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Financial Statement Analysis
6.1
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Financial Statement Analysis

Financial Statements A Possible Framework for Analysis Balance Sheet Ratios Income Statement and Income/Balance Sheet Ratios
Trend Analysis
Common-Size and Index Analysis
6.2 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Primary Types of Financial Statements

Balance Sheet
A summary of a firms financial position on a given date that shows total assets = total liabilities + owners equity.
Income Statement
A summary of a firms revenues and expenses over a specified period, ending with net income or loss for the period.
Framework for Financial Analysis

1. Analysis of the funds needs of the firm. 2. Analysis of the financial condition and profitability of the firm. 3. Analysis of the business risk of the firm.
Determining the financing needs of the firm.
A Financial Manager must consider all three jointly when determining the financing needs of the firm.
6.4
Liquidity Ratios
Balance Sheet Ratios
Liquidity Ratios
Shows a firms ability to cover its current liabilities with its current assets.
6.5
Current Assets Current Liabilities
Liquidity Ratio Comparisons

Current Ratio
Year 2010 2009 A.P 1.63 1.50 Industry 0.91 0.87
2008
6.6
1.46
1.23
Ratio is stronger than the industry average.

Liquidity Ratios
Liquidity Ratios
Acid-Test (Quick)
Current Assets - Inv Current Liabilities
Shows a firms ability to meet current liabilities with its most liquid assets.
Liquidity Ratio Comparisons

Acid-Test Ratio
Year 2010 2009 AP 1.54 1.48 Industry 0.75 0.72
2008
6.8
1.43
1.10
Ratio is stronger than the industry average.

Financial Leverage Ratios

Financial Leverage Ratios
Debt-to-Equity
Total Debt Shareholders Equity
Shows the extent to which the firm is financed by debt.

Financial Leverage Ratio Comparisons

Debt-to-Equity Ratio
Year 2010 2009 AP 1.32 1.58 Industry 2.93 2.29
2008
6.10
1.80
3.30
AP has average debt utilization relative low so there is low risk for creditors to invest in Attock Petroleum Ltd.
Activity Ratios
Income Statement/ Balance Sheet Ratios
Activity Ratios Indicates quality of receivables and how successful the firm is in its collections.
Receivable Turnover
(Assume all sales are credit sales.)
Annual Net Credit Sales Receivables
Recivable Turnover ratio

Recivable Turnover Ratio
Year AP 10.82 7.89 Industry 2.90 4.98
2010
2009
2008
6.12
10.32
10.17
Recivable Turnover ratio

Recivable Turnover Ratio
Year AP 10.82 7.89 Industry 2.90 4.98
2010
2009
2008
6.13
10.32
10.17
Generally a high value of accounts receivable turnover is favorable

Activity Ratios
Activity Ratios Indicates the promptness of payment to suppliers by the firm.
Payable Turnover (PT)
Annual Credit Purchases Accounts Payable
Activity Ratios
Activity Ratios Average number of days that payables are outstanding.
6.15
PT in Days
Days in the Year Payable Turnover For Basket Wonders December 31, 2010 = 3 days
Activity Ratio Comparisons

Payable Turnover in Days
Year 2008 2009 BW 3 6 Industry 3 5
2010
6.16
AP has same value of payable turnover to industry.

Activity Ratios
Activity Ratios Indicates the effectiveness of the inventory management practices of the firm.
Inventory Turnover
Cost of Goods Sold Inventory

Inventory Turnover Ratio
Year 2010 2009 AP 79.65 413.90 191.85 Industry 12.35 15.47 18.50
2008
6.18
AP shows company is efficient in inventory management as compared to industry average.

