786 Presentation

7/31/2019 786 Presentation

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Group Members

1. Ansar Abbas 7297

2. Yahya Haider 73013. Hasan Mahmood 7257

4. Saqib Ali 7299

5. Ghulam Murtza 72816. Adeel Irshad 7291

7. Naeem Khan 7288

8. Asif Shah 7304

Ansar Abbas


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FINANCIAL STATEMENT ANALYSIS

TOPIC


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GAAP

The guide lines used toprepare and maintain

financial records &reports are known asGAAP

STOCK HOLDERS REPORT


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A seven-member independentboard consisting of accounting

professionals who establishand communicate standards offinancial accounting andreporting in the United States.

FINANCIAL ACCOUNTING

STANDARDS BOARD(FASB)


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Public Company Accounting Oversight Board

The Public Company Accounting Oversight Board (orPCAOB) is a private-sector, non-profit corporationcreated by the SarbanesOxley.

A non-profit organization that regulates

auditors of publicly traded companies.

The PCAOB was established as a result of the

creation of the Sarbanes-Oxley Act of 2002. The

board's aim is to protect investors and other

stakeholders of public companies by ensuring

that the auditor of a company's financial

statements has followed a set of strict

guidelines.


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1. The mission of the Securities and

Exchange Commission (SEC) is to

protect investors, maintain fair,

orderly, and efficient markets, and

facilitate capital formation.

2. Unlike the banking world, wheredeposits are almost always

guaranteed by the federal

government, stocks, bonds and

other securities can lose value.


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STOCK HOLDERS REPORT

The annual report and

other reports givento stockholders toinform them of thecompanys financial

standing anddevelopments.

stockholders


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KEY FINANCIAL STATEMENTS

Income Statements

A historical financial reportthat indicates sources andamounts of revenues, amounts

of expense accounts, and profitor loss.


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1. The second financial statement that

you'll encounter in the annual report isthe balance sheet.

2. The basic concept underlying abalance sheet is simple enough: totalassets equals total liabilities plusequity.

Balance sheet


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1. Statement of Stockholder'sEquity is a portion of the balancesheet which contains the amountof capital earned by the companyin exchange to the stock.

2.It also records the capital thatis donated by the companyand the retained earnings.

Statement of Stock Holders


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1. The Statement of RetainedEarnings is the secondfinancial statement that should

be prepared in the accountingcycle after the incomestatement.

2. Retained earning are the

portion of net income not paidout to investors in the businessas dividends. Retainedearnings are reinvested in thebusiness firm.

STATEMENT OF RETAINED EARNING


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Statement of cash flow is a financialstatement that shows howchanges in balance sheetaccounts and income affect cashand cash equivalents, and breaksthe analysis down to operating,

investing, and financing activities.


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HASAN MAHMOOD

ROLL No. 7257

CLASS MBA

DEPARTMENT OF BUSINESS ADMINISTRATION

G.C UNIVERSITY FAISALABAD


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1. Ratio Analysis is a form

of Financial Statementanalysis.

2. It is used to obtain a

quick indication of afirm's financialperformance in severalkey areas.

Ratio Analysis


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INTERESTED PARTIES

1. Financial statement analysis isuseful to different parties toobtain the required informationabout the organization.

2. Following are the partiesinterested in financialstatement analysis.

FINANCIAL RATIOS


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a. ShareholdersShareholders are interested in financialstatement analysis to know the profitability of

the organization.b. Investors And Lenders

i. Investors and lenders are interested to know

the solvency position of an organization.ii. They analyze the financial statement position

to know about the safety of their investment

and ability to pay interest and repayment ofprinciple amount on due date.


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c. CREDITORS

Creditors analyze the financial statementto know either the organization is enable

to pay the amount of short term liabilitieson due date.

d. ManagementManagement is interested to analyze the

financial statement for measuring theeffectiveness of its policies anddecisions.

e. Government

Government is interested to analyze thefinancial position in determining theamount of tax liability.


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Assessment of

relationships among across-section of firms,countries, or someother variable at oneparticular time.


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1. A benchmark is a reference ormeasurement standard used for

comparison.

2. Benchmarking is the continuous

activity of identifying, understanding& adapting best practice and

processes that will lead to superior

performance.

3. Benchmarking measures an

organization's products, services and

processes, to establish targets,

priorities.

Benchmarking


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Time Series Analysis1. In financial analysis the dire

ction of changes over a periodof years is of crucial

importance.2. Time series or trend analysis

of ratios indicates the directionof change.


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Combined analysis simply

uses a combination of bothtime series analysis andcross-sectional analysis.

