1 / 17

ANALYZING A COMPANY

ANALYZING A COMPANY. The Financial Statements. SIZE. TOTAL ASSETS TOTAL SALES/REVENUES NET INCOME. LIQUIDITY. WORKING CAPITAL CURRENT RATIO QUICK RATIO. WORKING CAPITAL. Current assets - current liabilities Larger the better Can only be a positive number

quynh
Download Presentation

ANALYZING A COMPANY

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. ANALYZING A COMPANY The Financial Statements

  2. SIZE • TOTAL ASSETS • TOTAL SALES/REVENUES • NET INCOME

  3. LIQUIDITY • WORKING CAPITAL • CURRENT RATIO • QUICK RATIO

  4. WORKING CAPITAL • Current assets - current liabilities • Larger the better • Can only be a positive number C/A 40,000,000 C/L -20,000,000 W/C 20,000,000

  5. CURRENT RATIO • CURRENT ASSETS CURRENT LIABILITIES • LESS THAN 1:1 IS BAD • MORE THAN 2:1 IS GOOD 40,000,000 ? 20,000,000

  6. QUICK RATIO • SAME AS CURRENT RATIO BUT EXCLUDES INVENTORY FROM CURRENT ASSETS

  7. LEVERAGE HOW MUCH HAS COMPANY BORROWED RELATIVE TO ITS EQUITY?

  8. LEVERAGE RATIOS • DEBT-TO-EQUITY RATIO • DEBT-TO-ASSETS RATIO

  9. DEBT-TO-EQUITY RATIO • TOTAL LIABILITIES/EQUITY • 1.0 TO 2.0 NORMAL • >2.0 NOT SAFE

  10. DEBT-TO-ASSETS RATIO • TOTAL LIABILITIES/ASSETS • 50% TO 66% NORMAL • >66% NOT SAFE

  11. WHY BORROW AT ALL?! To Increase Profits!!

  12. NO LEVERAGE • Assume Assets = $10,000,000 • Assume 10% Return on Assets ($1,000,000) • Assume Liabilities = $0 • Return on equity = ?? 1,000,000 10% 10,000,000

  13. BORROW HALF OF CAPITAL • Assume Assets = $10,000,000 • Assume 10% Return on Assets ($1,000,000) • Assume Liabilities @ 7% = $5,000,000 • Assume Equity = $5,000,000

  14. BORROW HALF OF CAPITAL • Interest expense = $350,000 • Income before interest $1,000,000 Less: Interest expense 350,000 Net Income $ 650,000 • Return on equity = ?? 650,000 13% 5,000,000

  15. BORROW 80% OF CAPITAL • Assume Assets = $10,000,000 • Assume 10% Return on Assets ($1,000,000) • Assume Liabilities @ 7% = $8,000,000 • Assume Equity = $2,000,000

  16. BORROW 80% OF CAPITAL • Interest expense = $560,000 • Income before interest $1,000,000 Less: Interest expense 560,000 Net Income $ 440,000 • Return on equity = ?? 440,000 22% 2,000,000

  17. PROFITABILITY • Net Income (Loss) • Earnings per Share • Return on Equity • Return on Assets

More Related