BAGIAN 3
The Analysis of
Financial Statements
The Analysis of
Financial Statements
This chapter will develop tools and techniques
for the interpretation of financial information
(C) 2004 Prentice Hall, Inc.
2
Tools and Techniques
These include:
Common-size financial statements
Financial ratios
Trend analysis
Structural analysis
Most important:
Common sense and judgment
Common-Size
Financial Statements
Express each account on the balance sheet as a
percentage of total assets and each account on
the income statement as a percentage of net
sales
Key Financial Ratios
Standardize financial data in terms of
mathematical relationships expressed in the
form of percentages or times
Liquidity Ratios:
Short-Term Solvency
Current Ratio
Measures ability to meet short-term cash
needs
Current assets
Current liabilitie s
Liquidity Ratios:
Short-Term Solvency Continued
Quick or Acid-Test Ratio
Measures ability to meet short-term cash needs
more rigorously
Current assets - Inventory
Current liabilitie s
Liquidity Ratios:
Short-Term Solvency Continued
Cash Flow Liquidity Ratio
Focuses on ability of the firm to generate operating
cash flows as a source of liquidity
Cash  Marketable securities  CFO *
Current liabilitie s
*Cash flow from operating activities
Liquidity Ratios:
Short-Term Solvency Continued
Average Collection Period
Helps gauge liquidity of accounts receivable (ability
to collect cash from customers)
Accounts receivable
Average daily sales
Liquidity Ratios:
Short-Term Solvency Continued
Days Inventory Held
Is the average number of days it takes to sell
inventory to customers
Inventory
Average daily cost of sales
Liquidity Ratios:
Short-Term Solvency Continued
Days Payable Outstanding
Is the average number of days it takes to pay
accounts payables in cash
Accounts payable
Average daily cost of sales
Activity Ratios: Assets Liquidity, Asset
Management Efficiency
Accounts Receivable Turnover
Another measure of efficiency of firm’s collection
and credit policies
Net sales
Accounts receivable
Activity Ratios: Assets Liquidity,
Asset Management Efficiency Con’t
Inventory Turnover
Measures efficiency of inventory management
Cost of goods sold
Inventory
Activity Ratios: Assets Liquidity,
Asset Management Efficiency Con’t
Payables Turnover
Another measure of efficiency of inventory
management
Cost of goods sold
Accounts payable
Activity Ratios: Assets Liquidity,
Asset Management Efficiency Con’t
Fixed Asset Turnover
Assesses effectiveness in generating sales
from investment in fixed assets
Net sales
Net property, plant, equipment
Activity Ratios: Assets Liquidity,
Asset Management Efficiency Con’t
Total Asset Turnover
Assesses effectiveness in generating sales from
investment in total assets
Net sales
Total assets
Leverage Ratios:
Debt Financing and Coverage
Debt Ratio
Measures the extent of firm’s financing with debt
Total liabilitie s
Total assets
Leverage Ratios:
Debt Financing and Coverage
Con’t.
Long-term Debt to Total Capitalization
Measures the extent of firm’s financing with longterm debt
Long - term debt
Long - term debt  Stockholde rs' equity
Leverage Ratios:
Debt Financing and Coverage
Con’t
Debt to Equity
Measures the extent of firm’s financing with
debt
Total liabilitie s
Stockholde rs' equity
Leverage Ratios:
Debt Financing and Coverage
Con’t
Times Interest Earned
Indicates how well operating earnings cover fixed
interest charges
Operating profit
Interest expense
Leverage Ratios:
Debt Financing and Coverage
Con’t
Fixed Charge Coverage
Broader measure of how well operating earnings
cover fixed charges
Operating profit  Rent expense
Interest expense  Rent expense
Leverage Ratios:
Debt Financing and Coverage
Con’t
Cash Flow Adequacy
Measures firm’s ability to cover capital
expenditures, long-term debt payments and
dividends each year
Cash flow from operating activities
Capital expenditur es  debt repayments
 dividends paid