final ppt of fa project jigs

8/8/2019 final ppt of fa project jigs

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FINANCIAL

STATEMENT

ANALYSIS


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Outline

Users of financial statement The importance of financial statement analysis Types of analysis:

Percentage Analysis: Vertical Horizontal

Ratio Analysis Liquidity

Profitability Efficiency Solvency


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Users of financial statement

Managers Investors / Shareholders

Potential Investors

Creditors Regulatory Agencies Inland Revenue

Consumers


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The importance of financial statement

analysis

Helps interested users in making economic decisions:Provide the trend of the business for a certain period of

time.Provide comparability among companies in the sameindustry.

Helps in forecasting the businesss futureperformance


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nanc a na ys s: Comparison

Basis

1 intracompany basis

2 industry averages

Year 1 Year 2

Company XYZ

Co. A

Co. B

Co. D Co. E

Co. C

Co. ABC Co. XYZ

3 intercompany basis


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Types of analysis

Financial

Statement

Analysis

Percentage Ratio

i Horizontal Analysis

i Vertical Analysis

i Liquidity Ratio

i Profitability Ratio

i Efficiency Ratio

i Solvency Ratio


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Horizontal analysis

} Also known astrend analysis.

} Evaluates a series of financial statement data

over a period oftime.

} Purpose: to determinethe increase or decrease

that hastaken place This changemay beexpressed aseither an amount or a percentage.


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Horizontal analysis

Evaluates:Income Statement

Balance Sheet

Formula: Current Year Amount Base Year AmountBase Year Amount


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Selamat Company

Comparative Balance Sheet As At Dec. 31, 2009 and 2010

Fixed Asset:

Office Equipment (net) 55,000 63,000

Current Asset:

Cash 7,000 9,700Accounts Receivable 10,000 18,000

Current LiabilitiesCurrent Liabilities:

Accounts Payable 9,000 7,000

2009 2010 Inc. (Dec)

Amount %

63,000 83,700

Owners Equity 63,000 83,700

63,000 83,700

8,000 14.5

2,700 38.68,000 80.0

(2,000) (22.2)

20,700 32.9

20,700 32.9

20,700 32.9


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Selamat Company Comparative Income Statement Forthe Years

Ended Dec. 31, 2009 and 2010

2009 2010 Inc. (Dec)Amount %

Net Sales 99,000 115,000

Cost of Goods Sold 44,500 57,700

Gross Profit 54,500 57,300

Selling Expenses 16,800 15,000

Admin Expenses 12,000 20,900

Net Income 25,700 21,400

16,000 16.2

13,200 29.7

2,800 5.1

(1,800) (10.7)

8,900 74.2

(4,300) (16.7)


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Vertical Analysis

} Evaluates financial statement data expressing

each item in a financial statement as a percent

of a base amount.

} Vertical analysisenablesyou to compare companies

of differentsizes.


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Selamat Company

Comparative Balance Sheet As At Dec. 31, 2009 and 2010

Fixed Asset:

Office Equipment (net) 55,000 63,000

Current Asset:

Cash 7,000 9,700Accounts Receivable 10,000 18,000

Current LiabilitiesCurrent Liabilities:

Accounts Payable 9,000 7,000

63,000 83,700

Owners Equity 33,000 38,700

63,000 83,700

2009 2010Amt % Amt %

Long Term Liabilities 30,000 45,000100

87.3

11.115.9

14.3

100

100

100

47.652.4

75.3

11.621.5

8.4

53.8

46.2


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Selamat Company Comparative Income Statement Forthe Years

Ended Dec. 31, 2009 and 2010

2009 2010Amt % Amt %

Net Sales 99,000 115,000

Cost of Goods Sold 44,500 57,700


Selling Expenses 16,800 15,000

Admin Expenses 12,000 20,900

Net Income 25,700 21,400

100 100

45.0

55.0

17.0

12.0

26.0

50.2

49.8

13.0

18.2

18.6


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Ratio Analysis

} Expressestherelationship among selected items

of financial statement data.

