Financial Statement Analysis BKM Ch 19 Zvi Wiener
Financial Statement Analysis BKM Ch 19 Zvi Wiener tel: 02 -588 -3049 Spring-03 mswiener@mscc. huji. ac. il http: //pluto. mscc. huji. ac. il/~mswiener/zvi. html Investments
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Overview Purpose Tools Used Statements Ratio Analysis Limitations Zvi Wiener BKM Ch 19 2
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Financial Statements Balance Sheet Common Sized Trend or Indexed Income Statement Common Sized Trend or Indexed Statement of Cash Flows Zvi Wiener BKM Ch 19 3
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 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 Zvi Wiener BKM Ch 19 4
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Type of Financial Ratios Liquidity Ratios Activity or Mgmt Efficiency Ratios Leverage Ratios Profitability Ratios Market Price Ratios Zvi Wiener BKM Ch 19 5
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Liquidity Ratios Current Ratio Current Assets Current Liabilities Quick Ratio Current Assets - Inventory Current Liabilities Zvi Wiener BKM Ch 19 6
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Activity or Management Efficiency Ratios Inventory Turnover Sales or Cost of Goods Sold Inventory Total Asset Turnover Sales Total Assets Zvi Wiener BKM Ch 19 7
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Activity or Management Efficiency Ratios Average Collection Period Accounts Receivable Sales Per Days to Sell Inventory Sales Per Day Zvi Wiener BKM Ch 19 8
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Leverage Ratios Times Interest Earned Earnings Before Int. & Taxes Interest Expense Fixed Charge Coverage Ratios Lease Payments Principal Repayments Preferred Dividends Zvi Wiener BKM Ch 19 9
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Leverage Ratios Debt to Assets Long Term Debt Assets Debt to Equity Long Term Debt Shareholders Equity Zvi Wiener BKM Ch 19 10
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Profitability Ratios Net Profit Margin % Net Income Sales Return on Assets Net Income Total Assets Zvi Wiener BKM Ch 19 11
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Profitability Ratios Return on Equity Net Income Common Equity Operating Margin After Depr. Operating Profit Sales Zvi Wiener BKM Ch 19 12
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Market Price Ratios Price to Earnings Market Price of Stock Earnings Market-to-Book-Value Market Price of Stock Book Value Per Share Zvi Wiener BKM Ch 19 13
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Decomposition of ROE = Net Profit Pretax Profit EBIT (1) Tax Burden Zvi Wiener x x x (2) Interest Burden x EBIT Sales (3) x x Sales Assets (4) x Assets Equity x (5) x Margin x Turnover x Leverage BKM Ch 19 14
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. Comparability Problems Accounting Differences Inventory Valuation Depreciation Inflation International Accounting Conventions Zvi Wiener BKM Ch 19 15
Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved. International Accounting Differences Reserves – many other countries allow more flexibility in use of reserves. Depreciation – US allows separate tax and reporting presentations. Intangibles – treatment varies widely. Zvi Wiener BKM Ch 19 16
Home Assignment Required: • Read chapter 19 in BKM • closely follow financial news! Zvi Wiener BKM Ch 19 17
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