1. Financial Statement Analysis
Chapter Nine
Financial Statement Analysis
© 2015 McGraw-Hill Education.

2. Methods of Analysis Ratio Analysis Horizontal Analysis
Vertical Analysis
Percentage Analysis
Horizontal Analysis
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3. Horizontal and Percentage Analysis
Horizontal analysis (or trend analysis) refers to studying the behavior of individual financial statement items over several accounting periods.
Absolute Amounts
Percentage Analysis
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4. Milavec Company Horizontal Analysis
2015
2014
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5. Vertical Analysis
Vertical analysis uses percentages to compare individual components of financial statements to a key statement figure. A common-size financial statement is a vertical analysis in which each financial statement item is expressed as a percentage.
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6. Milavec Company Vertical Analysis
2012
2011
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7. 2012
2011
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8. Ratio Analysis
Ratio analysis involves studying various relationships between different items reported in a set of financial statements.
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9. Liquidity Ratios
Liquidity ratios indicate a company’s ability to pay short-term debts. They focus on current assets and current liabilities.
Working Capital
Current Ratio
Quick Ratio
Accounts Receivable Ratios
Inventory Ratios
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10. Solvency Ratios
Solvency ratios are used to analyze a company’s long-term debt-paying ability and its financing structure.
Debt to Assets Ratio
Debt to Equity Ratio
Number of Times Interest Earned
Plant Assets to Long-Term Liabilities
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11. Profitability ratios measure a company’s ability to generate earnings.
Net Margin (or Return on Sales)
Asset Turnover Ratio
Return on Investment
Return on Equity
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12. Stock market ratios analyze the earnings and dividends of a company.
Earnings Per Share
Book Value
Price-Earnings (PE) Ratio
Dividend Yield
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13. Average Number of Outstanding Common Shares
Earnings Per Share
Earnings per Share
Net Earnings Available for Common Stock
Average Number of Outstanding Common Shares =
This measure indicates how much
income was earned for each share of common stock outstanding.
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14. Earnings Per Share
$25,000 (net income) - $3,000 (preferred dividend) = $1.60 per share
(15, ,500)/2 (average outstanding common shares)
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15. Stockholders’ Equity - Preferred Dividends Outstanding Common Shares
Book Value Per Share
Book Value per Share
Stockholders’ Equity - Preferred Dividends
Outstanding Common Shares =
This ratio measures the amount that would be distributed to holders of each share of common stock if all assets were sold at their balance sheet carrying amounts and if all creditors were paid off.
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16. Book Value Per Share
$362,000 - $50,000
15, = $20.80 per share
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17. Market Price Per Share Price-Earnings Ratio Price-Earnings Ratio
Earnings Per Share =
This ratio compares the earnings of a company to the market price for a share of the company’s stock.
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18. = Dividend Yield Dividend Yield Dividends Per Share
Market Price Per Share =
This ratio identifies the return, in terms of cash dividends, on the current market price of the stock.
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19. Limitations of Financial Statement Analysis
Different Industries
Changing Economic Environment
Accounting Principles
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20. End of Chapter Nine
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