where total costs equal total revenues by assessing costs
versus revenues for various sales volumes and showing, at any particular
selling price, the amount of loss or profit for each volume of sales.

 If you were the manager of a T-shirt store, how would you determine how
many shirts you needed to sell to break even? We know that the variable
cost of buying each shirt from the manufacturer is $8. This means that the
store’s annual variable costs depend on how many shirts are sold—the
number of shirts sold times the $8 cost for each shirt. Say that fixed costs
for keeping the store open for one year are $100,000 (no matter how
many shirts are sold). At a selling price of $15 each, how many shirts
must be sold so that total revenues exactly cover both fixed and variable
costs? The answer is the breakeven point, which is 14,286 shirts:
Breakeven point (in units) =
Total Fixed Cost /
Price - Variable Cost =
$100,000 /

$15 - $8
= 14,286 shirts

Look at Figure 12.2. If the store sells fewer than 14,286 shirts, it
loses money for the year. If sales go higher than 14,286, profits grow
by $7 for each additional shirt. If the store sells exactly 14,286 shirts,
it will cover all its costs but earn zero profit.
 Zero profitability at the breakeven point can also be seen by using the
profit equation:

Profit = Total Revenue – (Total Fixed Cost + Total

Variable Cost)

= ($14,286 shirts * $15) – ($100,000 Fixed Cost

+ [14,286 shirts * $8 Variable Cost])

$0 = ($214,290) – ($100,000 + $114,288)
(rounded to the nearest whole shirt)
 1) The Break Even Point (BEP) in
Graphic

R,C
TR

Gain TC

RC0 BEP VC

FC
Loss

0 Q
Q0
Balance sheet and Income statement
Total Assets = 100%/ Common base method
Example for (BS) cash and marketable securities
 10/2000x100 = 0,5%
 80/1680x100 = 4,76%
Kemampuan mendapat 0,5 Cash & MS dari TA
Net Sales = 100%/ Common base method
(IS) Operating cost excluding deprec, and amortiz
2616,2/3000x100 = 87,2%
Ability or dst…

Index Analisys only for balance sheet

Tahun dasar semua angkanya/unsur jadi 100 kemudian
nilai tahun akhir dibagi dgn nilai tahun dasarnya kali 100.
Examples tahun dasar 2001
10/80x100 = 12,5%
60/30x100 = 200%