financial statement analysis
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KEY CONCEPTS AND SKILLS
• Standardize financial statements for comparison purposes
• Compute, and more importantly, interpret some common ratios
• Name the determinants of a firm’s profitability • Explain some of the problems and pitfalls in
• Cash and other current assets
▪ Decrease in liability or equity account
• Notes payable and long-term debt
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STATEMENT OF CASH FLOWS
• Statement that summarizes the sources and uses of cash
• Changes divided into three major categories
▪ Operating Activity – includes net income and changes in most current accounts
• Standardized statements make it easier to compare financial information, particularly as the company grows.
• They are also useful for comparing companies of different sizes, particularly within the same industry.
CHAPTER OUTLINE
• Cash Flow and Financial Statements: A Closer Look
• Standardized Financial Statements • Ratio Analysis • The DuPont Identity • Using Financial Statement Information
RATIO ANALYSIS
• Ratios allow for better comparison through time or between companies.
• As we look at each ratio, ask yourself what the ratio is trying to measure and why that information is important.
SAMPLE INCOME STATEMENT
Revenues Cost of Goods Sold Expenses Depreciation EBIT Interest Expense Taxable Income Taxes
Net Income EPS
5,000 (2,006) (1,740)
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3,358 C/S
5,033 Total Liab. & Equity
2018 307 26
1,662 1,995
843
2,768
5,606
Hale Waihona Puke 2017 303 1191,353 1,775 1,091
2,167
5,033
Numbers in millions of dollars
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SAMPLE BALANCE SHEET
Cash A/R
Inventory Other CA Total CA
Net FA
Total Assets
2018 108
1,156
501 403 2,168
3,438
5,606
2017 58 A/P
992 N/P
361 Other CL 264 Total CL 1,675 LT Debt
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• Ratios are used both internally and externally.
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SAMPLE STATEMENT OF CASH FLOWS
Cash, beginning of year Operating Activity
Net Income Plus: Depreciation
Increase in A/P Increase in Other CL Less: Increase in other CA Increase in A/R Increase in Inventory Net Cash from Operations
▪ Investment Activity – includes changes in fixed assets
▪ Financing Activity – includes changes in notes payable, long-term debt, and equity accounts, as well as dividends
58
893 116
4 309 -139 -164 -140 879
Financing Activity Decrease in Notes Payable Decrease in LT Debt Change in C/S (less RE) Dividends Paid Net Cash from Financing
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SOURCES AND USES OF CASH
• Sources
▪ Cash inflow – occurs when we “sell” something ▪ Decrease in asset account (Sample B/S)
• Accounts receivable, inventory, and net fixed assets
(116) 1,138
(7) 1,131 (238)
893 4.68
Dividends per share
1.53
Numbers in millions of dollars, except EPS & DPS
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