Activity Ratios
Activity Ratios Indicates the overall effectiveness of the firm in utilizing its assets to generate sales.
Total Asset Turnover

Net Sales Total Assets

Total Asset Turnover Ratio
Year 2010 2009
AP
3.86
Industry
1.41
3.85
3.87
1.66
1.87
2008
6.20
AP has a high ratio which means attock petroleum generate more sales with fewer assets usage.
Profitability Ratios
Income Statement/ Balance Sheet Ratios Profitability Ratios Indicates the efficiency of operations and firm pricing policies.
Gross Profit Margin

Gross Profit Net Sales
Profitability Ratio Comparisons

Gross Profit Margin
Year 2010 2009 AP 0.04 0.02 Industry 0.05 0.05
2008
6.22
-0.05
0.04
Attock Petroleum ltd has higher margin It means that cost of goods sold decreased and Operations of firm are very efficient.
Income Statement/ Balance Sheet Ratios Profitability Ratios Indicates the firms profitability after taking account of all expenses and income taxes.
Net Profit Margin

Net Profit after Taxes Net Sales

Net Profit Margin
Year AP 0.04 0.05 Industry -0.005 0.005
2010
2009
2008
6.24
0.04
0.01
higher value of operating margin ratio is favorable which indicates that more proportion of revenue is converted to operating income.
Income Statement/ Balance Sheet Ratios Profitability Ratios Indicates the profitability on the assets of the firm (after all expenses and taxes).
Return on Investment
Net Profit after Taxes Total Assets

Return on Investment
Year 2010 2009 AP 0.16 0.17 Industry -0.07 0.009
2008
6.26
0.16
0.03
An increasing trend of ROA indicates that the profitability of the company is improving.
Profitability Ratios Indicates the profitability to the shareholders of the firm (after all expenses and taxes).
Return on Equity
Net Profit after Taxes Shareholders Equity

Return on Equity
Year 2010 2009 AP 0.39 0.45 Industry -0.03 0.03
2008
6.28
0.47
0.16
AP has a strong ROE meaning that the company is efficient in generating income on new investment
Return on Investment and the Du Pont Approach

Earning Power = Sales profitability Asset efficiency ROI = Net profit margin Total asset turnover
ROI2010 = 16%
(Note: values are rounded)
ROIIndustry = -7%
Return on Equity and the Du Pont Approach

Return On Equity = Net profit margin X Total asset turnover X Equity Multiplier
Total Assets Equity Multiplier = Shareholders Equity
ROE2010
= 39%
(Note: values are rounded)
ROEIndustry = -3%
Common-Size Analysis
An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items are divided by net sales or revenues.
6.31
Attock PetroleumCommon Size Balance Sheets

COMMON SIZE ANALYSIS OF B/S
ASSETS
Assets cash A/R Inventory Other C.A
Regular (thousand of RS)

2008 6117891 5825869 299092 2347863 14590715 922621 0 15513336 2009 7434910 7835521 141507 996222 16408160 1864272 0 18272432 2010 9275603 7602060 993282 1558288 19429233 1982956 30463 21442652
Common Size (%)

2008 39.44 37.55 1.93 15.13 94.05 5.95 40.69 42.88 0.77 5.45 89.80 10.20 2009 43.26 35.45 4.63 7.27 90.61 9.25 2010
Total C.A
Net F.Assets Other F.A
Total Assets
100
100
100.00
6.32
Attock PetroleumCommonSize Balance Sheets

COMMON SIZE ANALYSIS OF B/S
LIABILITEA+EQUITY
Short term loans Other current Liabilities TOTAL C.L LONG TERM LOANS

2008 0 9977487 9977487 0 5535849 15513336 2009 0 10938626 10938626 251538 7082268 18272432 2010 0 11917167 11917167 288908 9236577 21442652
Common Size (%)

2008 0 64.32 64.32 0.00 35.68 100.00 2009 0.00 59.86 59.86 0.00 38.76 100.00 55.58 55.58 0.00 43.08 100.00 2010 0.00
EQUITY
TOTAL LIAB+EQUITY
6.33
Attock Petroleum CommonSize Income Statements

COMMON SIZE ANALYSIS OF I/S
2008 NET SALES COST OF GOODS SOLD GROSS PROFIT Administrative expenses 60130125 57381724 2748401 556036 2192365 0 3529552 2009 61863152 58570802 3292350 702268 2590082 0 4280419 2010 82791918 79032034 3759884 925687 2834197 0 4846039 5.87 6.92 5.85
Common Size (%)

