Analysis of Financial Statements

CHAPTER 14

ANALYSIS OF FINANCIAL STATEMENTS

Purpose of this Chapter

Major Financial Statements

Generally Accepted Accounting Principles

Balance Sheet - indicates the stock of assets available and

how they were financed at one point in time.

Income Statement - indicates the flow of sales, expenses and

profit during a period.

Statement of Cash Flows - integrates the two prior state-

ments, indicating how the balance sheet changes due to

operating, investment and financing activities.

- Cash Flows from Operating Activities

- Cash Flows from Investment Activities

- Cash Flows from Financing Activities

- Alternative Measures of Cash Flow

Cash Flow from Operations

Free Cash Flow

Purpose of Financial Statement Analysis - aid in the

evaluation of management performance.

Analysis of Financial Ratios

Importance of Relative Financial Ratios

To the aggregate economy

To the firm's industry

To the firm's major competitors

To the firm's own past performance

Computation of Financial Ratios

Common Size Statements

Evaluating Internal Liquidity

Internal Liquidity Ratios

Current Ratio

Quick Ratio

Cash Ratio

Receivables Turnover

Inventory Turnover

Cash Conversion Cycle

Evaluating Operating Performance

Operating Efficiency Ratios

Total Asset Turnover

Net Fixed Asset Turnover

Equity Turnover

Operating Profitability Ratios

Gross Profit Margin

Operating Profit Margin

Net Profit Margin

Common Size Income Statement

Return on Total Capital

Return on Owner's Equity

The DuPont System...