Chapter F15 Power notes Financial Statement Analysis Learning Objectives 1. Basic Analytical Procedures 2. Solvency Analysis 3. Profitability Analysis 4. Summary of Analytical Measures 5. Corporate Annual Reports c15 c15-1
C15- 1 Learning Objectives Power Notes 1. Basic Analytical Procedures 2. Solvency Analysis 3. Profitability Analysis 4. Summary of Analytical Measures 5. Corporate Annual Reports C15 Financial Statement Analysis Chapter F15
Chapter F15 Power notes Financial Statement Analysis Slide #f Power Note Topics 3. Horizontal and Vertical Analysis 10· Solvency Analysis 28 Profitability Analysis 43· Annual Reports tSNote: To select a topic, type the slide# and press Enter. c15-2
C15- 2 • Horizontal and Vertical Analysis • Solvency Analysis • Profitability Analysis • Annual Reports Slide # Power Note Topics Note: To select a topic, type the slide # and press Enter. 3 10 28 43 Power Notes Financial Statement Analysis Chapter F15
Lincoln Company Comparative Balance Sheet Decem ber 31. 2003 and 2002 Increase( Decrease) Assets 2003 2002 Amount Percent Current assets $550000$533,000$17,0003.2% Long-term investments 95,000177,50082,500)(46.5%) Fixed assets(net) 444,500470,000(25,500)(5.4%) Intangible assets 50,00050000 1,139,500$1,230,500$(91,000)(74%) Liabilities Current liabilities $210,000$243,000$(33,000)(136% Long-term liabilities 100,000200,000100,000(50.0%) $310,000$443,0005(133000)(30.0%) Stockholders'Equity Preferred stock, $100 par 150,000 $ 150,000 Common stock, $10 par 500000500.000 Retained earnings 179,500137,500$42,00030.5% $829,500$787,500$42,00053% 1,139,500$1230500$(91,000)(7.4%) c15-3
C15- 3 Lincoln Company Comparative Balance Sheet December 31, 2003 and 2002 Assets Current assets $ 550,000 $ 533,000 $ 17,000 3.2% Long-term investments 95,000 177,500 (82,500) (46.5%) Fixed assets (net) 444,500 470,000 (25,500) (5.4%) Intangible assets 50,000 50,000 — $1,139,500 $1,230,500 $ (91,000) (7.4%) Liabilities Current liabilities $ 210,000 $ 243,000 $ (33,000) (13.6%) Long-term liabilities 100,000 200,000 (100,000) (50.0%) $ 310,000 $ 443,000 $(133,000) (30.0%) Stockholders’ Equity Preferred stock, $100 par $ 150,000 $ 150,000 — Common stock, $10 par 500,000 500,000 — Retained earnings 179,500 137,500 $42,000 30.5% $ 829,500 $ 787,500 $42,000 5.3% $1,139,500 $1230,500 $(91,000) (7.4%) Increase (Decrease) 2003 2002 Amount Percent
Lincoln Com pany Comparative Balance Sheet Decem ber 31. 2003 and 2002 Increase( Decrease) Assets 2003 2002 Amount Percent Current assets $550,000$533000$17,0003.2% Long-term investments Fixed assets(net) Horizontal Analysis: Intangible assets Current year(2003)$550,000 =103.2% Base year(2002)$533,000 Liabilities Current liabilities Increase amount $17,000 =3.2% Long-term liabilities Base year(2002)$533,000 Stockholders'Equity Preferred stock, $100 par 150,000 $ 150,000 Common stock, $10 par 500000500.000 Retained earnings 179,500137,500$42,00030.5% $829,500$787,500$42,00053% 1,139,500$1230500$(91,000)(7.4%) c15-4
C15- 4 Lincoln Company Comparative Balance Sheet December 31, 2003 and 2002 Assets Current assets $ 550,000 $ 533,000 $ 17,000 3.2% Long-term investments 95,000 177,500 (82,500) (46.5%) Fixed assets (net) 444,500 470,000 (25,500) (5.4%) Intangible assets 50,000 50,000 — $1,139,500 $1,230,500 $ (91,000) (7.4%) Liabilities Current liabilities $ 210,000 $ 243,000 $ (33,000) (13.6%) Long-term liabilities 100,000 200,000 (100,000) (50.0%) $ 310,000 $ 443,000 $(133,000) (30.0%) Stockholders’ Equity Preferred stock, $100 par $ 150,000 $ 150,000 — Common stock, $10 par 500,000 500,000 — Retained earnings 179,500 137,500 $42,000 30.5% $ 829,500 $ 787,500 $42,000 5.3% $1,139,500 $1230,500 $(91,000) (7.4%) Increase (Decrease) 2003 2002 Amount Percent Horizontal Analysis: Current year (2003) $550,000 Base year (2002) $533,000 = 103.2% Increase amount $17,000 Base year (2002) $533,000 = 3.2%
