1. Business Finance (MGT 232)
Lecture 23

2. Financial Statement Analysis

3. Overview of the Last Lecture
Financial Statements
A Possible Framework for Analysis
Ratio Analysis
Trend Analysis
Common-Size and Index Analysis

4. Ratio Analysis Ratio Analysis Liquidity Ratios Leverage Ratios
Asset Management Ratios
Profitability Ratios
Market Value Ratios

5. Market Value Ratios
These ratios compare the price of the company's stock with different variables including the Earning per share (EPS), Dividend per share (DPS) etc

6. For Basket Wonders December 31, 2003
Market Value Ratios
EPS = Net Income to
common share holders
common stock outstanding
For Basket Wonders December 31, 2003
Income Statement /
Balance Sheet
And other indicators
Market Value Ratios
This indicates what is the earning on each share investment and what company is paying to its shareholders

7. Basket Wonders’ Income Statement
Basket Wonders Statement of Earnings (in thousands) for Year Ending December 31, 2013a
Net Sales Rs. 2,211 Cost of Goods Sold b ,599 Gross Profit Rs. 612 SG&A Expenses c EBITd Rs. 210 Interest Expensee EBT f Rs. 151 Income Taxes EATg Rs. 91 Cash Dividends Increase in RE Rs. 53

8. Market Value Ratio
Suppose company have 1000 shareholders and company paid dividend of Rs and market price of company’s stock is Rs. 20 per share
Net Income to common shareholder is 91(1000) = 91000
Total number of outstanding shares of the company is 4500

9. BW has a weak earning per share
Market Value Ratios
Earning per share
Year
2013
2012
2011
BW Industry
BW has a weak earning per share

10. For Basket Wonders December 31, 2003
Market Value Ratios
DPS = Total Dividend
common stock outstanding
For Basket Wonders December 31, 2003
Income Statement /
Balance Sheet
And other indicators
Market Value Ratios
Indicates the amount of dividend being paid out on each share

11. For Basket Wonders December 31, 2003
Market Value Ratios
P/E= Market Price per share
EPS
For Basket Wonders December 31, 2003
Income Statement /
Balance Sheet
And other indicators
Market Value Ratios
Indicates how the investment community sees our company. A high P/E is considered a Good Sign.

12. Market Value Ratios Price earning ratio Year 2013 2012 2011
BW Industry
BW has a weak P/E ratio.

13. For Basket Wonders December 31, 2003
Market Value Ratios
Dividend Payout = DPS/EPS
For Basket Wonders December 31, 2003
Income Statement /
Balance Sheet
And other indicators
Market Value Ratios
This ratio indicates how much of the earnings of the company are paid out in the form of dividends.

14. BW has a weak Dividend Payout ratio.
Market Value Ratios
Dividend Payout Ratio
Year
2013
2012
2011
BW Industry
5.4% %
4.9% 6.3%
5.3% 6.3%
BW has a weak Dividend Payout ratio.

15. For Basket Wonders December 31, 2003
Market Value Ratios
Dividend Yield = DPS
Market Price
per share;
For Basket Wonders December 31, 2003
Income Statement /
Balance Sheet
And other indicators
Market Value Ratios
This ratio indicates dividend return to the shareholders of the company

16. BW has a weak Dividend yield
Market Value Ratios
Dividend Yield
Year
2013
2012
2011
BW Industry
5% %
4.9% %
4.1% 6 %
BW has a weak Dividend yield

17. It is also known as vertical analysis
Common-size Analysis
An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items are divided by net sales or revenues.
It is also known as vertical analysis

18. Basket Wonders’ Common Size Balance Sheets

19. Basket Wonders’ Common Size Balance Sheets

20. Basket Wonders’ Common Size Income Statements

21. Horizontal Analysis It shows the trend in accounts over the years
It is also known as Percentage change or comparative analysis
Formula:

22. Basket Wonders’ Common Size Balance Sheets

23. Basket Wonders’ Common Size Balance Sheets

24. Basket Wonders’ Common Size Income Statements

25. Index Analysis
An analysis of percentage financial statements where all balance sheet or income statement figures for a base year equal (percent) and subsequent financial statement items are expressed as percentages of their values in the base year.

26. Basket Wonders’ Indexed Balance Sheets

27. Basket Wonders’ Indexed Balance Sheets

28. Basket Wonders’ Indexed Income Statements

29. Summary Market Value Ratios Common Size / Vertical Analysis
EPS
DPS
DPO
P/E
Common Size / Vertical Analysis
Horizontal Analysis
Trend/index analysis