1. Principles of Managerial Finance 9th Edition Chapter 4 Financial Statement Analysis

2. Learning Objectives Understand the parties interested in performing financial ratio analysis and the common types of ratio comparisons. Describe some of the cautions that should be considered in performing financial ratio analysis. Use popular ratios to analyze a firm’s liquidity and the activity of inventory, accounts receivable, accounts payable, and total assets.

3. Learning Objectives Discuss the relationship between debt and financial leverage and the ratios that can be used to assess the firm’s degree of indebtedness and its ability to meet interest payments associated with debt. Evaluate a firm’s profitability relative to its sales, asset investment, and owners equity investment. Use the DuPont system and a summary of financial ratios to perform a complete ratio analysis.

4. Using Financial Ratios Ratio analysis involves methods of calculating and interpreting financial ratios to assess a firm’s financial condition and performance. It is of interest to shareholders, creditors, and the firm’s own management. Interested Parties

5. Trend or time-series analysis Used to evaluate a firm’s performance over time Using Financial Ratios Types of Ratio Comparisons

6. Trend or time-series analysis cross-sectional analysis Used to compare different firms at the same point in time Using Financial Ratios Types of Ratio Comparisons

7. Trend or time-series analysis cross-sectional analysis –industry comparative analysis One specific type of cross sectional analysis. Used to compare one firm’s financial performance to the industry’s average performance Using Financial Ratios Types of Ratio Comparisons 尋找 proper benchmark

8. Trend or time-series analysis cross-sectional analysis –industry comparative analysis Combined Analysis Combined analysis simply uses a combination of both time series analysis and cross-sectional analysis Using Financial Ratios Types of Ratio Comparisons Inventory turnover =COGS/inventory 199719981999 2000 year A 產業平均

10. Ratios must be considered together; a single ratio by itself means relatively little. Financial statements that are being compared should be dated at the same point in time. Use audited financial statements when possible. The financial data being compared should have been developed in the same way. Be wary of inflation distortions. Using Financial Ratios Cautions for Doing Ratio Analysis Inventory turnover 似乎愈高愈好 但太高可能表示 inventory 太少，缺貨 如玩具公司 12 月底比 6 月底 如存貨計價與折舊提列 通膨影響存貨及折舊，進而影響 利潤及資產。高通膨使 older firms 看起來比 younger firms 更 efficient 更 profitable

11. Ratio Analysis Example Bartlett Company

12. 見 B/S 附註 a

14. 資本租賃必須資本化處理 (v.s. 營業租賃 )

15. Ratio Analysis Liquidity Ratios –Current Ratio Current ratio = total current assets total current liabilities Current ratio = $1,223,000 = 1.97 $620,000 公司的現金流量愈穩定，愈能接受較低的 current ratio 過高的 C.R. 會傷害 profitability ，因為 C.A. is less profitable than fixed asset and C.L. is more expensive than long-term financing net working capital=CA-CL

16. Liquidity Ratios –Current Ratio –Quick Ratio Quick ratio = Total Current Assets - Inventory total current liabilities Ratio Analysis Quick ratio = $1,223,000 - $289,000= 1.51 $620,000 If inventory is less liquid, then Q.R. is a better measure for liquidity than C.R.

17. Liquidity Ratios Activity Ratios –Inventory Turnover Inventory Turnover = Cost of Goods Sold Inventory Ratio Analysis Inventory Turnover = $2,088,000 = 7.2 $289,000 無法衡量 CA 和 CL 個別組 成份子的差異 Average age of inventory=360÷inventory turnover=50 天 Grocery store 很高，飛機製造商很低

18. Liquidity Ratios Activity Ratios –Average Collection Period ACP = Accounts Receivable Net Sales/360 Ratio Analysis ACP = $503,000 = 58.9 days $3,074,000/360 or =360÷(net sales/A.R.) 是否合理端視公司給顧客 credit sales 的期間

