CHAPTER 13

 Never answers questions by themselves  They do however ◦ Raise questions to answer ◦ Point to opportunities for further analysis  Also include: ◦ Industry trends ◦ Technological changes ◦ Changes in consumer tastes ◦ Changes in broad economic factors ◦ Changes within company

 Examines changes in accounts over time  Select a year as the “BASE YEAR” = 100%  Every year is a % of that year. New #/Base Year  Usually over 5 or 10 years  Can compare any account to see how it has changed over the years  Page 586 McDonalds(#s), Graph  When“Super size Me”?  Change over two years in $ and % page  Exercise Trend % pg 610

 Relationship between accounts  Balance Sheet - % of Total Assets pg 585 Income Statement - % of Sales pg 586  Change over two years in $ and % page

 Accounting ◦ Liquidity, Profitability, Long Term Solvency, Market Strength  Accounting 102 – Users ◦ Common Stockholders, Short-Term Creditors, Long Term Creditors ◦ Summary of Ratios Exhibit 13-6 page 600

 Numerator  Denomiator  Num goes up ratio goes up  Dem goes up ratio goes down  Num goes down ratio goes down  Dem goes down ratio goes up

 Gross Margin %  Gross Margin/Sales  Earnings Per share (EPS)  Net Income-Preferred Div/Avg Common Stock O/S  Price Earning Ratio  Market Price/ EPS  Dividend Payout  Dividends per share/ EPS  Dividend Yield  Dividend per share/Market Price per share

 Return on Assets (simple version)  Net Income / Average Total Assets  Return On Equity (simple version)  Net Income/ Average Total SE  Book Value Per Share  Stockholder’s Equity/ Shares Outstanding EXERCISE 13-2 Page 608

 Basically--- ability to borrow money at a lower rate 7% (pay your creditors)than your net income percentage 10% (rate of return)

 Working Capital  Current Assets – Current Liabilities  Current Ratio  Current Assets/Current Liabilities  Acid-Test (Quick) Ratio  Cash+Market Sec+A/R+ Short Term Invest/CL  A/R Turnover  Credit Sales/Avg A/R  Avg Collection Period  365/ A/R Turnover

 Inventory Turnover  Cost of Goods Sold (COGS)/ Avg Inventory  Average Sales Period  365/ inventory Turnover  Payables Turnover  COGS + or – Change in Inventory/Average A/P  Average days Payables  365/Payables Turnover  Operating Cycle in days  Average collection period(Days uncollectible) + Average Sales Period (Inventory on hand)  Financing Requirement ◦ Operating Cycle – Average Days Payable ◦ EXERCISE 13-3 PG 608

 Times Interest Earned  EBIT/ Interest Expense  Debt to Equity  Total Liabilities/ Stockholder’s Equity  EXERCISE 13-4 PG 608  SUMMARY OF RATIOS Pg 600