Bài giảng Financial Accounting - Chapter 13: Financial Analysis

201Lec13.PPTX113Financial Analysisis best use of past data to forecast profitability.is the ability to generate future profits.comes from recurring items such as: - net income from operations - recurring non-operating items (such as investment income or interest expense) GAAP Rule: Statements must separate out non-recurring irregular items.2Sustainable Incomeare separated on the income statement. are reported net of tax expense (or refund). Example: $100,000 irregular item, 30% tax rate » Report as $70,000 after taxTypes of irregular items: - discontinued operations - extraordinary itemsIrregular Items3Irregular items on the Income StatementComponents of the income statement4PACE CORPORATIONIncome Statement and Statement of Comprehensive IncomeFor the Year Ended December 31, 2014PACE CORPORATIONIncome Statement and Statement of Comprehensive IncomeFor the Year Ended December 31, 2014Irregular items on the Income StatementComponents of the income statement5Discontinued OperationsTermination of one business (sale, dissolution, etc.)Separate year of disposal effects. Clutters up view of ongoing operations.PACE CORPORATIONIncome Statement and Statement of Comprehensive IncomeFor the Year Ended December 31, 2014Irregular items on the Income StatementComponents of the income statement6Extraordinary ItemsMust be UNUSUAL and INFREQUENTRequired by GAAPIncludes certain items that affect equity which aren’t on the income statement.Often shown below irregular items on income stmtComprehensive Income Don’t confuse with “Proforma” Income: - Supplemental info published by some companies - Not required and often doesn’t even follow GAAP - Company decides what is unusual or infrequent - Can be pretty bogus7Basic tools used in statement analysis:Horizontal analysisVertical analysisRatio analysis8Evaluates a series of financial statement data over a period of time. (Sometimes called trend analysis)Determines whether an increase or decrease has taken place.The increase or decrease can be expressed as either an amount or a percentage.Horizontal analysis92 ways to calculate: Change since = Current amount - Base amount base period Base amount Used a lot in comparing changes from last year. Current in relation = Current amount to base period Base amount Used in examining trend over several years.Horizontal analysis10EXAMPLE: Assume Konk Co. had the following:  2015 2014 _ Sales $155,432 $137,422 less CGS ( 82,658) ( 60,555)Gross Profit $ 72,774 $ 76,867 ChangeAmount % 18,010 13.1 22,103 36.5 ( 4,093) - 5.3Horizontal analysis: Sales: 155432 - 137422 = +18010, (18010 / 137422) x 100 = 13.1%CGS: 82658 - 60555 = +22103, (22103 / 60555) x 100 = 36.5%Gross profit: 72774 - 76867 = (4093), (- 4093 / 76867) x 100 = (5.3)%11EXAMPLE: Assume Konk Co. had the following:  2015 2014 2013 2012 _ Sales $162,500 $155,432 $137,422 $105,050 Horizontal analysis: Make 2012 Sales base: 2012: (105050 / 105050) x 100= 100.0% 2013: (137422 / 105050) x 100= 130.8% 2014: (155432 / 105050) x 100= 148.0% 2015: (162500 / 105050) x 100= 154.7%121501401301201101002011 2012 2013 2014V e r t I c a l A n a l y s I sExpresses each item in a financial statement as a percent of a base amount. - Total assets is always the base amount in analysis of a balance sheet. - Net sales is always the base amount in analysis of an income statement.Sometimes called “common size” statements. Calculated as: (Item / Base) x 10013EXAMPLE: Assume Konk Co. had the following:  2015 Sales $155,432  less CGS ( 82,658) Gross Profit $ 72,774 Wages -40,852 Other expense -20,961_ Net income $ 10,961  %_ 100.0 53.2 46.8 26.3 13.5 7.0Vertical analysis: Sales: (155432/155432)x100=100.0% CGS: (82658/155432)x100=53.2% Gross profit: (72774/155432)x100=46.8% Wages: (40852/155432)x100=26.3% Other: (20961/155432)x100=13.5% 14 Ratio analysis15ProfitabilitySolvencyRatio AnalysisExpresses the relationship among selected items of financial statement data. Can provide clues to underlying conditions that may not be apparent from an inspection of the individual components.Single ratio by itself is not very meaningful.Liquidity16 Measures the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash. WHO CARES? Short-term creditors such as bankers and suppliersLiquidity17Ratio AnalysisLiquidity Ratios18 Measures the ability of the enterprise to survive over a long period of time WHO CARES? Long-term creditors and stockholdersSolvency19Ratio AnalysisSolvency Ratios20 Measures the income or operating success of an enterprise for a given period of time WHO CARES? Everybody WHY? A company’s income affects: its ability to obtain debt and equity financingits liquidity positionits ability to grow Profitability21Ratio AnalysisProfitability Ratios22Price-Earnings RatioReflects investors’ assessment of a company’s * future * earnings.23P-E ratio will be higher if investors think that earnings will increase in the future. EXAM ROOMSEXAM Friday May 13, 3:00-5:00 pm. T/A determines room: Mark: Lubar N146 Tim: Bolton 150 Scott: Lubar N140 Rachel: Bolton 150 What’sa debit