The Magic of Financial Statements

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The Magic of Financial Statements

• Presented by
• Robert E. Mark
• Chief Financial Officer
• Rowe Incorporated

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Ive worked myself up from nothing to a state of
extreme poverty. -Groucho Marx
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OVERVIEW

• Balance Sheet
• Profit and Loss (Income) Statement
• Statement of Cash Flows

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The Balance Sheet

• LIABILITIES
• (Amounts owed to outside creditors)
• EQUITY
• (Or net worth)
• _________________
• ASSETS
• (Resources of the business)

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If your
sets in
your
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Liabilities
Assets
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BASIC MATH 101

• 1,000
• 40
• 1,000
• 30
• 1,000
• 20
• 1,000
• 10
• --------
• 4,100

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The Income Statement

• Sales
• - Pass thru billing
• Net Sales
• - Direct Expenses
• Gross Profit
• - Admin Depreciation Expenses
• Income from Operations
• /- Other Income or Expenses
• Income before Taxes
• - Taxes_______________
• Net Income

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The Statement of Cash Flows

• Cash from operations
• /- Cash provided by or applied to
• investing activities
• /- Cash provided by or applied to
• financing activities
• Net increase or decrease in cash

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FINANCIAL RATIOS

• Bank most interested in
• Come from the Balance Sheet
• Owners most interested in
• Come from the Income Statement

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CURRENT RATIO

• Test of short term solvency

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RULE OF THUMB

• Current Ratio should be 2.0 1 or greater
• PSMJ 2001 Median 1.92

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THE ACID TEST RATIO

• Quick Ratio

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RULE OF THUMB

• Acid Test Ratio should be 1.0 1 or greater
• PSMJ does not calculate this ratio

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DEBT TO EQUITY RATIO
Total liabilities Stockholder Equity
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RULE OF THUMB

• Debt to Equity Ratio should be less than 1.0
• PSMJ 2001 Median 107.21

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QUICK REVIEW

• SAFETY LIQUIDITY
• Balance Sheet
• Current Ratio 2 1 or greater
• Acid Test Ratio 1 1 or greater
• Debt to Equity Ratio less than 1

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RETURN ON SALES RATIO

• Net Income Before Taxes
• Net Sales Revenue

PSMJ does not calculate this ratio
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RETURN ON EQUITY

• Return on Investment
• PSMJ 2001 Median 16.51

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RETURN ON EQUITY

• Net Income (Income Statement)
• Stockholders Equity (Balance Sheet)

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RETURN ON EQUITY

• 794,132
• 33.9
• 2,342,431

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RETURN ON ASSETS RATIO

• Net Income (Income Statement)
• Total Assets (Balance Sheet)

PSMJ 2001 Median 6.46
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RETURN ON ASSETS RATIO

• 794,132
• 15.8
• 5,022,194

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AVERAGE COLLECTION DAYS

• Avg Accounts Receivable (Bal Sht)
• Avg Daily Sales (Income Statement)

PSMJ 2001 Median 66.64 days
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AVG ACCOUNTS RECEIVABLE

• Prior yr Accts Rec Current yr Accts Rec
• 2

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AVERAGE DAILY SALES

• Annual Gross Sales
• 365

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AVERAGE COLLECTION DAYS

• (1,608,934 1,098,234) / 2
• 9,765,492 / 365

50.6 DYS
PSMJ 2001 Median 66.64 days
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ZETA FACTOR

• 1. Working Capital (Current
• Assets Current Liabilities) /
• Total Assets
  ___ X 1.2 ___
• Retained Earnings /
• Total Assets
  ___ X 1.4 ___
• Net Income before Tax
• Interest / Total Assets ___ X 3.3
  ___
• Owners Equity / Total Debt ___ X 0.6 ___
• Sales / Total Assets ___ X 1.0
  ___
• Total
  ____

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ZETA FACTOR

• 1. Working Capital (Current
• Assets Current Liabilities) /
• Total Assets
  0.26 X 1.2 0.31
• Retained Earnings /
• Total Assets
  0.45 X 1.4 0.62
• Net Income before Tax
• Interest / Total Assets 0.18 X
  3.3 0.60
• Owners Equity / Total Debt 0.75 X 0.6 0.45
• Sales / Total Assets 1.94 X 1.0
  1.94
• Total
  3.92

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Go Bulldogs!!!!
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The End