Lincoln Com pany Comparative Income Statement Decem ber 31. 2003 and 2002 Increase( Decrease) 2003 2002 Amount Percent Sales $1,530,500$1,234000$296,50024.0% Sales returns 32,50034,000(1500)(4.4%) Net sales $1,498,000$1,200,000$298,000)24.8% Cost of goods sold 1,043,000820,000223。000272% Gross profit $455,000$380,000$7500019.7% Selling expenses $191,000$147,000$4400029.9% Administrative expenses 104,000 97, 400 6, 600 6.8% Total operating expenses 295,000 244, 400 50,600 20.7% Operating income $160,000$135,600$24,40018.0% Other income 8,50011,0002,500)(22.7%) $168,500$146,600$21,90014.9% other expense 6.000 12,0006,000)(50.0%) Income before income tax 162, 500 $ 134, 600 27, 900 20.7% Income tax 71,500 58,100 13,40023.1% Net income 91,000$762500$1450019.0% c15-5
C15- 5 Lincoln Company Comparative Income Statement December 31, 2003 and 2002 Sales $1,530,500 $1,234,000 $296,500 24.0% Sales returns 32,500 34,000 (1,500) (4.4%) Net sales $1,498,000 $1,200,000 $298,000) 24.8% Cost of goods sold 1,043,000 820,000 223,000 27.2% Gross profit $ 455,000 $ 380,000 $ 75,000 19.7% Selling expenses $ 191,000 $ 147,000 $ 44,000 29.9% Administrative expenses 104,000 97,400 6,600 6.8% Total operating expenses $ 295,000 $ 244,400 $ 50,600 20.7% Operating income $ 160,000 $ 135,600 $ 24,400 18.0% Other income 8,500 11,000 (2,500) (22.7%) $ 168,500 $ 146,600 $ 21,900 14.9% Other expense 6,000 12,000 (6,000) (50.0%) Income before income tax $ 162,500 $ 134,600 $ 27,900 20.7% Income tax 71,500 58,100 13,400 23.1% Net income $ 91,000 $ 76,500 $ 14,500 19.0% Increase (Decrease) 2003 2002 Amount Percent
Lincoln Com pany Comparative Income Statement Decem ber 31. 2003 and 2002 Increase( Decrease) 2003 2002 Amount Percent Sales $1,530,500$1,234,000$296,50024.0% Sales returns 32.500 34,000(1,500)(4.4%) Net sales $1,498,000$1,200,000$29800)24.8% Cost of goods sold Gross profit Horizontal Analysis Selling expenses Current year(2003)$1,498,000=124.8% Administrative expenses Base year(2002) $1,200,000 Total operating expenses Operating income Increase amount $298,000 24.8% Other income Base year(2002)$1,200,000 other expense 6,00012,000 (6,000)(50.0% Income before income tax 162, 500 $ 134, 600 27, 900 20.7% Income tax 71,500 58,100 13,40023.1% Net income 91,000$762500$1450019.0% c15-6
C15- 6 Lincoln Company Comparative Income Statement December 31, 2003 and 2002 Sales $1,530,500 $1,234,000 $296,500 24.0% Sales returns 32,500 34,000 (1,500) (4.4%) Net sales $1,498,000 $1,200,000 $298,000) 24.8% Cost of goods sold 1,043,000 820,000 223,000 27.2% Gross profit $ 455,000 $ 380,000 $ 75,000 19.7% Selling expenses $ 191,000 $ 147,000 $ 44,000 29.9% Administrative expenses 104,000 97,400 6,600 6.8% Total operating expenses $ 295,000 $ 244,400 $ 50,600 20.7% Operating income $ 160,000 $ 135,600 $ 24,400 18.0% Other income 8,500 11,000 (2,500) (22.7%) $ 168,500 $ 146,600 $ 21,900 14.9% Other expense 6,000 12,000 (6,000) (50.0%) Income before income tax $ 162,500 $ 134,600 $ 27,900 20.7% Income tax 71,500 58,100 13,400 23.1% Net income $ 91,000 $ 76,500 $ 14,500 19.0% Increase (Decrease) 2003 2002 Amount Percent Horizontal Analysis: Current year (2003) $1,498,000 Base year (2002) $1,200,000 = 124.8% Increase amount $298,000 Base year (2002) $1,200,000 = 24.8%
Lincoln Com pany Comparative Balance Sheets December 31. 2003 Decem ber 31. 2002 Assets Amount percent Amount percent Current assets $550,00048.3%$533,00043.3% Long-term investments 95,0008.3 177,50014.4 Fixed assets(net) 44450039.0 470,00038.2 Intangible assets 50,00044 50,0004.1 $1139,500100.0%$1,230,500100.0% Liabilities Current liabilities $210,00018.4%$243,000197% Long-term liabilities 1000088200,00016.3 $310,00027.2%$44300036.0% Stockholders'Equity Preferred stock,$100par$150,00013.2%$150,000122% Common stock, $10 par 50000043.9 500.00040.6 Retained earnings 17950015.7 137,50011.2 $829,500728%$787,50064.0% 1139500100.0%$1230500100.0% c15-7
