Ratio-Analysis-Interpret教学讲解课件

Week2–RatioAnalysis&InterpretationofFinancialStatementsChapters27,281Week2–RatioAnalysis&InteThePurposeofFinancialStatementsThepurposeoffinancialstatementsistoprovidereliable,relevantandusefulinformationtousers.Thefinancialstatementsareusedbymanagement,shareholders,lenders,suppliers,auditors,governmentauthorities,etc.Financialstatementsprovideapictureofthefinancialpositionandperformanceofacompany.2ThePurposeofFinancialStateWhatareFinancialStatementRatios?Afinancialstatementratioisanumericalvaluethatallowuserstoevaluatethecompany’sperformanceandposition.Financialratiosareusedtohelpusersbetterunderstandthenumberspresentedbythebalancesheetandincomestatement.3WhatareFinancialStatementRWhataretheyusedfor?Financialstatementratiosareusedinanalyticalprocedures.Theymaybeused: (1)tocompareacompany’sperformance thisyearwithlastyear. (2)tocompareacompany’sperformance withanothercompany(acompetitor). (3)tocompareacompany’sperformance withtheindustryaverage.4Whataretheyusedfor?FinanciTypesofRatiosTherearegenerallyfourtypesoffinancialstatementratios.Eachtypeofratioisusedfordifferentpurposes.Activity(orefficiencyratios)Solvency(orliquidityratios)Leverage(ordebtratios)Profitabilityratios5TypesofRatiosTherearegenerActivityRatiosActivityratiosareusedtoevaluatehowefficientlyacompanyisconvertingbalancesheetitemsintocashorsales.1)Inventoryturnover2)Dayssalesoutstanding3)Accountspayableturnover4)Totalassetturnover6ActivityRatiosActivityratiosInventoryTurnoverRatioCalculatedas:CostofgoodssoldAverageinventoryWhatdoesitmean?Itshowsthenumberoftimesinventoryisreplacedduringayear.Ahighratiomeansthecompanyisefficientandreplacesinventoryoften.Alowratiomeansthecompanyisnotefficientandishavingtroublesellinginventory.7InventoryTurnoverRatioCalculDaysSalesOutstandingRatioCalculatedas:AccountsReceivableSales/365Whatdoesitmean?Itshowsthenumberofdaysinayearthataccountsreceivableisoutstanding.Ahighratioindicatesthecompanyisnotefficientatcollectingreceivablesfromcustomers.Alowratioindicatesthecompanyisefficientanddoesabetterjobatcollectingreceivables.8DaysSalesOutstandingRatioCaAccountsPayableTurnoverRatioCalculatedas:AccountsPayablePurchases/365Whatdoesitmean?Itshowsthenumberofdaysinayearthataccountspayableisoutstanding.Ahighratioindicatesthecompanyisnotefficientatpayingsuppliers.Alowratioindicatesthecompanyisefficientatpayingsuppliers.9AccountsPayableTurnoverRatiTotalAssetTurnoverRatioCalculatedas:SalesAveragetotalassetsWhatdoesitmean?Itshowshowefficientlyacompanyisusingassetstogeneratesales.Ahighratioindicatesthecompanyisefficientatusingassetstogeneratesales.Alowratioindicatesthecompanyisnotefficientatusingassetstogeneratesales.10TotalAssetTurnoverRatioCalcSolvencyRatiosSolvencyorliquidityratiosindicatetheabilityofacompanytopayoffshort-termliabilitiesusingshort-termassets.CurrentratioQuickratio(acidtestratio)Networkingcapital11SolvencyRatiosSolvencyorliqCurrentRatioCalculatedas:CurrentAssetsCurrentLiabilitiesWhatdoesitmean?Itshowstheabilityofacompanytopayoffshort-termdebtbyusingshort-termassets.Ahighratioindicatesgreaterabilitytopayoffshort-termdebt.Alowratioindicatesgreaterriskofnotbeingabletopayoffshort-termdebt.12CurrentRatioCalculatedas:WhaQuickRatioCalculatedas:Currentassets-inventoryCurrentLiabilitiesWhatdoesitmean?Itshowstheabilityofacompanytopayoffshort-termdebtbyusingshort-termassets,excludinginventory.Ahighratioindicatesgreaterabilitytopayoffshort-termdebt.Alowratioindicatesgreaterriskofnotbeingabletopayoffshort-termdebt.13QuickRatioCalculatedas:WhatNetWorkingCapitalCalculatedas:Currentassets–CurrentliabilitiesWhatdoesitmean?Itshowswhetheracompanyhasmoreshort-termassetsrelativetoshort-termliabilities.Apositiveresultmeanstherearemoreshort-termassetsrelativetoshort-termliabilities.Anegativeresultmeansthereisashortageofshort-termassetsavailabletopayoffshort-termliabilities.14NetWorkingCapitalCalculatedLeverageRatiosLeverageratiosindicatetheabilityofacompanytosettlelong-termliabilitiesandtopayofffinancingcosts.DebtratioDebttoequityratioInterestcoverageratio15LeverageRatiosLeverageratiosDebtRatioCalculatedas:Totalliabilities

