Slide Chapter14 Financial Statement Analysis Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc,, 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 14-1 Irwin/McGraw-Hill Chapter 14 Financial Statement Analysis
Slide Purpose of analysis Financial statement analysis helps users make better decisions Q995甲0 Internal Users External Users Managers Shareholders Officers Lenders Internal Auditors Customers Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 14-2 Irwin/McGraw-Hill Purpose of Analysis Internal Users External Users Financial statement analysis helps users make better decisions. Managers Officers Internal Auditors Shareholders Lenders Customers
Slide Purpose of analysis Financial measures are often used to rank corporate performance Example measures include: Growth Return to Profi Return on in sales stockholders margins equity Determined by analyzing the financial statements Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 14-3 Irwin/McGraw-Hill Purpose of Analysis Growth in sales Return to stockholders Profit margins Return on equity Determined by analyzing the financial statements. Financial measures are often used to rank corporate performance. Example measures include:
Slide I Financial Statements are Designed for Analysis Classified Comparative Consolidated Financial Financial Financial Statements Statements Statements Items with certain Amounts from Information for the characteristics are several years parent and subsidiary grouped together. appear side by side. are presented. Results Helps identify Presented as if in standardized significant the two companies meaningful changes and are a single subtotals trends business unit Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 14-4 Irwin/McGraw-Hill Financial Statements are Designed for Analysis Results in standardized, meaningful subtotals. Items with certain characteristics are grouped together. Classified Financial Statements Helps identify significant changes and trends. Amounts from several years appear side by side. Comparative Financial Statements Presented as if the two companies are a single business unit. Information for the parent and subsidiary are presented. Consolidated Financial Statements
Slide Tools of analysis Ability to meet short-term Ability to obligations and generate future to efficiently Liquidity revenues and generate and revenues Solvency meet long-term obligations Efficiency Ability to provide Ability to financial rewards generate sufficient to posItive attract and retain market financing Profitability Market expectations Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 14-5 Irwin/McGraw-Hill Tools of Analysis Liquidity and Efficiency Solvency Profitability Market Ability to meet short-term obligations and to efficiently generate revenues Ability to generate future revenues and meet long-term obligations Ability to generate positive market expectations Ability to provide financial rewards sufficient to attract and retain financing
Slide 14-6 Dollar and Percentage Changes Dollar Change: Dollar Analysis Period Base Period Change S Amount Amount Percentage Change: Percent Base period chan。= Dollar Change Amount Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 14-6 Irwin/McGraw-Hill Dollar Change: Analysis Period Amount Base Period Amount Dollar Change = Dollar and Percentage Changes Percentage Change: Dollar Change Base Period Amount Percent Change % =
Slide 14-7 Dollar and Percentage Changes Evaluating Percentage Changes in Sales and Earnings Sales and earnings In measuring quarterly should increase at changes, compare to more that the rate the same quarter in of inflation the previous year. Percentages may be misleading when the base amount is small Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 14-7 Irwin/McGraw-Hill Dollar and Percentage Changes Sales and earnings should increase at more that the rate of inflation. In measuring quarterly changes, compare to the same quarter in the previous year. Percentages may be misleading when the base amount is small. Evaluating Percentage Changes in Sales and Earnings
Slide Dollar and Percentage Changes Example Let s look at the asset section of clover Corporation s comparative balance sheet and income statement for 2001 and 2000 Compute the dollar change and the percentage for cash Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 14-8 Irwin/McGraw-Hill Let s look at the asset section of Clover Corporation s comparative balance sheet and income statement for 2001 and 2000. Compute the dollar change and the percentage for cash. Dollar and Percentage Changes Example
Slide 14-9 CLOVER CORPORATION Comparative Balance sheets December 31 Dollar Percent 2001 2000 Change‖ Change* Assets Current assets Cash and equⅳ alerts $12,000‖$23,500 Accounts receivable, net 60.000 40.000 Inventory 80,000‖100,000 Prepaid expenses 3,000 1,200 Total current assets $155,000$164,700 Property and equipment: Land 400400 Buildings and equipment, net 120.000 85,000 Total property and equipment 160,000$ 125,000 Total assets $315,000$289,700 Percent rounded to one decimal point
?The McGraw-Hill Companies, Inc., 1999 Slide 14-9 Irwin/McGraw-Hill CLOVER CORPORATION Comparative Balance Sheets December 31, 2001 2000 Dollar Change Percent Change* Assets Current assets: Cash and equivalents $ 12,000 $ 23,500 Accounts receivable, net 60,000 40,000 Inventory 80,000 100,000 Prepaid expenses 3,000 1,200 Total current assets $ 155,000 $ 164,700 Property and equipment: Land 40,000 40,000 Buildings and equipment, net 120,000 85,000 Total property and equipment $ 160,000 $ 125,000 Total assets $ 315,000 $ 289,700 * Percent rounded to one decimal point
Slide 14-10 CLOVER CORPORATION Comparative Balance sheets December 31 Dollar Percent 2001 2000 Change‖ Change* Assets Current assets Cash and equⅳ alerts 12。00|52350$(11500 Accounts receivable, net 60.000 40.000 Inventory 80,000‖100,000 Prepaid expenses 2000 An鱼 Total current assets $12,000?$23500=$(11,500) Property and equipment: Land 400400 Buildings and equipment, net 120.000 85,000 Total property and equipment 160,000$ 125,000 Total assets $315,000$289,700 Percent rounded to one decimal point
?The McGraw-Hill Companies, Inc., 1999 Slide 14-10 Irwin/McGraw-Hill CLOVER CORPORATION Comparative Balance Sheets December 31, 2001 2000 Dollar Change Percent Change* Assets Current assets: Cash and equivalents $ 12,000 $ 23,500 $ (11,500) Accounts receivable, net 60,000 40,000 Inventory 80,000 100,000 Prepaid expenses 3,000 1,200 Total current assets $ 155,000 $ 164,700 Property and equipment: Land 40,000 40,000 Buildings and equipment, net 120,000 85,000 Total property and equipment $ 160,000 $ 125,000 Total assets $ 315,000 $ 289,700 * Percent rounded to one decimal point. $12,000 ?$23,500 = $(11,500)
