Bài giảng Financial Accounting - Chapter 12: Financial Statement Analysis

FinancialStatement AnalysisChapter 12 Learning ObjectivesPerform vertical analysisPerform horizontal analysisUse ratios to analyze a company’s riskUse ratios to analyze a company’s profitabilityDistinguish persistent earnings from one-time itemsExplain quality of earnings and distinguish between conservative and aggressive accounting practices12-2Part AComparison of Financial Accounting Information12-3Learning Objective 1 Perform vertical analysis12-4Vertical AnalysisExpress each item in a financial statement as a percentage of the same base amountIncome statement items expressed as a percentage of salesBalance sheet items expressed as a percentage of assets12-5Learning Objective 2 Perform horizontal analysis12-6Horizontal AnalysisAnalyze trends in financial statement data for a single company over time12-7Part BUsing Ratios to Assess Risk and Profitability12-8Learning Objective 3 Use ratios to analyze a company’s risk12-9Receivables Turnover RatioMeasures how many times receivables are collected during the yearLow ratio indicates trouble collecting its accounts receivableHigh ratio indicates quick collection of receivables into cash12-10Average Collection PeriodDays it takes to convert receivables into cashShorter collection period is better12-11Inventory Turnover RatioMeasures how many times average inventory is sold during the yearHigh ratio indicates that inventory is selling quicklyExtremely high ratio might indicate lost sales due to inventory shortages12-12Average Days in InventoryDays it takes to sell inventoryLower is better12-13Current RatioCompares current assets to current liabilitiesHigh ratio indicates sufficient assets to cover current liabilities12-14Acid-Test RatioMore conservative measure of ability to pay current liabilitiesIgnores current assets such as inventories and prepaid expenses12-15Debt to Equity RatioIndicates the risk of bankruptcyHigher ratio indicates higher risk12-16Times Interest Earned RatioCompare interest payments with income available to pay themAssociated with long-term liabilities12-17Learning Objective 4 Use ratios to analyze a company’s profitability12-18Gross Profit RatioIndicates the portion of each dollar of sales above its cost of goods sold12-19Return on AssetsMeasures the income the company earns on each dollar invested in assets12-20Profit MarginMeasures the income earned on each dollar of sales12-21Asset TurnoverMeasures sales volume in relation to the investment in assets12-22Return on EquityMeasures the income earned for each dollar in stockholders’ equity12-23Price-Earnings RatioCompares a company’s share price with its earnings per shareIndication of investors’ expectations of future earnings12-24Part CEarnings Persistence and Earnings Quality12-25Learning Objective 5 Distinguish persistent earnings from one-time items12-26Earnings Persistence and One-Time Income ItemsEarnings PersistenceCurrent earnings that will continue or persist into future yearsOne-Time Income ItemsCertain items are part of net income in the current year but are not expected to persistDiscontinued operationsExtraordinary items12-27Discontinued OperationsSale or disposal of a significant component of a company’s operationsAny gains or losses on discontinued operations in the current year are reported separately12-28Extraordinary ItemsGains or losses that do not reflect normal operations and that are not likely to happen againEvent that produces a gain or loss must meet two conditions:Unusual in natureInfrequent in occurrence12-29Learning Objective 6 Explain quality of earnings and distinguish between conservative and aggressive accounting practices12-30Quality of EarningsAbility of reported earnings to reflect true earningsUsefulness of reported earnings to predict future earningsResult in reporting lower income, lower assets, and higher liabilitiesResult in reporting higher income, higher assets, and lower liabilitiesConservative Accounting PracticesAggressive Accounting Practices12-31Mr. Djokovic's Proposed ChangesDecrease estimate of bad debtsReverse write-down of inventoryIncrease asset’s useful life changing depreciation estimateRemove loss contingency12-32Symbolism RevealedMr. Nadal represents conservative accounting practicesMr. Djokovic represents aggressive accounting practices12-33End of Chapter 1212-34