C15- 7 Lincoln Company Comparative Balance Sheets Assets Current assets $ 550,000 48.3% $ 533,000 43.3% Long-term investments 95,000 8.3 177,500 14.4 Fixed assets (net) 444,500 39.0 470,000 38.2 Intangible assets 50,000 4.4 50,000 4.1 $1,139,500 100.0% $1,230,500 100.0% Liabilities Current liabilities $ 210,000 18.4% $ 243,000 19.7% Long-term liabilities 100,000 8.8 200,000 16.3 $ 310,000 27.2% $ 443,000 36.0% Stockholders’ Equity Preferred stock, $100 par $ 150,000 13.2% $ 150,000 12.2% Common stock, $10 par 500,000 43.9 500,000 40.6 Retained earnings 179,500 15.7 137,500 11.2 $ 829,500 72.8% $ 787,500 64.0% $1,139,500 100.0% $1230,500 100.0% December 31, 2003 December 31, 2002 Amount Percent Amount Percent
Lincoln Com pany Comparative Balance Sheets December 31. 2003 Decem ber 31. 2002 Assets Amount percent Amount percent Current assets $550,00048.3%$533,00043.3% Long-term investments 95,0008.3 177,50014.4 Fixed assets(net) 44450039.0 470,00038.2 Intangible assets 50,00044 50,0004.1 $1139,500100.0%$1,230,500100.0% Liabilities Current liabilities $210,00018.4%$243,00019.7% 200,000163 Vertical Analysis: $443,00036.0% Current liabilities $210,000 =18.4% $150,000122% Total assets $1, 139, 500 500.00040.6 137,50011.2 829500728%$787,500640% 1139500100.0%$1230500100.0% c15-8
C15- 8 Lincoln Company Comparative Balance Sheets Assets Current assets $ 550,000 48.3% $ 533,000 43.3% Long-term investments 95,000 8.3 177,500 14.4 Fixed assets (net) 444,500 39.0 470,000 38.2 Intangible assets 50,000 4.4 50,000 4.1 $1,139,500 100.0% $1,230,500 100.0% Liabilities Current liabilities $ 210,000 18.4% $ 243,000 19.7% Long-term liabilities 100,000 8.8 200,000 16.3 $310,000 27.2% $ 443,000 36.0% Stockholders’ Equity Preferred stock, $100 par $ 150,000 13.2% $ 150,000 12.2% Common stock, $10 par 500,000 43.9 500,000 40.6 Retained earnings 179,500 15.7 137,500 11.2 $829,500 72.8% $787,500 64.0% $1,139,500 100.0% $1230,500 100.0% December 31, 2003 December 31, 2002 Amount Percent Amount Percent Vertical Analysis: Current liabilities $210,000 Total assets $1,139,500 = 18.4%
Lincoln Company Comparative Balance sheets December 31. 2003 Decem ber 31. 2002 Assets Amoun Common-Size Statements Current assets $550000483%$533000433% Long-term investments 950008.3 177,500144 Fixed assets(net) 444,500390 470,000382 Intangible assets 5000044 50,000 4.1 $1,139500100.0%$1,230,500100.0% Liabilities Current liabilities $210,000184%$243,00019.7% Long-term liabilities 100,00088 200,00016.3 $310000272%$443,000360% Stockholders'Equity Preferred stock,$100pa$15000013.,2%$15000122% Common stock, $10 par 500000439 500000406 Retained earnings 179,500157 137,50011.2 829500728%$787,500640% $1139500100.0%$1230500100.0% c15-9
C15- 9 Lincoln Company Comparative Balance Sheets Assets Current assets $ 550,000 48.3% $ 533,000 43.3% Long-term investments 95,000 8.3 177,500 14.4 Fixed assets (net) 444,500 39.0 470,000 38.2 Intangible assets 50,000 4.4 50,000 4.1 $1,139,500 100.0% $1,230,500 100.0% Liabilities Current liabilities $ 210,000 18.4% $ 243,000 19.7% Long-term liabilities 100,000 8.8 200,000 16.3 $310,000 27.2% $ 443,000 36.0% Stockholders’ Equity Preferred stock, $100 par $ 150,000 13.2% $ 150,000 12.2% Common stock, $10 par 500,000 43.9 500,000 40.6 Retained earnings 179,500 15.7 137,500 11.2 $829,500 72.8% $787,500 64.0% $1,139,500 100.0% $1230,500 100.0% December 31, 2003 December 31, 2002 Amount Percent Common-Size Statements Amount Percent
Solvency Analysis financial obligations(debts)as they are due U Solvency is the ability of a business to meet its Solvency analysis focuses on the ability of a business to pay or otherwise satisfy its current and noncurrent liabilities This ability is normally assessed by examining balance sheet relationships c15-10
C15- 10 Solvency Analysis Solvency is the ability of a business to meet its financial obligations (debts) as they are due. Solvency analysis focuses on the ability of a business to pay or otherwise satisfy its current and noncurrent liabilities. This ability is normally assessed by examining balance sheet relationships