TotalassetWhatdoesitmean?Itshowstheproportionofliabilitiesinrelationtototalassetsofacompany.Ahighratiomeanstherearefarmoredebtthanassetsandindicatesgreaterrisktocreditors.Alowratiomeanstherearemoreassetsavailabletopayoffdebtandindicateslessrisktocreditors.16DebtRatioCalculatedas:WhatdDebttoEquityRatioCalculatedas:Long-termdebt

TotalequityWhatdoesitmean?Itshowstheproportionofdebtinrelationtototalequity.Ahighratiomeansacompanydoesnothaveenoughequitytopayoffdebt.Alowratiomeansacompanyhasenoughequitytocoverforitsdebtholdings.17DebttoEquityRatioCalculatedInterestCoverageRatioCalculatedas:Earningsbeforeinterestandtaxes

InterestexpenseWhatdoesitmean?Itshowstheabilityofacompanytopayoffinterestcostsonlong-termdebtfromearnings.Ahighratiomeansacompanywillnothavedifficultypayinginterestcosts.Alowratiomeansacompanywillhavedifficultypayinginterestcosts.18InterestCoverageRatioCalculaProfitabilityRatiosTheprofitabilityratiosindicatetheabilityofacompanytogenerateaprofit.GrossprofitmarginOperatingprofitmarginNetprofitmarginReturnonequityEarningspershare19ProfitabilityRatiosTheprofitGrossProfitMarginCalculatedas:

Sales–CostofGoodsSold

SalesWhatdoesitmean?GrossprofitisSalesminusCOGSItshowstheabilityofacompanytoeffectivelycontrolcostsandsetpricing.Ahighratiomeansacompanyhasgoodcontrolsovercosts&pricing(higherprofitsperitemsold).Alowratiomeansacompanyhaspoorcontrolsovercosts&pricing(lowerprofitsperitemsold).20GrossProfitMarginCalculatedOperatingProfitMarginCalculatedas:

Grossprofit–operatingcosts

SalesWhatdoesitmean?Operatingprofitisgrossprofitminusoperatingcosts.Itshowstheabilityofacompanytoeffectivelycontroloperatingcosts.Ahighratiomeansacompanyhasgoodcontrolsoveroperatingcosts.Alowratiomeansacompanyhaspoorcontrolsoveroperatingcosts.21OperatingProfitMarginCalculaNetProfitMarginCalculatedas:Operatingprofit–interest-taxes

SalesWhatdoesitmean?Netprofitisoperatingprofitminusinterestminustaxes.Itshowstheabilityofacompanytogenerateaprofitafterdeductingoperatingcosts,interestandtaxcosts.Ahighratiomeansacompanyhasgoodcontrolsoverinterestandtaxcosts.Alowratiomeansacompanyhaspoorcontrolsoverinterestandtaxcosts.22NetProfitMarginCalculatedasReturnonEquityCalculatedas:Netprofit

TotalEquityWhatdoesitmean?Itshowstheabilityofacompanytogenerateaprofitfromequity.Ahighratiomeansacompanyisabletogeneratemoreprofitsfromequity.Alowratiomeansacompanyislessabletogenerateprofitsfromequity.23ReturnonEquityCalculatedas:EarningsperShareCalculatedas:TotalEarnings

Totalnumberof

sharesoutstandingWhatdoesitmean?Itshowstheamountofprofitthatcanbeattributedtoeachshareoutstanding.Ahighratiomeansacompanywillhavemoreprofitthatcanbedistributedtoshareholders.Alowratiomeansacompanywillhavelessprofitthatcanbedistributedtoshareholders.24EarningsperShareCalculatedaProblemUsingtheinformationbelow,calculatethefollowingratiosfor2013: A)Inventoryturnover

