Chapter 4 Financial Statements Analysis Tools - PowerPoint PPT Presentation

Loading...

PPT – Chapter 4 Financial Statements Analysis Tools PowerPoint presentation | free to download - id: 5874b9-OTEyM



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Chapter 4 Financial Statements Analysis Tools

Description:

Chapter 4 Financial Statements Analysis Tools Outline Demand and supply of financial analysis Basic analytical procedures Analysis methods Comprehensive analysis of ... – PowerPoint PPT presentation

Number of Views:951
Avg rating:3.0/5.0
Slides: 28
Provided by: siteIuga81
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Chapter 4 Financial Statements Analysis Tools


1
Chapter 4 Financial Statements Analysis Tools
2
Outline
  • Demand and supply of financial analysis
  • Basic analytical procedures
  • Analysis methods
  • Comprehensive analysis of financial ratios
  • The limitations of financial analysis

3
Demand and supply of financial analysis
4
Basic Analytical Procedures
5
Techniques of Financial Statement Analysis
  • Horizontal analysis
  • Comparative financial statements are presented
    side by side
  • Trend analysis
  • Vertical analysis
  • Common-size financial statement
  • Ratio analysis

6
Ratio Analysis
7
Liquidity Ratios analysis
8
Activity or Efficiency Ratios Analysis
9
Activity or Efficiency Ratios Analysis
10
Leverage Ratios
11
Leverage Ratios
LTD to Equity Ratio
LTD
Preferred Equity Common Equity
12
Coverage Ratios
Cash Coverage Ratio
EBIT Non Cash Expenses
Interest Expense
13
Profitability analysis
Gross Profit Margin Gross Profit Sales
Operating Profit Margin Net Operating Income Sales
Net Profit Margin Net Income Sales

14
Profitability analysis
Return on Total Assets Net Income Total Assets
Return on Equity Net Income Total Equity
Return on Common Equity Net Income Available to Common Equity Common Equity

15
Du Pond Analysis
16
Trend Analysis
Comparing a companys financial condition and
performance across time
17
A Compare of Companys Profitability
18
Why ratio analysis is useful?
  • They facilitate inter-company comparison
  • They downplay the impact of size and allow
    evaluation over time or across entities without
    undue concern for the effects of size difference
  • They serve as benchmarks for targets such as
    financing ratios and debt burden
  • They help provide an informed basis for making
    investment-related decisions by comparing an
    entitys financial performance to another

19
How is ratio analysis limited?
  • It is restricted to information reported in the
    financial statements
  • It is based on past performance.
  • Comparability is hampered when accounting
    policies are not uniform across an industry
  • The past may not predict the future

20
How is ratio analysis limited? (cont)
  • Trends and relationships must be carefully
    evaluated with reference to industry norms,
    budgets, and strategic decisions
  • Because of some potential problems in standard,
    comparison must be careful

21
Potential problems and limitations of financial
ratio analysis
  • Comparison with industry averages is difficult
    for a conglomerate firm that operates in many
    different divisions.
  • Average performance is not necessarily good,
    perhaps the firm should aim higher.
  • Seasonal factors can distort ratios.
  • Window dressing techniques can make statements
    and ratios look better.

22
More issues regarding ratios
  • Different operating and accounting practices can
    distort comparisons.
  • Sometimes it is hard to tell if a ratio is good
    or bad.
  • Difficult to tell whether a company is, on
    balance, in strong or weak position.

23
What should an analyst keep in mind about
financial analysis?
  • An overview of all ratios can provide important
    information concerning the strategic decisions of
    a company and the nature of its business
  • However, accounting information can only provide
    so much data. An analyst must proceed with
    caution

24
Qualitative factors to be considered when
evaluating a companys future financial
performance
  • Are the firms revenues tied to 1 key customer,
    product, or supplier?
  • What percentage of the firms business is
    generated overseas?
  • Competition
  • Future prospects
  • Legal and regulatory environment

25
Summary
  • Users of financial statements often gain a
    clearer picture of the economic condition of an
    entity by the analysis of accounting
    information
  • The analytical measures obtained from financial
    statements are usually expressed as ratios or
    percentages

26
Summary
  • Financial analysis techniques work best when they
    are used to confirm or refute other information.
    When using analytical tools to evaluate a
    company, the analyst should keep in mind the
    limitations of analysis

27
The End of Chapter 4
About PowerShow.com