FINANCIAL ANALYSIS

FINANCIAL ANALYSIS

1. Basis:Analyzing financial statements involves evaluating three characteristics: a company’s liquidity, profitability, and solvency.

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2. Comparative Analysis

   • Intracompany Basis
     • Comparisons within a company are often useful to detect changes in financial relationships and significant trends.
   • Industry averages
     • Comparisons with industry averages provide.
   • Other companies
     • Comparisons with other companies provide insight into a company’s competitive position.

3. Analysis Tools

   • Horizontal Analysis
     • Also called trend analysis, evaluates a series of financial statement data over a period of time. Its purpose is to determine the increase or decrease that has taken place.
       • Formula
   • Vertical Analysis
     • Also called common size, evaluates financial statement data by expressing each item in a financial statement as a percentage of a base amount.
       • Formula
   • Ratio Analysis
     • Expresses the relationship among selected items of financial statement data. A ratio expresses the mathematical relationship between one quantity and another.
       • Expressed

4. Financial Ratio Classifications

   • Profitability Ratios
     • Measure the income or operating sucess of a company for a given period of time
       • Profit margin
         • Asset turnover
           • Return on assets
             • Return on common stockholders´s equity
               • Earnigs per share
                 • Price-Earnings ratio
                   • Payout raatio
                     • Cash dividends declared on common stock/Net Income
   • Liquidity Ratios
     • Measure short-term ability of the company to pay its maturing abligations and to meet unexpected needs for cash
       • Current ratio
         • Acid-test ratio
           • A.R turnover
             • Inventory turnover
   • Solvency Ratios
     • Measure the ability of the company to survive over a long period of time
       • Debt to assets ratio
         • Times interest earned
           • Net Income+Interest expense+Income tax expense/Interest expense
         • Total Liabilities/Total Assets

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