B)Quickratio

C)Dayssalesoutstanding

D)Debttoequityratio25ProblemUsingtheinformationbProblem20132012Inventory $1,500,000$2,500,000Revenue7,500,000 6,750,000COGS500,000600,000AccountsReceivable1,500,0002,750,000CurrentAssets5,000,0004,800,000CurrentLiabilities2,000,0003,000,000Longtermliabilities1,900,0001,500,000Equity700,000600,00026ProblemSolutionA)Inventoryturnoveris500,000/(1,500,000+2,500,000)/2=0.25Quickratiois5,000,000–1,500,000/2,000,000=1.751,500,000/(7,500,000/365)=731,900,000/700,000=2.71

27SolutionA)InventoryturnoverProblemUsingtheinformationbelow,calculatethefollowingratiosfor2013.GrossprofitmarginOperatingprofitmarginNetprofitmarginReturnonEquityEarningspershare28ProblemUsingtheinformationbProblem

2013Sales $5,000,000COGS 3,000,000Salariesexpense500,000Rentexpense 100,000Officesuppliesexpense50,000Interestexpense10,000Taxesexpense25,000Profit(earnings)1,315,000Equity1,000,000Total#ofshares7,500,000outstanding29Problem 201329Solutiona)Grossprofitmargin=(5,000,000-3,000,000)/5,000,000=0.4b)Operatingprofitmargin=(2,000,000–500,000–100,000–50,000)/5,000,000=0.27c)Netprofitmargin=(1,350,000–10,000–25,000)/5,000,000=0.26d)Returnonequity=1,315,000/1,000,000=1.32e)EarningsperShare=1,315,000/7,500,000=0.18

