《Introduction to Accounting》课件-章节unit章节12

Unit12Analyzing&InterpretingFinancialStatements2Why?Thebasicfinancialstatementsprovidemuchinformationtheusersneed,butwhatthygiveisonlyanoverallview.Comparison,analysisandstudyareneededtoenabletheiruserstounderstandthefinancialpositionandperformanceofacompany.Analyzingandinterpretingfinancialstatementsarecriticalindisclosingrelationshipsamongfiguresinthefinancialstatementsandpredictingthefuturechangesoftheaccountingelements.3Financialanalysisisaprocessofreclassificationandsummarizationofthefinancialinformationthroughtheestablishmentofratiosandtrendsinordertointerpretthecompany’sactivitiesandtounderstandthecompany’sfinancialsituation.4HorizontalAnalysisVerticalAnalysisRatioAnalysisBasicapproachesofanalysis5Ⅰ.HorizontalAnalysisHorizontalAnalysis,alsocalledtrendanalysis,comparesaseriesoffinancialstatementdataoveraperiodoftime.Firstly,thebaseyearthatcarryaweightof100foreachitemisselected.Then,theamountofsameiteminpriororsubsequentyearsisexpressedasthepercentageofthebaseyearamount.Currentyearamount–BaseyearamountBaseyearamount6Forexample,whenyouhearsomeonesayingthatrevenuesincreasedby10%thispastquarter,thatpersonisusinghorizontalanalysis.Horizontalanalysiscanbeusedonanyiteminacompany'sfinancials(fromrevenuestoearningspershare),andisusefulwhencomparingthe

performanceofvarious

companies.7ValueCityBalanceSheetDecember31,2009

20092008AssetsCash77,00083,800Supplies208,600140,000AccountsReceivable10,8007,100PPE222,200192,700Totalassets518,600423,6008

20092008AssetsCash-8.11%100%Supplies49%100%AccountsReceivable52.11%100%PPE15.31%100%Totalassets22.43%100%why?why?9

20092008LiabilitiesandOwner’sEquityLiabilitiesAccountsPayable287,200233,600NotesPayable59,80038,800Long-termliability11,80012,100TotalLiabilities358,800284,500EquityPaid-inCapital27,50027,500RetainedEarnings132,300111,600TotalEquity159,800139,100TotalLiabilitiesandOwner’sEquity518,600423,60010

20092008LiabilitiesandOwner’sEquityLiabilitiesAccountsPayable22.95%100%NotesPayable54.12%100%Long-termliability-2.48%100%TotalLiabilities26.12%100%EquityPaid-inCapital0100%RetainedEarnings18.55%100%TotalEquity14.88%100%LiabilitiesandOwner’sEquity22.43%100%????11Ⅱ.VerticalAnalysisVerticalAnalysisshowstherelationshipofeachitemtothetotalwithinasinglestatement.Inverticalanalysisofthebalancesheet,thetotalassetsandtotalliabilitiesandowner’sequityareexpressedas100%.Inverticalanalysisofincomestatement,netsalesisexpressedas100%.

12

2009PercentageAssetsCash77,00014.85%Supplies208,60040.22%AccountsReceivable10,8002.08%PPE222,20042.85%Totalassets518,600100%ValueCityBalanceSheetDecember31,200913

2009PercentageLiabilitiesandOwner’sEquityLiabilitiesAccountsPayable287,20055.38%NotesPayable59,80011.53%Long-termliability11,8002.28%TotalLiabilities358,80069.19%EquityPaid-inCapital27,5005.30%RetainedEarnings132,30025.51%TotalEquity159,80030.81%TotalLiabilitiesandOwner’sEquity518,600100%ValueCityBalanceSheetDecember31,200914ValueCityIncomeStatementFortheyearendedDecember31,20092009PercentageSalesrevenue810,000100%Costofsale(530,000)65.43%Grossprofit280,000Salariesexpense150,00018.52%Rentexpense30,0003.70%Financialexpense50,0006.17%Profitbeforetax50,000Incometaxexpense14,5001.79%ProfitafterTax35,5004.38%15Ⅲ.RatioAnalysisRatioanalysisisusedwidely.Itisacriticaltoolusedbythemanagementtoseewhatexactlyishappeninginthecompanyandiswatchedcloselybyallinformationusers.