19. APP = Accounts Payable Annual Purchases/360 Liquidity Ratios Activity Ratios –Average Payment Period Ratio Analysis APP = $382,000 = 94.1 days (.70 x $2,088,000)/360 =360÷(annual purchase/A.P.) 是否合理端視 supplier 給公司信用採購的 term 假設 annual purchase =70% of COGS

20. Liquidity Ratios Activity Ratios –Total Asset Turnover Total Asset Turnover= Net Sales Total Assets Ratio Analysis Total Asset Turnover= $3,074,000 =.85 $3,579,000 How efficient the firm uses assets to generate sales 資產愈新的公司其 asset turnover 愈低

21. Liquidity Ratios Activity Ratios Debt Ratio = Total Liabilities/Total Assets Financial Leverage Ratios –Debt Ratio Ratio Analysis Debt Ratio = $1,643,000/$3,597,000 = 45.7% Financial risk ROE

22. Liquidity Ratios Activity Ratios Leverage Ratios –Times Interest Earned Ratio Times Interest Earned = EBIT/Interest Ratio Analysis Times Interest Earned = $418,000/$93,000 = 4.5 =interest coverage ratio

23. Liquidity Ratios Activity Ratios Leverage Ratios –Fixed-Payment coverage Ratio (FPCR) FPCR = EBIT + Lease Payments Interest + Lease Payment+ {(Principal Payment + PSD) x [1/(1-t)]} Ratio Analysis FPCR = $418,000 + $35,000= 1.9 $93,000 + $35,000 + {($71,000 + $10,000) x [1/(1-.29)]} 為了將這兩項調整為稅 前項目

24. Liquidity Ratios Activity Ratios Leverage Ratios Profitability Ratios –Common-Size Income Statements Ratio Analysis

26. Liquidity Ratios Activity Ratios Leverage Ratios GPM = Gross Profit/Net Sales Profitability Ratios –Gross Profit Margin Ratio Analysis GPM = $986,000/$3,074,000 = 32.1%

27. Liquidity Ratios Activity Ratios Leverage Ratios Profitability Ratios –Operating Profit Margin OPM = EBIT/Net Sales Ratio Analysis OPM = $418,000/$3,074,000 = 13.6%

28. Liquidity Ratios Activity Ratios Leverage Ratios Profitability Ratios –Net Profit Margin NPM = Net Profits After Taxes/Net Sales Ratio Analysis NPM = $231,000/$3,074,000 = 7.5%

29. Liquidity Ratios Activity Ratios Leverage Ratios Profitability Ratios –Return on Total Assets (ROA) ROA= Net Profits After Taxes/Total Assets Ratio Analysis ROA= $231,000/$3,597,000 = 6.4%

30. Liquidity Ratios Activity Ratios Leverage Ratios ROE= Net Profits After Taxes/Stockholders Equity Profitability Ratios –Return on Equity (ROE) Ratio Analysis ROE= $231,000/$1,954,000 = 11.8%

31. Liquidity Ratios Activity Ratios Leverage Ratios EPS= Earnings Available to Common Stockholders Number of Shares Outstanding Profitability Ratios –Earnings Per Share (EPS) Ratio Analysis EPS = $221,000/76,262 = $2.90

32. Liquidity Ratios Activity Ratios Leverage Ratios P/E= Market Price Per Share of Common Stock Earnings Per Share Profitability Ratios –Price Earnings (P/E) Ratio Ratio Analysis P/E = $32.25/$2.90 = 11.1 =investor confidence M/B=market to book ratio=

33. DuPont System of Analysis The DuPont system is used to dissect the firm’s financial statements and to assess its financial condition. It merges the income statement and balance sheet into two summary measures of profitability: ROA and ROE as shown in figure 4.2 on the following slide. The top portion focuses on the income statement, and the bottom focuses on the balance sheet. The advantage of the DuPont system is that it allows you to break ROE into a profit on sales component, an efficiency-of-asset-use component, and a use-of- leverage component.

34. 和 1999 年比較 better Higher leverage

35. Summarizing All Ratios