CHAPTER 4
The Analysis of
Financial Statements
(lanjutan)
Profitability Ratios:
Overall Efficiency and Performance
Gross Profit Margin
Measures profit generated after consideration of
cost of products sold
Gross profit
Net sales
Profitability Ratios:
Overall Efficiency and Performance Con’t.
Operating Profit Margin
Measures profit generated after consideration
of operating expenses
Operating profit
Net sales
Profitability Ratios:
Overall Efficiency and Performance Con’t.
Net Profit Margin
Measures profit generated after consideration of
all expenses and revenues
Net earnings
Net sales
Profitability Ratios:
Overall Efficiency and Performance
Con’t.
Return on Total Assets (ROA) or Return
on Investment (ROI)
Measures overall efficiency of firm in managing
investment in assets and generating profits
Net earnings
Total assets
Analyzing the Data
Now that some of the “tools” of financial
analysis have been illustrated, where does
one go from here?
Taking a general approach to financial
statement analysis, one might proceed as
follows. . .
Five Steps of a
Financial Statement Analysis
Step 1
Establish objectives of the analysis



Who are you and why are you interested in this
company?
What questions would you like to have answered?
What info is vital to the decision at hand?
Five Steps of a
Financial Statement Analysis
Con’t.
Step 2
Study the industry in which the firm operates and
relate industry climate to current and projected
economic developments
Five Steps of a
Financial Statement Analysis Con’t
Step 3
Develop knowledge of firm and quality of
management



How well does this firm seem to be run?
Are they taking advantage of opportunities?
Are they innovative, forward-looking, etc?
Five Steps of a
Financial Statement Analysis
Con’t
Step 4
Evaluate financial statements

Tools: Common-size financial statements, key
financial ratios, trend analysis, structural analysis,
and comparison with industry competitors
Five Steps of a
Financial Statement Analysis
Con’t
Step 5
Summarize findings

Reach conclusions about the firm relevant to your established
objectives
Relating the Ratios
—The Du Pont System
It is helpful to complete the evaluation of a firm
by considering the interrelationship among
the individual ratios
Relating the Ratios
—The Du Pont System Continued
The Du Pont System helps the analyst see
how the firm’s decisions and activities over
the course of an accounting period interact
to produce an overall return to the firm’s
shareholders, the return on equity
Relating the Ratios
—The Du Pont System Continued
The summary ratios are:
(1)
Net profit margin
Net income

Sales
(3)
Return on investment
Net income

Assets
(2)
Total asset turnover
(3)
Return on investment
Sales
Assets
Net income
Assets

(4)
Financial leverage
Assets
Equity
(5)
Return on equity

Net income
Equity
Four Market Ratios
1. Earnings per common share
2. Price-to-earnings
3. Dividend payout
4. Dividend yield
Market Ratios
Continued
Earnings per Common Share
Provides the investor with a common
denominator to gauge investment returns
Net earnings
Average shares outstandin g
Market Ratios
Continued
Price-to-Earnings
Relates earnings per common share to the market
price at which the stock trades, expressing the
“multiple” that the stock market places on a
firm’s earnings
Market price of common stock
Earnings per share
Market Ratios
Continued
Dividend Payout
This ratio is determined by the formula cash
dividends per share divided by earnings per
share
Dividends per share
Earnings per share
Market Ratios
Continued
Dividend Yield
Shows that relationship between cash dividends
and market price
Dividends per share
Market price of common stock