Aratioisthemathematicalrelationshipbetweentwoquantitiesintheformofafractionorpercentage.16Withappropriatecalculationandinterpretation,ratioanalysiscanprovideinformationaboutthesituationofabusiness,includingliquidity,solvencyandprofitability.Theanalysisisusedtoprovideindicatorsofpastperformancebyemployingcriticalsuccessfactorsinabusiness.Asadecision-makingtool,ratioanalysisreducesrelianceonintuitiveguessingandestablishedabasisforsoundjudgment.17LiquiditySolvencyProfitabilityBasicapproachesofratioanalysis181.LiquidityratioLiquidityreferstotheabilityofafirmtomeetitsshort-termfinancialobligationsastheyfalldue.Companiestendtorunintoproblemswithliquiditybecausecashoutflowsarenotflexible,whileincomeisoftenuncertain.Creditorsexpecttheirmoneywhenpromised,justasemployeesexpectregularpaychecks.However,thecashbeinggenerateddoesnotfollowasetschedule.Salesofinventoryvary,asdocollectionsfromcustomers.Becauseofthisdifferencebetweencashgenerationandcashpayments,businessesmustmaintainacertainratioofcurrentassetstocurrentliabilitiesinordertoensureadequateliquidity.19Liquidityratiosinclude:Workingcapital,currentratio,inventoryturnoverratio,receivableturnover,averagecollectionperiod,etc.20(1)WorkingCapitalEvaluatingacompany’sabilitytomeetcurrentlymaturingdebts.Explanation

Amountsofworkingcapitalaredifficulttoassesswhencomparingcompaniesofdifferentsizesorindifferentindustries.Workingcapital=Currentassets–CurrentliabilitiesExample

Workingcapitalof$250,000isadequateforasmalllocalcompanybutinwouldbeinadequateforWal-Mart.21(2)CurrentRatioMeasuringtherelationshipbetweenthefirm’scurrentsanditscurrentliabilities.Itreflectsthecompany’sgeneralcapabilitytorepayshort-termdebtswheybecomedue.Explanation

Traditionally,acurrentratioof2orhigherisregardedasappropriateformostbusinesstomaintaincreditworthiness.Example

Ifacompanyhascurrentassetsof$550,000,andandcurrentliabilitiesof$210,000.Therefore,itscurrentratiois2.62.itmeansthatcurrentassetsmeetcurrentliabilitiesmorethantwice.22Acidratio/quickratio23(3)InventoryTurnoverRatioMeasuringthenumberoftimesonaveragetheinventoryisholdduringaperiod.Explanation

Differentbusinesseshaveturnoverratiosofgreatdifferencebecauseoftheirnature.Itdependsthesizeofcompanyandindustrywhichthecompanyisin.Example

Grocerystoreshaveaninventoryturnoverof10times,howeverthatofMcDonaldisaround39.24Averageinventoryperiod(Days)Example

Grocerystoreshaveaninventoryperiodof37days,howeverthatofMcDonaldis9.5days.Measuringthedaysonaveragetheinventoryisholdduringaperiod.25(4)ReceivablesTurnoverRatioMeasuringthenumberoftimesonaveragereceivablesarecollectedduringaperiod.Explanation

Especiallyformerchandisecompanies,receivablesturnoverratioiscalculatedmonthlyorquarterlybecausetheseasonalfluctuationsarebig.Netcreditsalescanbereplacedbysalesrevenue.Example

Cingularhadannualnetcreditsalesof$5,000,000andanaverageaccountsreceivableof$500,000,thenthereceivablesturnoveris10times.26(5)AverageCollectionPeriodExample

Cingularhadannualnetcreditsalesof$5,000,000andanaverageaccountsreceivableof$500,000,thenthereceivablesperiodis36.5daysMeasuringtherepaymentspeedofthedebtors.Explanation