COMBINED ANALYSIS


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GROSS PROFIT RATIO

1. It is the ratio of gross profit to net sales

express as a percentage2. It shows the relationship between GP

and sales gross.

FORMULA:

profit ratio = gross profit/net sales *100


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OPERATING RATIO

1. It is the ratio of cost of goods

sold plus operating expenses to

net sales

2. This ratio shows the

operational efficiency of the

business

FORMULA

operating ratio=CGS + operating

expenses /net sales * 100


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EXPENSE RATIO

1. It indicate the relationship of various

expenses to net sales

2. It reveals the average total in expensesFORMULA:

expense ratio= expenses/ net sales * 100


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NET PROFIT RATIO

1. It is the ratio of net profit to net sales also

expressed as a percentage

2. It is used to measure overall profitability ofbusiness.

FORMULA:net profit ratio=net profit/net sales *100ssssss


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STOCK TURNOVER RATIO

It shows the relationship between CGS

and average stock during certain time

period It measure the velocity of conversion of

stock into sale.

FORMULAStock turnover ratio= CGS/ avg. stock


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It indicates the number of times, the

debtors are turned over during a year

It measure the velocity of debt collection ofa firm

FORMULA

Debtor turnover ratio = total credit sale/avg.

debtors


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AVERAGE COLLECTION PERIOD

When debtors turnover ratio is

calculated in terms of days called

average collection period.FORMULA

Average collection period = average

debtors/total credit purchase * 360


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CREDITORS TURNOVER RATIO

It compares the creditors with credit

purchase

It signified the credit period enjoyed by

the firm in paying creditors

FORMULA

creditors turnover ratio=credit purchase

/ avg. creditors


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AVERAGE PAYMENT PERIOD

It shows the number of days taken by

a firm to pay its creditors.

FORMULA

Average payment period= average

creditors / credit purchase * 360


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WORKING CAPITAL TURNOVER RATIO

It measure the efficiency with which the

working capital is being used by a firm

FORMULA

working capital turnover ratio =CGS/net working capital


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This ratio measures the efficiencyand profit earning capacity of the

concern.ssFORMULA

fixed asset turnover ratio= CGS /

fixed assets

FIXED ASSET TURNOVER RATIO


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It indicates the efficiency withwhich the firm uses its assets togenerate sale.

FORMULA

Total asset turnover ratio= CGS /total assets

TOTAL ASSET TURNOVER RATIO


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Liquidity

Liquidity is the amount of capital that isavailable for investment and spending

Current Ratio:-

A liquidity ratio that measures a company's ability to

pay short-term obligations.

The Current Ratio formula is:

LIQUIDITY RATIOS


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The acid test ratio (or quick ratio) isa measurement of a company's ability topay short term liabilities without selling

inventory.The acid test ratio can be calculated asfollows:

Acid test ratio =(Accounts receivable+ Cash equivalents + Cash) / Currentliabilities

ACID TEST / QUICK RATIO


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INVENTORY TURNOVER RATIO

The inventory turnover ratiomeasuresthe number of times a company sells its

inventory during the year.Formula

Inventory Turnover Ratio = cost of

goods sold / average inventory


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Number of days an average inventory itemtakes to sell:

For example, assume that average

inventory is $47,500 and cost of goodssold is $500,000. The average age ofinventory is ($47,500/$500,000) X 365days = 34.7 days


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The average amount of time needed tocollects accounts receivable

Collection Period =

Collection Period = 365days

Accounts Receivable X 365 daysCredit Sales


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Financial LeverageThe financial leverage ratioindicates theextent to which the business relies on debt

financing.FORMULA:-

Financial Leverage Ratio = total debt /shareholders equity.

The financial leverage ratioindicates theextent to which the business relies on debtfinancing.

Debt Ratios


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Common Size Income Statement

An income statement in which eachaccount is expressed as a percentage

of the value of sales.

Gross Profit Margin(formula):-

PROFITABILITY RATIOS


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FORMULA:-


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Market ratio relate

the firms value, asmeasured by itscurrent share

price, to certainaccounting values.


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The P/E ratio measures the amount that investorsare willing to pay for each dollar of a firm' earnings

FORMULA:-

Price Earnings Ratio = Market price per equity share/ Earnings per share

EXAMPLE:-

The market price of a share is $30 and earning per share is$5.

Calculate price earnings ratio?

CALCULATION:-

Price earnings ratio = 30 / 5=6

PRICE/EARNING RATIO


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1. Market book ratio providesan assessment of howinvestors view the firms

performance .

2. Firms expected to earnhigh returns relative to theirrisk typically sell at higher

m/b multiples.

MARKET RATIOS


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