 Balance Sheet

 Income (or Profit and Loss) Statement

 Funds Flow Statement
 Market Data
 Industry Data
 Current assets,
 Long-term investments,
 Properties, plant, and equipment,
 Intangible assets, and
 Deferred charges.
 Current Liabilities: Met with current assets
› Short-term notes
› Accrued Expenses
 Long-term Liabilities
 Equity
› Paid-up capital
› Retained earnings
 Revenue
› Recognition
 Cash basis
 Other gains
› Sell of long-term assets
› Revaluation of assets
 Actual cash costs
› COGS
› Cash costs
› Allocated costs
› Discretionary costs
› Lifo-Vs Fifo
 Depreciation
 Net Income
 How was the expansion in plant and
equipment financed?
 What use was made of the net income?
 Which Sources were used to obtain funds?
 How much capital was generated internally?
 Is the dividend policy in balance with the long-
term growth objective of the firm?
 How much debt was paid off?
 How much capital was raised by issuing and
selling new stocks?
 How much was raised in the form of debt
capital?
 How well is the business performing?
 What are its strengths?
 What are its weaknesses?
 How does it compare to the rest in the
industry?
 Is the business improving or
deteriorating?
 Ratio Analysis
 Comparative Analysis
› Comparison with last year
› Comparison with the Industry
 Common size statement
 Trend Analysis
 Current Ratio: Current Assets/Current
Liabilities
Target: 2
The current ratios for 2010 and 2011 of Ali Baba
Corporation are 1.73 and 1.89, respectively
 Quick Ratio: Current assets excluding all
inventory/Current Liabilities
Target: 1
The quick ratio we obtain using the financial
statements of Ali Baba are 0.92 and 1.04,
respectively
 Accounts Receivable Turnover
› Decrease probably means difficulty in collection, relaxed credit
to influence increased sell with lower margin
› 5.59 in 2010 and 5 in 2011.
 Average Collection Period (ACP)
› Increase indicates Relaxed credit, slower collection, higher bad
debt
› 65 days and 73 days, respectively
 Inventory Turnover
› Increase indicates build up of inventory, difficulty selling, higher
cost of inventory
› The average ages of inventory in our example are 282 and 263
 Total Asset Turnover
Increase implies improvement
.44 (using 2011 figure for total assets as average assets) and .49.
 Debt Ratio
› Low-leverage low risk, High- leverage high risk,
risky
› the ratios are .37 and .37 respectively
 Times Interest Earned
› Target: 5 or better
› the ratios are 8.8 and 6, respectively
 Debt-Service Coverage Ratio
 (Net Income+Dep and Amort + Int Exp)/(Int
Exp + Prn Pmt)
› Should never be less than one. Look ahead
 Gross Profit Margin
› Desirable: Increased margin. Decrease acceptable if
sales and NP improve
› 43% and 35%, respectively
 Net Profit Margin
› Desirable: increased margin
› 14.9% and 10.5%.
 Return on Total Asset
› Desirable: Increase. Be careful. New Asset?
› 7.02% and 5.03%, respectively
 Return on Equity
› Trend should be upwards
› 2010 is 18.97% and for 2011 is 14.10%
 Earnings Per Share
› Increase better
› 2010 EPS as Tk 4.68 and 2011 EPS as 3.55
 P/E Ratio
› Widely watched. Very tricky ratio.
› 21.37 in 2010 and 14.65 in 2011
 Book Value Per Share
› Industry comparison useful
› 24.66 in 2010 and 26.45 in 2011
 Dividend Yield Ratio
› 2011, this ratio is about 3%.
 Du Pont Analysis Breaks Down two
Common Ratios into their Fundamental
Components.
 Particularly Suitable for
Manufacturing/Production Oriented
Businesses
 Return on Assets: Net Income/Total Assets
Net Income Sales
Sales Total Assets

 Net Margin x Asset Turnover

 Return on Equity: Net Income / Total Equity=
Net Income Sales
Sales Total Assets

 Net Margin x Asset Turnover x Asset to

Equity Ratio
 Net Margin = Net Income/Pre-Tax
Income x Pre-Tax Income/EBIT x
EBIT/SALES
 Each Item of Statement stated as a
percent of total.
 Helps you identify in major shifts within
the statements.
 Comparison with previous year
› Is there improvement?
 Comparison with industry
› How does it rank within the industry?
 Trend Analysis
› Is the trend improving?
 Major transactions
 Window dressing
 Difficulty comparing with industry data
 Change of accounting system