Principles of Managerial Finance 9th Edition

1. Principles of Managerial Finance9th Edition Chapter 4 Financial Statement Analysis

2. Learning Objectives • Understand the parties interested in performing financial ratio analysis and the common types of ratio comparisons. • Describe some of the cautions that should be considered in performing financial ratio analysis. • Use popular ratios to analyze a firm’s liquidity and the activity of inventory, accounts receivable, accounts payable, and total assets.

3. Learning Objectives • Discuss the relationship between debt and financial leverage and the ratios that can be used to assess the firm’s degree of indebtedness and its ability to meet interest payments associated with debt. • Evaluate a firm’s profitability relative to its sales, asset investment, and owners equity investment. • Use the DuPont system and a summary of financial ratios to perform a complete ratio analysis.

4. Using Financial Ratios Interested Parties • Ratio analysis involves methods of calculating and interpreting financial ratios to assess a firm’s financial condition and performance. • It is of interest to shareholders, creditors, and the firm’s own management.

5. Using Financial Ratios Types of Ratio Comparisons • Trend or time-series analysis Used to evaluate a firm’s performance over time

6. Using Financial Ratios Types of Ratio Comparisons • Trend or time-series analysis • cross-sectional analysis Used to compare different firms at the same point in time

7. Using Financial Ratios Types of Ratio Comparisons • Trend or time-series analysis • cross-sectional analysis • industry comparative analysis 尋找proper benchmark One specific type of cross sectional analysis. Used to compare one firm’s financial performance to the industry’s average performance

8. Using Financial Ratios Types of Ratio Comparisons • Trend or time-series analysis • cross-sectional analysis • industry comparative analysis • Combined Analysis Inventory turnover =COGS/inventory A 產業平均 2000 1997 1998 1999 year Combined analysis simply uses a combination of both time series analysis and cross-sectional analysis

10. Using Financial Ratios Cautions for Doing Ratio Analysis • Ratios must be considered together; a single ratio by itself means relatively little. • Financial statements that are being compared should be dated at the same point in time. • Use audited financial statements when possible. • The financial data being compared should have been developed in the same way. • Be wary of inflation distortions. Inventory turnover似乎愈高愈好 但太高可能表示inventory太少，缺貨 如玩具公司12月底比6月底 如存貨計價與折舊提列 通膨影響存貨及折舊，進而影響 利潤及資產。高通膨使older firms 看起來比younger firms更efficient 更profitable

11. Ratio Analysis Example Bartlett Company

12. 見B/S 附註a

14. 資本租賃必須資本化處理(v.s.營業租賃)

15. Ratio Analysis • Liquidity Ratios • Current Ratio 公司的現金流量愈穩定，愈能接受較低的current ratio Current ratio = total current assets total current liabilities 過高的C.R.會傷害profitability，因為C.A. is less profitable than fixed asset and C.L. is more expensive than long-term financing Current ratio = $1,223,000 = 1.97 $620,000 net working capital=CA-CL

16. Ratio Analysis • Liquidity Ratios • Current Ratio • Quick Ratio Quick ratio = Total Current Assets - Inventory total current liabilities Quick ratio = $1,223,000 - $289,000 = 1.51 $620,000 If inventory is less liquid, then Q.R. is a better measure for liquidity than C.R.

17. Ratio Analysis 無法衡量CA和CL個別組 成份子的差異 • Liquidity Ratios • Activity Ratios • Inventory Turnover Average age of inventory=360÷inventory turnover=50天 Inventory Turnover = Cost of Goods Sold Inventory Inventory Turnover = $2,088,000 = 7.2 $289,000 Grocery store很高，飛機製造商很低

18. Ratio Analysis • Liquidity Ratios • Activity Ratios • Average Collection Period ACP = Accounts Receivable Net Sales/360 or =360÷(net sales/A.R.) ACP = $503,000 = 58.9 days $3,074,000/360 是否合理端視公司給顧客credit sales的期間

