1 Bodie Kane Marcus Essentials of Investments Fourth
1 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Chapter 14 Financial Statement Analysis Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
2 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Overview • Purpose • Tools Used – Statements – Ratio Analysis • Limitations Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
3 Essentials of Investments Bodie • Kane • Marcus Fourth Edition Financial Statements • Balance Sheet – Common Sized – Trend or Indexed • Income Statement – Common Sized – Trend or Indexed • Statement of Cash Flows Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
4 Essentials of Investments Bodie • Kane • Marcus Fourth Edition Ratio Analysis • Purpose of Ratio Analysis • Uses – Trend analysis – Comparative analysis – Combination • Use by External Analysts – Important information for investment community – Important for credit markets Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
5 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Type of Financial Ratios • • • Liquidity Ratios Activity or Mgmt Efficiency Ratios Leverage Ratios Profitability Ratios Market Price Ratios Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
6 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Liquidity Ratios Current Ratio Current Assets Current Liabilities Quick Ratio Current Assets - Inventory Current Liabilities Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
7 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Activity or Management Efficiency Ratios Inventory Turnover Sales or Cost of Goods Sold Inventory Total Asset Turnover Sales Total Assets Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
8 Essentials of Investments Bodie • Kane • Marcus Fourth Edition Activity or Management Efficiency Ratios Average Collection Period Accounts Receivable Sales Per Days to Sell Inventory Sales Per Day Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
9 Essentials of Investments Bodie • Kane • Marcus Fourth Edition Leverage Ratios Times Interest Earned Earnings Before Int. & Taxes Interest Expense Fixed Charge Coverage Ratios Lease Payments Principal Repayments Preferred Dividends Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
10 Essentials of Investments Bodie • Kane • Marcus Fourth Edition Leverage Ratios Debt to Assets Long Term Debt Assets Debt to Equity Long Term Debt Shareholders Equity Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
11 Essentials of Investments Bodie • Kane • Marcus Fourth Edition Profitability Ratios Net Profit Margin % Net Income Sales Return on Assets Net Income Total Assets Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
12 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Profitability Ratios Return on Equity Net Income Common Equity Operating Margin After Depreciation Operating Profit Sales Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
13 Essentials of Investments Bodie • Kane • Marcus Fourth Edition Market Price Ratios Price to Earnings Market Price of Stock Earnings Market-to-Book-Value Market Price of Stock Book Value Per Share Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
14 Essentials of Investments Bodie • Kane • Marcus Fourth Edition Decomposition of ROE = Net Profit Pretax Profit EBIT (1) Tax Burden Irwin / Mc. Graw-Hill x x (2) Interest Burden x x EBIT Sales (3) x x Sales Assets (4) x Assets Equity x (5) x Margin x Turnover x Leverage © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
15 Essentials of Investments Bodie • Kane • Marcus Fourth Edition Comparability Problems • Accounting Differences – Inventory Valuation – Depreciation • Inflation • International Accounting Conventions Irwin / Mc. Graw-Hill © 2001 The Mc. Graw-Hill Companies, Inc. All rights reserved.
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