Analysis of Financial Statements
Analysis of Financial Statements
Analysis of Financial Statements
Analysis of Financial
Statements
Ratio Analysis
Du Pont system
Effects of improving ratios
Limitations of ratio analysis
Qualitative factors
4-1
2005
7,282
632,160
1,287,360
1,926,802
1,202,950
263,160
939,790
2,866,592
4-2
Balance sheet:
Liabilities and Equity
2006E
Accts payable
436,800
Notes payable
300,000
Accruals
408,000
Total CL
1,144,800
Long-term debt
400,000
Common stock
1,721,176
Retained earnings
231,176
Total Equity
1,952,352
Total L & E
3,497,152
2005
524,160
636,808
489,600
1,650,568
723,432
460,000
32,592
492,592
2,866,592
4-3
Income statement
2006E
Sales
7,035,600
COGS
5,875,992
Other expenses
550,000
EBITDA
609,608
Depr. & Amort.
116,960
EBIT
492,648
Interest Exp.
70,008
EBT
422,640
Taxes
169,056
Net income
253,584
2005
6,034,000
5,528,000
519,988
(13,988)
116,960
(130,948)
136,012
(266,960)
(106,784)
(160,176)
4-4
Other data
2006E
No. of shares 250,000
EPS
$1.014
DPS
$0.220
Stock price
$12.17
Lease pmts $40,000
2005
100,000
-$1.602
$0.110
$2.25
$40,000
4-5
Trend analysis
Peer (or Industry) analysis
4-6
4-7
Comments on liquidity
ratios
2006E 2005
2004
Ind.
Current
Ratio
2.34x
1.20x
2.30x
2.70x
Quick Ratio
0.84x
0.39x
0.85x
1.00x
4.1x
4.70x
2004
Ind.
4.8x
6.1x
4-10
Comments on
Inventory Turnover
4-11
4-12
Appraisal of DSO
DSO
2006E
2005
2004
Ind.
45.6
38.2
37.4
32.0
2006E
2005
2004
Ind.
FA TO
8.6x
6.4x
10.0x
7.0x
TA TO
2.0x
2.1x
2.3x
2.6x
$609.6 + $40
$70 + $40 + $0
= 5.9x
4-17
2005
2004
Ind.
D/A
44.2%
82.8%
54.8%
50.0%
TIE
7.0x
-1.0x
4.3x
6.2x
EBITDA
coverage
5.9x
0.1x
3.0x
8.0x
Profitability ratios:
Profit margin and Basic earning
power
Profit margin = Net income / Sales
= $253.6 / $7,036 = 3.6%
BEP
14.1%
4-19
2006E
2005
2004
Ind.
PM
3.6%
-2.7%
2.6%
3.5%
BEP
14.1%
-4.6%
13.0%
19.1%
Profitability ratios:
Return on assets and Return on
equity
ROA= Net income / Total assets
= $253.6 / $3,497 = 7.3%
ROE = Net income / Total common
equity
= $253.6 / $1,952 = 13.0%
4-21
2006E
2005
2004
Ind.
ROA
7.3%
-5.6%
6.0%
9.1%
ROE
13.0%
-32.5%
13.3%
18.2%
4-23
2006E
2005
2004
Ind.
P/E
12.0x
-1.4x
9.7x
14.2x
P/CF
8.21x
-5.2x
8.0x
11.0x
M/B
1.56x
0.5x
1.3x
2.4x
4-26
4-28
= 3.6%
x
=
13.0%
1.8
PM
TA TO
EM
ROE
2004
2.6%
2.3
2.2
13.3%
2005
-2.7%
2.1
5.8
-32.5%
2006E
3.6%
2.0
1.8
13.0%
Ind.
3.5%
2.6
2.0
18.2%
4-29
An example:
The effects of improving
ratios$ 878 Debt $1,545 Other
A/R
CA
Net FA
TA
1,802
Equity
1,952
817
_____
$3,497 Total L&E
$3,497
4-31
Repurchase stock
Expand business
Reduce debt
All these actions would likely
improve the stock price.
4-33
Qualitative factors to be
considered when evaluating a
companys
future
financial
Are the firms
revenues
tied to one
performance
key customer, product, or supplier?