30Solutiona)GrossprofitmarginInterpretationofFinancialStatementsFinancialstatementscanbeinterpretedintwoways:Bycomparingratiosforthesamecompanywithpreviousperiods.Bycomparingratioswithanothercompanyoperatinginthesameindustry.31InterpretationofFinancialStWhoInterpretstheFinancialStatements?Therearemanyusersofthefinancialstatementswhowouldbeinterestedininterpretingthefinancialstatements: 1)Analystsatastockvaluationcompany 2)Financialmedia 3)Lendersandothercreditors 4)Stockmarketinvestors32WhoInterpretstheFinancialSExample:ComparingwithPreviousPeriods33Example:ComparingwithPrevioExample:ComparingwithAnotherCompany34TrendinGrossProfitas%ofSalesExample:ComparingwithAnotheCommonSizeFinancialStatementsCommonsizefinancialstatementsiswhenyouexpressallvaluesontheincomestatementasapercentageofsalesrevenues.Example:allexpensesontheincomestatementarestatedintermsofpercentageofsales,sosalariesexpensecouldbeexpressedas20%ofsalesandmarketingexpensescouldbeexpressedas10%ofsalesetc.Thistypeofanalysisisusedtocomparecompaniesofdifferentsizessinceexpressingeverythingasa%ofsalesallowscomparisons.35CommonSizeFinancialStatemenDifferentWaysPerformanceCanBeComparedThereareseveralwidelyacceptedwaystocompareacompany’sperformancewithothercompanies.TrendanalysisBenchmarkingwithbestperformanceinternally.BenchmarkingwiththecompetitionBenchmarkingwiththeindustryaverage36DifferentWaysPerformanceCanTrendAnalysis(horizontalanalysis)Trendanalysisisreviewingchangesinperformanceoveracertaintimeperiod.Mostoftenthisistryingtodeterminehowthecompany’sperformancehaschangedovertime.e.g.totalsalesresultsbydivisionforthepast2years(8quarters)arereviewedwithalinegraph.37TrendAnalysis(horizontalanaVarianceAnalysisVarianceanalysisisbasedontheideathattworelatedvaluesareexpectedtomaintaintheirrelationshipunlessaknowncauseexiststoexplainachangeintherelationship.Example:Salesrevenuesinrelationtocommissions,Shippingcostsinrelationtosales38VarianceAnalysisVarianceanalVarianceAnalysisIfthereisanunexpectedrelationshipbetweentwovalues,itisuptomanagementtoexplainthereasonorrootcausesoftheunexpectedrelationship.Varianceanalysisistheprocessofexplainingunexpectedrelationshipsbetweentworelatedvalues.Theresultofvarianceanalysiscanindicateerrors,changeinaccountingpolicies,orfraud.39VarianceAnalysisIfthereisaBenchmarkingwithBestInternalPerformanceNormally,acompanymayhaveanindividual,businessunitorproductlinethatisproducingoutstandingresults.Therestofthecompanycanbeusedtocomparewiththisinternalbenchmark.e.g.ThesalesteamattheEuropeanregionachieved10%revenuegrowthwhichisthebestperformingregionoverallforthecurrentyear.40BenchmarkingwithBestInternaBenchmarkingwiththeCompetitionAcompanycouldperformcompetitivebenchmarkingtofindouthowitisperformingrelativetoitsdirectcompetitor.Thegoalistofindwaystoemulateorevensurpasstheothercompany’sperformance.e.g.Lenovocomparestherateofreturnedlaptopsduetodefectsper10,000laptopsmanufacturedwithApple.41BenchmarkingwiththeCompetitBenchmarkingwiththeIndustryAverageAcompanymaychoosetocompareitselfwiththeoverallresultsfortheindustryratherthanwithaspecificcompetitor.Thiswouldoftenoccurwhentheindustryinwhichthecompanyoperatesisuniqueandhasitsownspecialconditionsorregulations.e.g.aninsurancecompanyspecializinginlifeinsurancecomparesthedollaramountofpayoutsonclaimsmadetotheindustryaverageforthelifeinsuranceindustry.42BenchmarkingwiththeIndustryAfterBenchmarking,ThenWhat?Afterthecompanyselectsabenchmarkingmethodandappliesittothecompany’sresults,itmaydecideto: 1)Accepttheresultoflaggingbehindthe benchmark. 2)Furtherinvestigatetodeterminethe exactcauseofmissingthebenchmark. 3)Createanactionplantobringthe companyinlinewiththebenchmarkover time.43AfterBenchmarking,ThenWhat?Week2–RatioAnalysis&InterpretationofFinancialStatementsChapters27,2844Week2–RatioAnalysis&InteThePurposeofFinancialStatementsThepurposeoffinancialstatementsistoprovidereliable,relevantandusefulinformationtousers.Thefinancialstatementsareusedbymanagement,shareholders,lenders,suppliers,auditors,governmentauthorities,etc.Financialstatementsprovideapictureofthefinancialpositionandperformanceofacompany.45ThePurposeofFinancialStateWhatareFinancialStatementRatios?Afinancialstatementratioisanumericalvaluethatallowuserstoevaluatethecompany’sperformanceandposition.Financialratiosareusedtohelpusersbetterunderstandthenumberspresentedbythebalancesheetandincomestatement.46WhatareFinancialStatementRWhataretheyusedfor?Financialstatementratiosareusedinanalyticalprocedures.Theymaybeused: (1)tocompareacompany’sperformance thisyearwithlastyear. (2)tocompareacompany’sperformance withanothercompany(acompetitor). (3)tocompareacompany’sperformance withtheindustryaverage.47Whataretheyusedfor?FinanciTypesofRatiosTherearegenerallyfourtypesoffinancialstatementratios.Eachtypeofratioisusedfordifferentpurposes.Activity(orefficiencyratios)Solvency(orliquidityratios)Leverage(ordebtratios)Profitabilityratios48TypesofRatiosTherearegenerActivityRatiosActivityratiosareusedtoevaluatehowefficientlyacompanyisconvertingbalancesheetitemsintocashorsales.1)Inventoryturnover2)Dayssalesoutstanding3)Accountspayableturnover4)Totalassetturnover49ActivityRatiosActivityratiosInventoryTurnoverRatioCalculatedas:CostofgoodssoldAverageinventoryWhatdoesitmean?Itshowsthenumberoftimesinventoryisreplacedduringayear.Ahighratiomeansthecompanyisefficientandreplacesinventoryoften.Alowratiomeansthecompanyisnotefficientandishavingtroublesellinginventory.50InventoryTurnoverRatioCalculDaysSalesOutstandingRatioCalculatedas:AccountsReceivableSales/365Whatdoesitmean?Itshowsthenumberofdaysinayearthataccountsreceivableisoutstanding.Ahighratioindicatesthecompanyisnotefficientatcollectingreceivablesfromcustomers.Alowratioindicatesthecompanyisefficientanddoesabetterjobatcollectingreceivables.51DaysSalesOutstandingRatioCaAccountsPayableTurnoverRatioCalculatedas:AccountsPayablePurchases/365Whatdoesitmean?Itshowsthenumberofdaysinayearthataccountspayableisoutstanding.Ahighratioindicatesthecompanyisnotefficientatpayingsuppliers.Alowratioindicatesthecompanyisefficientatpayingsuppliers.52AccountsPayableTurnoverRatiTotalAssetTurnoverRatioCalculatedas:SalesAveragetotalassetsWhatdoesitmean?Itshowshowefficientlyacompanyisusingassetstogeneratesales.Ahighratioindicatesthecompanyisefficientatusingassetstogeneratesales.Alowratioindicatesthecompanyisnotefficientatusingassetstogeneratesales.53TotalAssetTurnoverRatioCalcSolvencyRatiosSolvencyorliquidityratiosindicatetheabilityofacompanytopayoffshort-termliabilitiesusingshort-termassets.CurrentratioQuickratio(acidtestratio)Networkingcapital54SolvencyRatiosSolvencyorliqCurrentRatioCalculatedas:CurrentAssetsCurrentLiabilitiesWhatdoesitmean?Itshowstheabilityofacompanytopayoffshort-termdebtbyusingshort-termassets.Ahighratioindicatesgreaterabilitytopayoffshort-termdebt.Alowratioindicatesgreaterriskofnotbeingabletopayoffshort-termdebt.55CurrentRatioCalculatedas:WhaQuickRatioCalculatedas:Currentassets-inventoryCurrentLiabilitiesWhatdoesitmean?Itshowstheabilityofacompanytopayoffshort-termdebtbyusingshort-termassets,excludinginventory.Ahighratioindicatesgreaterabilitytopayoffshort-termdebt.Alowratioindicatesgreaterriskofnotbeingabletopayoffshort-termdebt.56QuickRatioCalculatedas:WhatNetWorkingCapitalCalculatedas:Currentassets–CurrentliabilitiesWhatdoesitmean?Itshowswhetheracompanyhasmoreshort-termassetsrelativetoshort-termliabilities.Apositiveresultmeanstherearemoreshort-termassetsrelativetoshort-termliabilities.Anegativeresultmeansthereisashortageofshort-termassetsavailabletopayoffshort-termliabilities.57NetWorkingCapitalCalculatedLeverageRatiosLeverageratiosindicatetheabilityofacompanytosettlelong-termliabilitiesandtopayofffinancingcosts.DebtratioDebttoequityratioInterestcoverageratio58LeverageRatiosLeverageratiosDebtRatioCalculatedas:Totalliabilities

