Kế toán, kiểm toán - Chapter 14: Analyzing financial statements

Analyzing Financial StatementsChapter 14 Financial Statement AnalysisExamines a single company to identify trends over time. Financial statement analysisis based on comparisons.Time seriesanalysisComparison with similar companiesProvides insightsconcerning acompany’s relativeperformance. Component PercentagesExpress each item on a particular statement as a percentage of a single base amount.Total assetson the balancesheetNet saleson the incomestatementThe comparative income statements of Home Depot for 2007, 2008, and 2009 appear on the next slide. Prepare component percentage income statements where net sales equal 100%.2009 Cost of Sales ÷ 2009 Net Sales$47,298 ÷ $71,288 = .664 or 66.4%2009 Gross Profit ÷ 2009 Net Sales$23,990 ÷ $71,288 = .336 or 33.6%2009 Selling, G&A ÷ 2009 Net Sales$17,846 ÷ $71,288 = .250 or 25.0%Net Sales will be set to 100% and all other components will be expressed as a percentage of Net Sales. Component Percentages Test of Profitability ─ Return on EquityReturn on Equity $2,260($17,777 + $17,714) ÷ 2= = 12.7% Net Income Average Stockholders’ EquityReturn on Equity=This measure indicates how much income was earned for every dollar invested by the owners. Profitability is a primary measure ofthe overall success of a company. Test of Profitability ─ Return on AssetsReturn on AssetsNet Income + Interest Expense (net of tax)Average Total Assets=Return on Assets $2,260 + ($624 × (1 - .34)) ($41,164 + $44,324) ÷ 2= = 6.3%Many analysts consider this ratio as the best overall measure of a company’s profitability.Assume the corporate tax rate is 34%. Test of Profitability ─ Earnings per Share (EPS)EPS $2,260 (1,696 + 1,690) ÷ 2== $1.34Earnings per share is probably the single most widely watched financial ratio.Average number of shares based on the numberof shares at the beginning and end of the year. Net Income* Average Number of Shares Outstanding for the PeriodEPS =*If there are preferred dividends, the amount is subtracted from net income. Test of Profitability ─ Profit Margin= 3.2%ProfitMargin$2,260$71,288=This ratio tells us the percentage of each sales dollar that is income. ProfitMargin Net Income Net Sales=Test of Profitability ─ Fixed Asset TurnoverFixedAssetTurnover$71,288($26,234 + $27,476) ÷ 2== 2.65FixedAssetTurnoverNet Sales RevenueAverage Net Fixed Assets=This ratio measures a company’s ability to generate sales given an investment in fixed assets.Tests of Liquidity ─ Current RatioCurrentRatio Current Assets Current Liabilities=CurrentRatio$13,362 $11,153==1.20 to 1This ratio measures the abilityof the company to pay currentdebts as they become due.Tests of Liquidity ─ Quick Ratio (Acid Test) Quick Assets Current Liabilities=QuickRatio$1,497 $11,153=0.13 to 1=QuickRatioThis ratio is like the currentratio but measures the company’simmediate ability to pay debts. Tests of Liquidity ─ Inventory TurnoverCost of Goods Sold Average InventoryInventory Turnover=Inventory Turnover $47,298($10,673 + $11,731) ÷ 2= 4.2 Times=This ratio measures how quickly the company sells its inventory.Tests of Liquidity ─ Average Days’ Supply in InventoryDays in YearInventory TurnoverAverage Days’ Supply in Inventory== 86.9 Days3654.2=Average Days’ Supply in InventoryThis ratio measures the average number of days it takes to sell the inventory.This ratio indicates a margin of protection for creditors. Tests of Solvency ─ Times Interest Earned Net Interest Income Tax Income Expense Expense Interest ExpenseTimes Interest Earned=++$2,260 + $624 + $1,278$624 Times Interest Earned= = 6.7 Times Tests of solvency measure a company’sability to meet its long-term obligations.Tests of Solvency ─ Debt-to-Equity RatioThis ratio measures the amount of liabilities that exists for each $1 invested by the owners. $23,387$17,777= 1.32=Debt-to-Equity RatioTotal LiabilitiesStockholders’ EquityDebt-to-Equity Ratio=Market Tests ─ Price/Earnings (P/E) RatioP/E Ratio =Current Market Price Per ShareEarnings Per ShareP/E Ratio =$26$1.34= 19.4This ratio measures the relationship between the current market price of the stock and its earnings per share.A recent price for Home Depot stock was $26 per share.Market tests relate the current market price of a share of stock to an indicator of the return that might accrue to the investor.End of Chapter 14