2008 100.00 95.43 4.57 0.92 3.65 2009 100.00 94.68 5.32 1.14 4.19 2010 100.00 95.46 4.54 1.12 3.42
EBIT
Interest Expense EBT
6.34
Index Analyses
An analysis of percentage financial statements where all balance sheet or income statement figures for a base year equal 100.0 (percent) and subsequent financial statement items are expressed as percentages of their values in the base year.
Attock Petroleum Indexed Balance Sheets

ASSETS
Assets cash A/R Inventory Other C.A
Regular (thousand of RS) INDEXED (%)

2008 6117891 5825869 299092 2347863 14590715 922621 0 15513336 2009 7434910 7835521 141507 996222 16408160 1864272 0 18272432 2010 9275603 7602060 993282 1558288 19429233 1982956 30463 21442652 2008 100 100 100 100 100 100 100 100 11.98 135.75 2009 121.5273 134.4953 47.31 76.13 12.1 101.85 2010 151.61 13.08 332.09 55.52 137.23 110.52
Total C.A
Net F.Assets Other F.A
Total Assets
6.36
Attock Petroleum Indexed Balance Sheets

LIABILITEA+EQUITY Regular (thousand of RS) INDEXED (%)
Assets Short term loans Other current Liabilities TOTAL C.L LONG TERM LOANS 2008 0 9977487 9977487 0 5535849 15513336 2009 0 2010 0 2008 100 100 100 100 100 100 127.93 116.16 166.85 136.35 109.64 109.64 11.93 11.93 2009 2010
10938626 11917167 10938626 11917167 251538 7082268 18272432 288908 9236577 21442652
EQUITY
TOTAL LIAB+EQUITY
6.37
Attock Petroleum Indexed Income Statements

2008 NET SALES 60130125 2009 61863152 58570802 3292350 702268 4280419 2010 82791918 79032034 3759884 925687 4846039
INDEXED (%)
2008 100 100 100 100 100 2009 102.83 102.07 119.79 126.29 121.27 2010 137.68 137.73 136.8 166.47 137.29
COST OF GOODS SOLD 57381724 GROSS PROFIT 2748401
Administrative expenses 556036
EBIT
3529552
6.38

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Financial Statement Analysis

Financial Statement Analysis

Primary Types of Financial Statements

Framework for Financial Analysis

Determining the financing needs of the firm.

Current Assets Current Liabilities

Liquidity Ratio Comparisons

Ratio is stronger than the industry average.

Liquidity Ratio Comparisons

Ratio is stronger than the industry average.

Financial Leverage Ratios

Shows the extent to which the firm is financed by debt.

Financial Leverage Ratio Comparisons

Annual Net Credit Sales Receivables

Recivable Turnover ratio

Recivable Turnover ratio

Generally a high value of accounts receivable turnover is favorable

Payable Turnover (PT)

Annual Credit Purchases Accounts Payable

Activity Ratio Comparisons

AP has same value of payable turnover to industry.

Activity Ratio Comparisons

AP shows company is efficient in inventory management as compared to industry average.

Total Asset Turnover

Activity Ratio Comparisons

Gross Profit Margin

Profitability Ratio Comparisons

Net Profit Margin

Profitability Ratio Comparisons

Profitability Ratio Comparisons

Profitability Ratio Comparisons

Return on Investment and the Du Pont Approach

Return on Equity and the Du Pont Approach

Attock PetroleumCommon Size Balance Sheets

Regular (thousand of RS)

Common Size (%)

Attock PetroleumCommonSize Balance Sheets

Regular (thousand of RS)

Common Size (%)

Attock Petroleum CommonSize Income Statements

Common Size (%)

Attock Petroleum Indexed Balance Sheets

Regular (thousand of RS) INDEXED (%)

Attock Petroleum Indexed Balance Sheets

Attock Petroleum Indexed Income Statements

COST OF GOODS SOLD 57381724 GROSS PROFIT 2748401

Administrative expenses 556036

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