Theshorteraveragecollectionperiodis,thebetterthedebtorsareinpayingbackthedebts.272.SolvencyratiosSolvencyreferstotheabilityofabusinesstomeetitslong-termobligations.Long-termcreditorsandstockholdersareveryinterestedinacompany’slong-termsolvency,particularlyitsabilitytopayinterestasitcomesdueandtorepaythefacevalueofdebtsatmaturity.Solvencyratiosinclude:debttoassetratio,debttoequityratio,interestcoverage,etc.28(1)DebttoTotalAssetsRatioExample

Cingularhastotalassetsof$420,000,andtotaldebtof$200,000,thendebtstoassetsratiois47.6%Measuringthepercentageofthetotalassetsprovidedbycreditors.Explanation

Thisratioindicatesthedegreeoffinancialleveraging.Thehigherdebtstoassetsratiois,thegreatertheriskthatthecompanyisunabletomeetitslong-termobligationsastheycomedue.29(2)DebttoEquityRatioExample

Cingularhastotalassetsof$420,000,andtotaldebtof$200,000,thendebtstoequityratiois90.9%Measuringtherelativepercentagebetweendebtandequity.Explanation

Usually,thelowerthisratiois,thelowerfinancialriskthecompanyhasandthebetteracompany’sfinancialsituation.However,sometimestoolowdebttoequityratioindicatesthatthecompanycannotmakeuseoftaxeffectofinteresteffectively.30(3)TimeInterestEarnedRatioIndicatingthecompany’sabilitytomeetinterestpaymentsastheycomedue.Profitbeforeinterestandtaxexpense/Earningsbeforeinterestandtaxexpense

313.ProfitabilityratiosProfitabilityistheabilityofabusinesstoearnprofitoveraperiodoftime.Profitabilityratiosinclude:ROE,ROA,Profitmargin,EPS,P/E,Dividendyield,etc.32(1)ReturnonStockholder’sEquityExample

Cingularhasnetincomeof$42,000,andthebeginningbalanceoftotalequityis$200,000andendingbalanceis250,000.So,ROEis18.6%.Thisratioshowshowmanydollarsofnetincomewereearnedforeachdollarinvestedbytheowners.33(2)ReturnonAssetsExample

Cingularhasnetincomeof$42,000,andthebeginningbalanceoftotalassetsis$400,000andendingbalanceis480,000.So,ROAis9.5%.Thisratioshowshowmanydollarsofnetincomewereearnedforeachdollarofasset.34(3)ProfitMarginExample

Cingularhasnetincomeof$42,000,andsalesrevenueof460,000.So,profitmarginis9.1%.Thisratioisameasureofthepercentageofeachdollarofsalesthatresultinnetincome.Explanation

Profitmarginisanindicatorofacompany'spricingpoliciesanditsabilitytocontrolcosts.Differencesincompetitivestrategyandproductmixcausetheprofit

margintovaryamongdifferentcompanies.35(4)EarningperShareExample

Assumethatacompanyhasanetincomeof$25millionand200millionordinarysharesareoutstanding.Then,itsEPSis$0.125.EPSisameasureofthenetincomeearnedoneachshareofcommonstock.Explanation

Itisonemeasureoftenquotedbythefinancialpress,becauseshareholdersareparticularinterestedinknowinghowmuchhasbeenearnedforeachofthesharesheldbythem.36(5)PriceEarningsRatio(P/E)Example

Ifastockistradingat$24andtheearningspershareforthemostrecent12monthperiodis$3,thenstockAhasaP/Eratioof24/3or8.P/Eratioisareflectionofinvestors’assessmentofacompany’sfutureearnings.Explanation

InvestorscanusetheP/Eratiotocomparethevalueofstocks:ifonestockhasaP/Etwicethatofanotherstock,allthingsbeingequal,itisalessattractiveinvestment.Comparisonsbetweenindustries,companies,andtimeperiodsmaybemisleading.37(6)DividendYieldExample

Iftwocompaniesbothpayannualdividendsof$1pershare,butABCcompany'sstockistradingat$20

whileXYZcompany'sstockistradingat$40,thenABChasadividendyieldof5%whileXYZisonlyyielding2.5%.Thus,