} Classifications:

LiquidityRatios

ProfitabilityRatios

EfficiencyRatios

SolvencyRatios


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LiquidityRatios

Measures ofshort-term ability ofthe companyto pay

itsmaturing obligations and to meet unexpected

needs for cash.

Theratios are:

5 Current Ratio / Working capital ratio

5 Acid test ratio / quick ratio


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LiquidityRatio Currentratio / Working

capital ratio

measure forevaluating a companysliquidityand

short-term debt-paying ability.

Currentratio =Current Assets

Current Liabilities


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Eg:

Current Assets 36,500 26,700

Current Liabilities 17,200 29,600

2009 2010

Currentratio =36,500

17,200

26,700

29,600

= 2.12 : 1 = 0.90 : 1


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LiquidityRatio Acid TestRatio /

QuickRatio

is a measure of a companysshort-term liquidity.

Acid testratio = Quick Assets

Current Liabilities

Quick asset includes cash, marketable securitiesand accounts receivable.


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Eg:

Quick Assets

Current Liabilities 17,200 29,600

2009 2010

Acid test ratio = 17,700

17,200

20,700

29,600

= 1.03 : 1 = 0.70 : 1

Cash 7,900 8,700

Accounts Receivable 9,800 12,000

Inventories 2,800 6,00020,500 26,700


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Profitability Ratios

Measures ofthe income or operating success of a

company for a given period oftime.

Theratios are:

5 Profit margin

5 Gross profit margin

5 Return on Assets

5 Return on Equity

5 Return on Common Equity

5 Earnings Per Share

5 Price - Earnings ratio


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ProfitabilityRatio Profit Margin

is a measure ofthepercentage ofeach dollar ofsalesthatresults in net income.

Profitmargin =Net income

Netsales


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Eg:

Net Sales 45,000 52,700

Less: Cost of Goods Sold 20,200 23,600

2009 2010

Profitmargin = 10,600

45,000

14,500

52,700

= 23.56% = 27.51%

24,800 29,100Less: Operating Expenses 14,200 14,600

Net income 10,600 14,500


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ProfitabilityRatio GrossProfit Margin

is a measure ofthepercentage ofeach dollar ofsalesthatresults in grossprofit.

Grossprofitmargin =GrossProfit

Net Sales


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Eg:

Net Sales 45,000 52,700

Less: Cost of Goods Sold 20,200 23,600

2009 2010

Grossprofitmargin = 24,800

45,000

29,100

52,700

= 55.11% = 55.22%


Less: Operating Expenses 14,200 14,600

Net income 10,600 14,500


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ProfitabilityRatio Return on Assets

To assessthe ability ofthe company in using its

assetsto earn net income without consideration in

the financing ofsuch assets.

Return on assets =Net income + Interestexpense

Averagetotal assets

Average total assets =Total assets year 1 + total assets year 2

2


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Eg: 2009 2010

Return on Assets =

= 15.89%

Net income 10,600 14,500

Interest Expense 910 760

Total Assets (2000 = 69,900) 75,000 82,000

10,600 + 910

(69,900 + 75,000 ) / 2

14,500 + 760

(75,000 + 82,000 ) / 2

= 19.44%


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ProfitabilityRatio Return on Equity

To assessthe ability ofthe company in managing the

investments byshareholdersto earn income.

Return on equity =Net income

Averagetotal stockholdersequity

h Averagetotal

stockholdersequity

= Total equity year 1 + total equity year 2

2


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Eg: 2009 2010

Return on Equity ( year 2002 ) =

Net income 10,600 14,500

Total Equities:

14,500

(100,000 + 106,000 ) / 2

= 14.08%

Common Shares 80,000 86,000

Preference Shares 20,000 20,000

100,000 106,000


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ProfitabilityRatio Return on Common

Equity

To assessthe ability ofthe company in managing the

investments by common shareholdersto earn its net

income.

Return on common

equity=

Net income

Average common stockholdersequity

h Average common

stockholdersequity=

Common equity year 1 + common equity year 2

2


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Eg: 2009 2010

Return on CommonEquity ( year 2002 )

Net income 10,600 14,500

Total Equities:

14,500

(80,000 + 86,000 ) / 2

= 17.47%

Common Shares 80,000 86,000

Preference Shares 20,000 20,000

100,000 106,000

=


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ProfitabilityRatio EarningsPer Share

a measure of net incomeearned on each share of

common stock.

