Bài giảng Financial & Managerial Accounting - Chapter 14: Financial statement analysis

FINANCIAL STATEMENT ANALYSISChapter14Internal UsersExternal UsersFinancial statement analysis helps users make better decisions.ManagersOfficersInternal AuditorsShareholdersLendersCustomersPurpose of AnalysisPurpose of AnalysisFinancial Statements Are Designed for AnalysisDollar & Percentage ChangesTrend PercentagesComponent PercentagesRatiosTools of AnalysisDollar Change:Analysis Period AmountBase PeriodAmountDollarChange=–Percentage Change:Dollar ChangeBase PeriodAmountPercentChange=÷%Dollar and Percentage ChangesDollar and Percentage Changes Let’s look at the asset section of Clover Corporation’s comparative balance sheet and income statement for 2003 and 2002.Compute the dollar change and the percentage for cash.Dollar and Percentage ChangesExample$12,000 – $23,500 = $(11,500)($11,500 ÷ $23,500) × 100% = 48.94%Complete the analysis for the other assets.Trend analysis is used to reveal patterns in data covering successive periods.TrendPercent Analysis Period Amount Base Period Amount100%=×Trend Analysis1999 is the base period so its amounts will equal 100%.Berry ProductsIncome InformationFor the Years Ended December 31, Trend Analysis - ExampleExamine the relative size of each item in the financial statements by computing component (or common-sized) percentages.Component Percent100%Analysis AmountBase Amount=×Financial Statement Base AmountBalance Sheet Total AssetsIncome Statement RevenuesComponent Percentages($12,000 ÷ $315,000) × 100% = 3.8%($23,500 ÷ $289,700) × 100% = 8.1%13-*13-*13-*13-*Ratios Use this information to calculate the liquidity ratios for Norton Corporation.Working capital is the excess of current assets over current liabilities.Working CapitalCurrentRatio Current Assets Current Liabilities=CurrentRatio $65,000 $42,000==1.55 : 1This ratio measures the short-term debt-paying ability of the company.Current RatioQuick assets are cash, marketable securities, and receivables.This ratio is like the currentratio but excludes current assets such as inventories that may be difficult to quickly convert into cash. Quick Assets Current Liabilities=QuickRatioQuick Ratio Quick Assets Current Liabilities=QuickRatio $50,000 $42,000=1.19 : 1=QuickRatioThis ratio is like the currentratio but excludes current assets such as inventories that may be difficult to quickly convert into cash. Quick RatioA measure of creditor’s long-term risk. The smaller the percentage of assets that are financed by debt, the smaller the risk for creditors.Debt RatioUses and Limitations of Financial RatiosAn income statement can be prepared in either a multiple-step or single-step format.The single-step format is simpler.The multiple-step format provides more detailed information.Measures of ProfitabilityProper Heading{Gross Margin{Operating Expenses{{Non- operating ItemsIncome Statement (Multiple-Step) ExampleRemember to compute EPS.Proper Heading{Income Statement (Single-Step) ExampleExpenses & Losses{Revenues & Gains{Remember to compute EPS. Use this information to calculate the profitability ratios for Norton Corporation.This ratio is generally consideredthe best overall measure of acompany’s profitability.Return On Assets (ROA)This measure indicates how well the company employed the owners’ investments to earn income.Return On Equity (ROE)Sources of Financial InformationEnd of Chapter 14No more ratios, please!