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Financial Statement Analysis: Warren Reeve Duchac
Financial Statement Analysis: Warren Reeve Duchac
CHAPTER
17 Financial Statement
Analysis
Accounting
26e
Warren
Reeve
Duchac
Learning Objectives
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Basic Analytical Methods
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Horizontal Analysis (slide 1 of 2)
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Horizontal Analysis (slide 2 of 2)
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Comparative Balance Sheet - Horizontal Analysis
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Comparative Schedule of Current Assets -
Horizontal Analysis
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Comparative Income Statement - Horizontal
Analysis
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Comparative Retained Earnings Statement -
Horizontal Analysis
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Example Exercise Horizontal Analysis
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part.
Vertical Analysis (slide 1 of 3)
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Vertical Analysis (slide 2 of 3)
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Comparative Balance Sheet - Vertical Analysis
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Vertical Analysis (slide 3 of 3)
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Comparative Income Statement - Vertical
Analysis
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Example Exercise Vertical Analysis
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part.
Common-Sized Statements
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Common-Sized Income Statements
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Liquidity and Solvency Analysis (slide 1 of 2)
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Liquidity and Solvency Analysis (slide 2 of 2)
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Liquidity and Solvency Analysis (slide 3 of 3)
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Current Position Analysis
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Current Position Analysis: Working Capital (slide
1 of 3)
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Current Position Analysis: Working Capital (slide
2 of 3)
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Current Position Analysis: Working Capital (slide
3 of 3)
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Current Position Analysis: Current Ratio (slide 1 of
3)
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Current Position Analysis: Current Ratio (slide 2 of
3)
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Current Position Analysis: Current Ratio (slide 3 of
3)
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Current Position Analysis: Quick Ratio (slide 1 of 2)
o Quick assets are cash and other current assets that can be
easily converted to cash.
Quick assets include cash, temporary investments, and receivables
but exclude inventories and prepaid assets.
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Current Position Analysis: Quick Ratio (slide 2 of 2)
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Example Exercise Current Position Analysis, Part 2
Determine (a) the current ratio and (b) the quick ratio.
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part.
Accounts Receivable Analysis (slide 1 of 2)
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Accounts Receivable Analysis (slide 2 of 2)
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Accounts Receivable Analysis: Accounts
Receivable Turnover (slide 1 of 2)
• The accounts receivable turnover is computed as
follows:
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Accounts Receivable Analysis: Accounts
Receivable Turnover (slide 2 of 2)
• The accounts receivable turnover for Lincoln
Company for 2016 and 2015 is computed as follows:
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Accounts Receivable Analysis: Number of
Days’ Sales in Receivables (slide 1 of 3)
where
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Accounts Receivable Analysis: Number of
Days’ Sales in Receivables (slide 2 of 3)
• The number of days’ sales in receivables for Lincoln
Company is computed as follows:
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Accounts Receivable Analysis: Number of
Days’ Sales in Receivables (slide 3 of 3)
• The number of days’ sales in receivables is an
estimate of the time (in days) that the accounts
receivable have been outstanding.
• The number of days’ sales in receivables is often
compared with a company’s credit terms to evaluate
the efficiency of the collection of receivables.
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Example Exercise Accounts Receivable Analysis
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part.
Inventory Analysis (slide 1 of 2)
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Inventory Analysis (slide 2 of 2)
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Inventory Analysis: Inventory Turnover (slide 1 of 2)
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Inventory Analysis: Inventory Turnover (slide 2 of 2)
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Inventory Analysis: Number of Days’ Sales in
Inventory (slide 1 of 3)
where
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Inventory Analysis: Number of Days’ Sales in
Inventory (slide 2 of 3)
• The number of days’ sales in inventory for Lincoln
Company is computed as follows:
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Inventory Analysis: Number of Days’ Sales in
Inventory (slide 3 of 3)
• The number of days’ sales in inventory is a rough
estimate of the length of time it takes to purchase,
sell, and replace the inventory.
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Example Exercise Inventory Analysis
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part.
Ratio of Fixed Assets to Long-Term Liabilities
(slide 1 of 2)
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Ratio of Fixed Assets to Long-Term Liabilities
(slide 2 of 2)
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Ratio of Liabilities to Stockholders’ Equity (slide 1
of 2)
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Ratio of Liabilities to Stockholders’ Equity (slide 2
of 2)
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Example Exercise Long-Term Solvency Analysis
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part.
Number of Times Interest Charges Are Earned
(slide 1 of 3)
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Number of Times Interest Charges Are Earned
(slide 2 of 3)
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Number of Times Interest Charges Are Earned
(slide 3 of 3)
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Example Exercise Times Interest Charges Are Earned
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part.
Profitability Analysis (slide 1 of 2)
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Profitability Analysis (slide 2 of 2)
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Ratio of Sales to Assets (slide 1 of 2)
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Ratio of Sales to Assets (slide 2 of 2)
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Example Exercise Sales to Assets
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part.
Rate Earned on Total Assets (slide 1 of 3)
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Rate Earned on Total Assets (slide 2 of 3)
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Rate Earned on Total Assets (slide 3 of 3)
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Example Exercise Rate Earned on Total Assets
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part.
Rate Earned on Stockholders’ Equity (slide 1 of 4)
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Rate Earned on Stockholders’ Equity (slide 2 of 4)
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Rate Earned on Stockholders’ Equity (slide 3 of 4)
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Rate Earned on Stockholders’ Equity (slide 4 of 4)
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Effect of Leverage
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Rate Earned on Common Stockholders’ Equity
(slide 1 of 3)
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Rate Earned on Common Stockholders’ Equity
(slide 2 of 3)
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Rate Earned on Common Stockholders’ Equity
(slide 3 of 3)
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Example Exercise Common Stockholders’ Profitability
Analysis
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part.
Earnings per Share on Common Stock (slide 1 of 3)
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Earnings per Share on Common Stock (slide 2 of 3)
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Earnings per Share on Common Stock (slide 3 of 3)
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Price-Earnings Ratio (slide 1 of 2)
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Price-Earnings Ratio (slide 2 of 2)
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Example Exercise Earnings per Share and Price-Earnings
Ratio
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part.
Dividends per Share (slide 1 of 3)
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Dividends per Share (slide 2 of 3)
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Dividends per Share (slide 3 of 3)
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Dividends and Earnings per Share of Common
Stock
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Dividend Yield (slide 1 of 2)
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Dividend Yield (slide 2 of 2)
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Summary of Analytical Measures (slide 1 of 2)
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Summary of Analytical Measures (slide 2 of 2)
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Corporate Annual Reports
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Management Discussion and Analysis
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Report on Internal Control (slide 1 of 2)
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Report on Internal Control (slide 2 of 2)
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Report on Fairness of the Financial Statements
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Appendix: Unusual Items on the Income
Statement
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Appendix: Unusual Items Affecting the Current
Period’s Income Statement
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Appendix: Unusual Items Affecting the Current
Period’s Income Statement - Discontinued Operations
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Appendix: Unusual Items Affecting the Current
Period’s Income Statement - Extraordinary Items
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Unusual Items in the Income Statement
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Appendix: Unusual Items Affecting the Current
Period’s Income Statement - Reporting Earnings per
Share
• Earnings per common share should be prepared
separately in the notes to the financial statements for
discontinued operations and extraordinary items.
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Income Statement with Earnings per Share
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Appendix: Unusual Items Affecting the Prior
Period’s Income Statement
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