EarningsPer Share

/ EPS

Net income

average common shares outstanding (unit)

=


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Eg: 2009 2010

Earningspershare

( year 2002 )

Net income 10,600 14,500

Total Equities:

14,500

(80,000 + 86,000 ) / 2

= RM0.17 pershare

Common Shares

(RM1.00 per share) 80,000 86,000

=


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ProfitabilityRatio Price EarningsRatio

Measurestheratio ofthemarketprice ofeach

share of common stockto theearningspershare.

Price EarningsRatio

/ PE Ratio=

Marketprice of common stock

EarningsPer Share


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Eg:2009 2010

Average market price for

common stockRM3.25 RM4.62

Earnings Per Share RM0.11 RM0.17

Price EarningsRatio

/ PE Ratio=

RM3.25 RM4.62

RM0.11 RM0.17

= 30 times = 27 times


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EfficiencyRatios

Measures oftheefficiency and the ability ofthe

company in managing itsresources.

Theratios are:

5 Inventory Turnover

5 Asset Turnover

5 Debtors Turnover / Receivable Turnover


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EfficiencyRatio Inventory Turnover

i measuresthenumber oftimes, on average, the

inventory issold during theperiod .

i Purpose:to measurethe liquidity ofthe inventory.

Inventory

Turnover=

Cost of goodssold

Average inventory

Average inventory =Opening inventory + closing inventory

2


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Eg:2009 2010

=

Cost of goods sold 20,200 23,600

Inventories 2,800 6,000

Inventoryturnover (2002)23,600

( 2,800 + 6,000 ) / 2

= 5.4times


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EfficiencyRatio Assets Turnover

measureshow efficiently a company uses its

assetsto generatesales.

Assetsturnover =Netsales

Averagetotal assets

Average assets =

Total assetsyear 1 + total assetsyear 2

2


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Eg:2009 2010

=Assetsturnover (2002)52,700

( 75,000 + 82,000 ) / 2

= 0.67 times

Net Sales 45,000 52,700

Total Assets 75,000 82,000


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Efficiency Ratio Receivables Turnover

Used to assessthe liquidity ofthereceivables.

Itmeasuresthenumber oftimes, on average,

receivables are collected during theperiod.

Receivablesturnover =Net creditsales

Average netreceivables

$ Average net

receivables=

A. Ryear 1 + A. Ryear 2

2


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Eg:2009 2010

=Receivables turnover (2002) 45,700

( 9,800 + 12,000 ) / 2

= 4.2 times

NetCredit Sales 35,000 45,700

Accounts Receivable 9,800 12,000


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SolvencyRatios

Measures ofthe ability ofthe companyto survive

over a long period oftime.

Theratios are:

5 Debt ratio

5 Equity ratio

5 TimesInterest Earned


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Solvency Ratio Debt Ratio

measuresthepercentage oftotal assetsprovided

by creditors.

Debtratio =Total liabilities

Total assets


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Eg:2009 2010

Total assets 75,000 82,000

Total liabilities 39,000 52,000

Debtratio =39,000

75,000

= 52 %

52,000

82,000

= 63 %


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SolvencyRatio EquityRatio

measuresthepercentage oftotal assetsprovided

byshareholders.

Equityratio =

Total ownersequity

Total assets


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Eg:2009 2010

Total assets 75,000 82,000

Equityratio =69,000

75,000

= 92 %

69,000

82,000

= 84 %

Total equities 69,000 69,000


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SolvencyRatio Times Interest Earned

f provides an indication ofthe companys ability

to meet interestpayments asthey come due.

Times interestearned =Income beforetax and interestexpense

Interestexpense


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Eg:2009 2010

Income before tax and interest 10,600 14,500

= 11.65 times

Interest Expense 910 760

Times interestearned =10,600

910

14,500

760

= 19.1 times


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final ppt of fa project jigs

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