TotalassetWhatdoesitmean?Itshowstheproportionofliabilitiesinrelationtototalassetsofacompany.Ahighratiomeanstherearefarmoredebtthanassetsandindicatesgreaterrisktocreditors.Alowratiomeanstherearemoreassetsavailabletopayoffdebtandindicateslessrisktocreditors.59DebtRatioCalculatedas:WhatdDebttoEquityRatioCalculatedas:Long-termdebt

TotalequityWhatdoesitmean?Itshowstheproportionofdebtinrelationtototalequity.Ahighratiomeansacompanydoesnothaveenoughequitytopayoffdebt.Alowratiomeansacompanyhasenoughequitytocoverforitsdebtholdings.60DebttoEquityRatioCalculatedInterestCoverageRatioCalculatedas:Earningsbeforeinterestandtaxes

InterestexpenseWhatdoesitmean?Itshowstheabilityofacompanytopayoffinterestcostsonlong-termdebtfromearnings.Ahighratiomeansacompanywillnothavedifficultypayinginterestcosts.Alowratiomeansacompanywillhavedifficultypayinginterestcosts.61InterestCoverageRatioCalculaProfitabilityRatiosTheprofitabilityratiosindicatetheabilityofacompanytogenerateaprofit.GrossprofitmarginOperatingprofitmarginNetprofitmarginReturnonequityEarningspershare62ProfitabilityRatiosTheprofitGrossProfitMarginCalculatedas:

Sales–CostofGoodsSold

SalesWhatdoesitmean?GrossprofitisSalesminusCOGSItshowstheabilityofacompanytoeffectivelycontrolcostsandsetpricing.Ahighratiomeansacompanyhasgoodcontrolsovercosts&pricing(higherprofitsperitemsold).Alowratiomeansacompanyhaspoorcontrolsovercosts&pricing(lowerprofitsperitemsold).63GrossProfitMarginCalculatedOperatingProfitMarginCalculatedas:

Grossprofit–operatingcosts

SalesWhatdoesitmean?Operatingprofitisgrossprofitminusoperatingcosts.Itshowstheabilityofacompanytoeffectivelycontroloperatingcosts.Ahighratiomeansacompanyhasgoodcontrolsoveroperatingcosts.Alowratiomeansacompanyhaspoorcontrolsoveroperatingcosts.64OperatingProfitMarginCalculaNetProfitMarginCalculatedas:Operatingprofit–interest-taxes

