lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
CHAPTER1
9:FI
NANCI
ALSTATEMENTANALYSI
S
PROBLEM SETS
1. Th
ema
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ount
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om t
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ount
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t
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tr
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t
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g
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t
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a
t
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a
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la
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he
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t
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a
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sr
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t
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n
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sa
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a
ul
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emos
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t
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t
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t
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l
i
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ya
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k
e
tpr
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c
er
a
t
i
os
.
4. ROA=ROS ATO
Th
eonl
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ha
tCr
us
t
yPi
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a
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ea
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i
gh
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r
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e
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rt
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nt
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ei
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t
r
ya
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e
r
a
g
e
.
5. ABC’
sAs
s
e
tt
ur
no
v
e
rmus
tbea
bo
v
et
hei
ndus
t
r
ya
v
e
r
a
g
e
.
19-1
Downloaded by hao wei (isfms@189.cn)
lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
6. ROE=(
1–Ta
xr
a
t
e
) [
ROA+(
ROA–I
nt
e
r
e
s
tr
a
t
e
)
De
bt
/
Eq
ui
t
y]
ROEA >ROEB
Fi
r
msAa
ndBh
a
v
et
h
es
a
meROA.As
s
umi
n
gt
hes
a
met
a
xr
a
t
ea
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s
s
umi
n
gt
ha
t
ROA>i
nt
e
r
e
s
tr
a
t
e
,t
he
nFi
r
m Amus
tha
v
ee
i
t
h
e
ral
o
we
ri
nt
e
r
e
s
tr
a
t
eorahi
ghe
rde
bt
r
a
t
i
o
.
CFAPROBLEMS
1. ROE=Ne
tp
r
ofit
s
/
Eq
ui
t
y=Ne
tpr
ofit
s
/
Sa
l
e
s Sa
l
e
s
/
As
s
e
t
s As
s
e
t
s
/
Eq
ui
t
y
=Ne
tp
r
ofitma
r
gi
n As
s
e
tt
ur
no
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e
r Le
v
e
r
a
g
er
a
t
i
o
=5.
5%  2.
0 2.
2=24.
2%
2. Smi
l
e
Whi
t
eha
shi
ghe
rq
ua
l
i
t
yofe
a
r
ni
n
g
sf
ort
hef
ol
l
o
wi
n
gr
e
a
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ons
:
 Smi
l
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Whi
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mor
t
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z
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t
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oo
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ras
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rpe
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h
a
ndoe
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c
k
Br
us
h.
Smi
l
e
Whi
t
et
he
r
e
f
o
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epr
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e
n
t
smor
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s
e
r
v
a
t
i
v
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a
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c
a
us
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tha
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e
a
t
e
r
g
o
od
wi
l
la
mor
t
i
z
a
t
i
one
xpe
ns
e
.
 Smi
l
e
Whi
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ede
pr
e
c
i
a
t
e
si
t
sp
r
ope
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t
y
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ntus
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n
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na
c
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e
l
e
r
a
t
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de
pr
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i
a
t
i
onme
t
hod.Thi
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e
s
ul
t
si
nr
e
c
o
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t
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a
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nc
omei
smor
ec
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e
r
v
a
t
i
v
e
l
ys
t
a
t
e
d.
 Smi
l
e
Whi
t
e
’
sba
dde
bta
l
l
o
wa
nc
ei
sgr
e
a
t
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ra
sape
r
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e
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c
e
i
v
a
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s
.
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e
Whi
t
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z
i
n
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e
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t
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a
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c
kBr
us
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c
t
ua
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e
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t
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r
i
e
nc
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l
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ompa
r
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bl
e
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he
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l
e
Whi
t
eha
st
hemor
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c
ons
e
r
v
a
t
i
v
er
e
c
o
gni
t
i
onpol
i
c
y
.
3. a
. ROE 
Net profits Net profits Sales
Assets



Equity
Sales
Assets Equity
=Ne
tpr
ofitma
r
gi
n To
t
a
la
s
s
e
tt
ur
no
v
e
r As
s
e
t
s
/
e
q
ui
t
y
Net profits
510

0.0992 9.92%
Sales
5,140
Sales
5,140

1.66
Assets
3,100
Assets
3,100

1.41
Equity
2,200
19-2
Downloaded by hao wei (isfms@189.cn)
lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
b
. ROE 
510
5,140 3,100