19. Ratio Analysis • Liquidity Ratios • Activity Ratios • Average Payment Period APP = Accounts Payable Annual Purchases/360 =360÷(annual purchase/A.P.) APP = $382,000 = 94.1 days (.70 x $2,088,000)/360 假設annual purchase =70% of COGS 是否合理端視supplier 給公司信用採購的term

20. Ratio Analysis • Liquidity Ratios • Activity Ratios • Total Asset Turnover Total Asset Turnover = Net Sales Total Assets How efficient the firm uses assets to generate sales Total Asset Turnover = $3,074,000 = .85 $3,579,000 資產愈新的公司其asset turnover 愈低

21. Ratio Analysis • Liquidity Ratios • Activity Ratios • Financial Leverage Ratios • Debt Ratio Financial risk ROE Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $1,643,000/$3,597,000 = 45.7%

22. Ratio Analysis • Liquidity Ratios • Activity Ratios • Leverage Ratios • Times Interest Earned Ratio =interest coverage ratio Times Interest Earned = EBIT/Interest Times Interest Earned = $418,000/$93,000 = 4.5

23. Ratio Analysis • Liquidity Ratios • Activity Ratios • Leverage Ratios • Fixed-Payment coverage Ratio (FPCR) 為了將這兩項調整為稅 前項目 FPCR = EBIT + Lease Payments Interest + Lease Payment+ {(Principal Payment + PSD) x [1/(1-t)]} FPCR = $418,000 + $35,000 = 1.9 $93,000 + $35,000 + {($71,000 + $10,000) x [1/(1-.29)]}

24. Ratio Analysis • Liquidity Ratios • Activity Ratios • Leverage Ratios • Profitability Ratios • Common-Size Income Statements

26. Ratio Analysis • Liquidity Ratios • Activity Ratios • Leverage Ratios • Profitability Ratios • Gross Profit Margin GPM = Gross Profit/Net Sales GPM = $986,000/$3,074,000 = 32.1%

27. Ratio Analysis • Liquidity Ratios • Activity Ratios • Leverage Ratios • Profitability Ratios • Operating Profit Margin OPM = EBIT/Net Sales OPM = $418,000/$3,074,000 = 13.6%

28. Ratio Analysis • Liquidity Ratios • Activity Ratios • Leverage Ratios • Profitability Ratios • Net Profit Margin NPM = Net Profits After Taxes/Net Sales NPM = $231,000/$3,074,000 = 7.5%

29. Ratio Analysis • Liquidity Ratios • Activity Ratios • Leverage Ratios • Profitability Ratios • Return on Total Assets (ROA) ROA = Net Profits After Taxes/Total Assets ROA = $231,000/$3,597,000 = 6.4%

30. Ratio Analysis • Liquidity Ratios • Activity Ratios • Leverage Ratios • Profitability Ratios • Return on Equity (ROE) ROE = Net Profits After Taxes/Stockholders Equity ROE = $231,000/$1,954,000 = 11.8%

31. Ratio Analysis • Liquidity Ratios • Activity Ratios • Leverage Ratios • Profitability Ratios • Earnings Per Share (EPS) EPS = Earnings Available to Common Stockholders Number of Shares Outstanding EPS = $221,000/76,262 = $2.90

32. Ratio Analysis • Liquidity Ratios • Activity Ratios • Leverage Ratios • Profitability Ratios • Price Earnings (P/E) Ratio P/E = Market Price Per Share of Common Stock Earnings Per Share =investor confidence P/E = $32.25/$2.90 = 11.1 M/B=market to book ratio=

33. DuPont System of Analysis • The DuPont system is used to dissect the firm’s financial statements and to assess its financial condition. • It merges the income statement and balance sheet into two summary measures of profitability: ROA and ROE as shown in figure 4.2 on the following slide. • The top portion focuses on the income statement, and the bottom focuses on the balance sheet. • The advantage of the DuPont system is that it allows you to break ROE into a profit on sales component, an efficiency-of-asset-use component, and a use-of- leverage component.

34. 和1999年比較 better better better Higher leverage

35. Summarizing All Ratios

36. Summarizing All Ratios