Chapter 4-Analyzing Financial Statements
Chapter 4-Analyzing Financial Statements FIN 302
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This 3 page Class Notes was uploaded by Quinn Shapiro on Wednesday September 30, 2015. The Class Notes belongs to FIN 302 at Arizona State University taught by Dr. Luke Stein in Summer 2015. Since its upload, it has received 39 views. For similar materials see Managerial Finance in Finance at Arizona State University.
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Date Created: 09/30/15
Chapter 4 Financial Statement Analysis Analyze for purposes purposes 0 creditratings agencies analyze on behalf of lenders 0 professional analysis39s for equity investors by developing n statements 0 where they are generated l o D 0 Whenever we ex called a 0 Ex gross pro t margins gross margin of 25 o EX operating margin was 42 0 Compared some business 0 Over time going up or going down 0 to other rms in same industry 39 Ratios o Tells us the rm is o If something is liquid you can turn it into cash or cash equivalents you can get it 0 Ability to or desires 0 Know how much you can get The does on the is anything that to a suf cient degree 0 ability to 0 getting enough money and getting it quickly 0 Ability to meet short term nancial needs 0 Overall Liquidity o Analyze However current assets include assets that may not be as liquid like inventory 0 1 Current Ratio 0 Ratio of current assets to current liabilities 0 Current assetscurrent liabilities Things you may be able to get cash for and things you may need cash for is a rm relatively 0 Firms that have working capital are going to have a O Vice versa Firm that has exactly 0 will have a ratio of 1 0 2 Always smaller If gt1 if they just use their cash and collect what custies owe it is enough to pay back current liabilities Liquidity Ratio Individual Asset Categories 0 Mostly o Focused on o per yearyears per year If we take all the in inventory and divide it by of inventory we get in a years tells you how long the average piece of inventory sits in your business All inventory for course of year and divide by amount at given time tells you how many time per year 0 Cashvery liquid only really matters how much you have 0 ar and inventorymay not collect very quickly how good is rm at AR for inventory can sit and may not very quickly Sales amp COGS lS AR amp lnventory BS are recorded lnvCOGSI536500137years worth of inventory 0 Turn into days00137 x 3655 days 39 COGSinventory365573 times per year 39 I I Credit SalesAR182550365 times per year ARcredit sales 501825 Assuming that business ran smoothly and constantly for the whole year 0 Liquidity ratios can be bc managers are trying to make things appear better on the books from your assets does it take you o tells you about rms 0 Tells us about 0 Debt ratio Ttl Liabilitiesttl Assets 10k car 8k liability 80 debt nanced TATE 10k car 2k down 5x over 0 Times Interest Earned RatioNet Operating lncomeEBlTlnterest Expense Making enough money If you make 50k and interst is 1k you have 50x more than interest needed O OROA Being good 0 OROA Net operating lncomeEBlTtotal assets 0 OROA OlSalesxSalesTA OlSales0perating Pro t Margin 0PM o ers some level of Cost Control SalesTotal Assetstotal asset Turnover TATO how well you use your assets Operating Pro t Margin Total Asset Turnover Operating Return on Assets 0 Return on Equity Perspective on shareholderswill it generate for their ROENet IncomeCommon Equity 20k210x for 10 Dupont method Net pro t margin Tells us about TATOmake sure are Equity Multiplierleverage If its ROE in increasing or decreasing we need to know Where they come from