SalesWhatdoesitmean?Netprofitisoperatingprofitminusinterestminustaxes.Itshowstheabilityofacompanytogenerateaprofitafterdeductingoperatingcosts,interestandtaxcosts.Ahighratiomeansacompanyhasgoodcontrolsoverinterestandtaxcosts.Alowratiomeansacompanyhaspoorcontrolsoverinterestandtaxcosts.65NetProfitMarginCalculatedasReturnonEquityCalculatedas:Netprofit

TotalEquityWhatdoesitmean?Itshowstheabilityofacompanytogenerateaprofitfromequity.Ahighratiomeansacompanyisabletogeneratemoreprofitsfromequity.Alowratiomeansacompanyislessabletogenerateprofitsfromequity.66ReturnonEquityCalculatedas:EarningsperShareCalculatedas:TotalEarnings

Totalnumberof

sharesoutstandingWhatdoesitmean?Itshowstheamountofprofitthatcanbeattributedtoeachshareoutstanding.Ahighratiomeansacompanywillhavemoreprofitthatcanbedistributedtoshareholders.Alowratiomeansacompanywillhavelessprofitthatcanbedistributedtoshareholders.67EarningsperShareCalculatedaProblemUsingtheinformationbelow,calculatethefollowingratiosfor2013: A)Inventoryturnover

B)Quickratio

C)Dayssalesoutstanding

D)Debttoequityratio68ProblemUsingtheinformationbProblem20132012Inventory $1,500,000$2,500,000Revenue7,500,000 6,750,000COGS500,000600,000AccountsReceivable1,500,0002,750,000CurrentAssets5,000,0004,800,000CurrentLiabilities2,000,0003,000,000Longtermliabilities1,900,0001,500,000Equity700,000600,00069ProblemSolutionA)Inventoryturnoveris500,000/(1,500,000+2,500,000)/2=0.25Quickratiois5,000,000–1,500,000/2,000,000=1.751,500,000/(7,500,000/365)=731,900,000/700,000=2.71

70SolutionA)InventoryturnoverProblemUsingtheinformationbelow,calculatethefollowingratiosfor2013.GrossprofitmarginOperatingprofitmarginNetprofitmarginReturnonEquityEarningspershare71ProblemUsingtheinformationbProblem

2013Sales $5,000,000COGS 3,000,000Salariesexpense500,000Rentexpense 100,000Officesuppliesexpense50,000Interestexpense10,000Taxesexpense25,000Profit(earnings)1,315,000Equity1,000,000Total#ofshares7,500,000outstanding72Problem 201329Solutiona)Grossprofitmargin=(5,000,000-3,000,000)/5,000,000=0.4b)Operatingprofitmargin=(2,000,000–500,000–100,000–50,000)/5,000,000=0.27c)Netprofitmargin=(1,350,000–10,000–25,000)/5,000,000=0.26d)Returnonequity=1,315,000/1,000,000=1.32e)EarningsperShare=1,315,000/7,500,000=0.18

73Solutiona)GrossprofitmarginInterpretationofFinancialStatementsFinancialstatementscanbeinterpretedintwoways:Bycomparingratiosforthesamecompanywithpreviousperiods.Bycomparingratioswithanothercompanyoperatinginthesameindustry.74InterpretationofFinancialStWhoInterpretstheFinancialStatements?Therearemanyusersofthefinancialstatementswhowouldbeinterestedininterpretingthefinancialstatements: 1)Analystsatastockvaluationcompany 2)Financialmedia 3)Lendersandothercreditors 4)Stockmarketinvestors75WhoInterpretstheFinancialSExample:ComparingwithPreviousPeriods76Example:ComparingwithPrevioExample:ComparingwithAnotherCompany77TrendinGrossProfitas%ofSalesExample:ComparingwithAnotheCommonSizeFinancialStatementsCommonsizefinancialstatementsiswhenyouexpressallvaluesontheincomestatementasapercentageofsalesrevenues.Example:allexpensesontheincomestatementarestatedintermsofpercentageofsales,sosalariesexpensecouldbeexpressedas20%ofsalesandmarketingexpensescouldbeexpressedas10%ofsalesetc.Thistypeofanalysisisusedtocomparecompaniesofdifferentsizessinceexpressingeverythingasa%ofsalesallowscomparisons.78CommonSizeFinancialStatemenDifferentWaysPerformanceCanBeComparedThereareseveralwidel