Académique Documents
Professionnel Documents
Culture Documents
Analyzing and
Interpreting
Financial Statements
Analysis Questions
Are earnings sufficient?
Can they pay their current bills? (Liquidity)
Can they pay debts over the long term?
(Solvency)
Are Earnings Sufficient?
Return on Equity
Return on equity (ROE) is computed as:
For Target:
In the formula:
NNO: Nonoperating obligations net of nonoperating assets
NNEP: Net nonoperating expenses / Average NNO
Nonoperating Return with
Debt Financing
$500/$1,000 20%-7%
Liquidity and Solvency (App B)
Liquidity refers to cash: how much we have,
how much is expected, and how much can
be raised on short notice to pay current bills.