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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...