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Financial Analysis
Assessment of the firms past, present and future financial conditions Done to find firms financial strengths and weaknesses Primary Tools:
Financial Statements Comparison of financial ratios to past, industry, sector and all firms
Evaluate Bank Loan Applications Evaluate Customers Creditworthiness Assess Potential Merger Candidates Analyze Internal Management Control Analyze and Compare Investment Opportunities
Types of Ratios
Financial Ratios:
Liquidity Ratios
Assess ability to cover current obligations
Leverage Ratios
Assess ability to cover long term debt obligations
Operational Ratios:
Activity (Turnover) Ratios
Assess amount of activity relative to amount of resources used
Profitability Ratios
Valuation Ratios:
Assess profits relative to amount of resources used Assess market price relative to assets or earnings
Liquidity Ratios
Current Ratio
Current Assets / Current Liabilities
Current Assets include Cash, Marketable Securities, Accounts Receivable and Inventory Current Liabilities include Accounts Payable, Debt Due within one year, and Other Current Liabilities
Liquidity Ratios
Quick Ratio or Acid Test
Current Assets minus Inventory / Current Liabilities A more precise measure of liquidity, especially if inventory is not easily converted into cash.
Current Assets - Inventory 720.53 Quik Ratio 0.46 : 1 Current Liabilities 1555.75
Liquidity Ratios
Cash Ratio
Cash Ratio Cash Marketable Securities 26.08 0.17 Current Liabilities 1555.75
Liquidity Ratios
Interval Measure
Calculated to asses a firms ability to meet its regular cash outgoings
Current As sets Inventory Interval Measure Average Daily operating expenses 1,870.92 1,150.39 77 Days 3,369.94 / 360
Leverage Ratios
Leverage ratios measure the extent to which a firm has been financed by debt. Leverage ratios include: Debt Ratio Debt--Equity Ratio Generally, the higher this ratio, the more risky a creditor will perceive its exposure in your business. Thus, high leverage ratios make it more difficult to obtain credit (loans).
Debt-Equity Ratio
The Debt-Equity Ratio indicates the percentage of total funds provided by creditors versus by owners. This ratio indicates the extent to which the business relies on debt financing (creditor money versus owners equity).
Total Debt 1,229.06 Debt Equity Ratio 1.83 Net Worth 972.81
Treatment of
Preference Capital Lease Payments
EBITDA Lease rentals Fixed Coverage Ratio m ent Pref.Dividend Interest Lease rentals Loan repay 1-Tax Rate
Activity Ratios
Activity ratios measure how effectively a firm is using its resources, or how efficient a company is in its operations and use of assets. In general, the higher the ratio, the better. Activity ratios include: Inventory turnover Accounts receivable turnover Average collection period. Total assets turnover Fixed assets turnover
Days of InventoryHolding
Sales 3,717.23 Net Assets Turnover 1.95 times Net Assets 1901.87
Profitability Ratios
Profitability ratios measure managements overall effectiveness as shown by returns generated on sales and investment. Profitability ratios include
Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Return on stockholders equity (ROE) Earnings per share (EPS) Price-earnings ratio (P/E).
Helps to identify sources of strength and weakness in current performance Helps to focus attention on value drivers
ROE ROA Equity Multiplier Net Income Total Assets Total Assets Common Equity
ROA Profit Margin Total Asset Turnover Net Income Sales Sales Total Assets
ROE Profit Margin Total Asset Turnover Equity Multiplier Net Income Sales Total Assets Sales Total Assets Common Equity