9.92% 1.66 1.41 23.2%
5,140 3,100 2,200
c
. g=ROE pl
o
wb
a
c
k23.2% 1.96  0.60 16.1%
1.96
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19-3
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lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
Ca
s
hflo
wf
r
om i
n
v
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6. a
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.
19-4
Downloaded by hao wei (isfms@189.cn)
lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
Sus
t
a
i
na
bl
egr
o
wt
h=ROE pl
o
wba
c
kr
a
t
i
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Ludl
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Qui
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30%
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34
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Ludl
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p
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gi
n= EBIT
145/
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7%
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95
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14
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137=
0.
66
394/
600= 0.
66
7.
8%
10.
2%
19-5
Downloaded by hao wei (isfms@189.cn)
lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
b
. Th
edi
ffe
r
e
nc
e
si
nt
hec
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mpone
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t
sofROEf
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19-6
Downloaded by hao wei (isfms@189.cn)
lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
b
. Th
ef
or
mul
af
ort
h
et
wo
s
t
a
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s
c
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19-7
Downloaded by hao wei (isfms@189.cn)
lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
Toe
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t
.
19-8
Downloaded by hao wei (isfms@189.cn)
lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
10. Thef
ol
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,orr
e
duc
t
i
onsi
na
c
c
ount
sp
a
y
a
bl
e
.Lo
we
r
de
pr
e
c
i
a
t
i
one
xpe
ns
ewi
l
la
l
s
oi
nc
r
e
a
s
ene
ti
nc
omebutc
a
nr
e
du
c
ec
a
s
hflo
w
t
h
r
ou
ght
h
ei
mpa
c
tont
a
x
e
so
we
d
.
b
. Ca
s
hflo
wf
r
om ope
r
a
t
i
onsmi
ghtb
eag
oodi
ndi
c
a
t
orofafir
m'
sq
ua
l
i
t
yofe
a
r
ni
n
g
s
be
c
a
us
ei
ts
ho
wswhe
t
he
rt
hefir
mi
sa
c
t
ua
l
l
yg
e
ne
r
a
t
i
n
gt
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a
s
hne
c
e
s
s
a
r
yt
op
a
y
bi
l
l
sa
ndd
i
vi
de
nd
swi
t
houtr
e
s
or
t
i
n
gt
one
wfina
nc
i
n
g
.Ca
s
hflo
wi
sl
e
s
s
s
u
s
c
e
p
t
i
bl
et
oa
r
bi
t
r
a
r
ya
c
c
ount
i
n
gr
ul
e
st
ha
nne
ti
nc
omei
s
.
12. $1,
200
Ca
s
hflo
wf
r
om op
e
r
a
t
i
ons=s
a
l
e
s–c
a
s
he
xpe
n
s
e
s–i
nc
r
e
a
s
ei
nA/
R
I
gnor
ede
pr
e
c
i
a
t
i
onbe
c
a
u
s
ei
ti
sanonc
a
s
hi
t
e
ma
ndi
t
si
mp
a
c
tont
a
x
e
si
sa
l
r
e
a
d
y
a
c
c
ount
e
df
or
.
19-9
Downloaded by hao wei (isfms@189.cn)
lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
13. a
Bo
t
hc
ur
r
e
nta
s
s
e
t
sa
ndc
ur
r
e
ntl
i
a
bi
l
i
t
i
e
swi
l
ld
e
c
r
e
a
s
eb
ye
q
u
a
la
mount
s
.Butt
hi
s
i
sal
a
r
g
e
rpe
r
c
e
n
t
a
g
ed
e
c
r
e
a
s
ef
orc
ur
r
e
ntl
i
a
bi
l
i
t
i
e
sbe
c
a
u
s
et
h
ei
ni
t
i
a
lc
ur
r
e
ntr
a
t
i
o
i
sa
bo
v
e1.
0.Sot
hec
ur
r
e
ntr
a
t
i
oi
nc
r
e
a
s
e
s
.To
t
a
la
s
s
e
t
sa
r
el
o
we
r
,s
ot
ur
no
v
e
r
i
nc
r
e
a
s
e
s
.
14. a
Cos
tofg
oodss
ol
di
sund
e
r
s
t
a
t
e
ds
oi
nc
omei
shi
ghe
r
,a
nda
s
s
e
t
s(
i
n
v
e
nt
or
y)a
r
e
v
a
l
ue
da
tmos
tr
e
c
e
ntc
os
ts
ot
he
ya
r
ev
a
l
ue
dhi
ghe
r
.
15. a
Si
nc
eg
ood
ss
t
i
l
li
ni
n
v
e
nt
or
ya
r
ev
a
l
ue
da
tr
e
c
e
n
tv
e
r
s
u
shi
s
t
or
i
c
a
lc
os
t
.
16.
Considering the components of after-tax ROE, there are several possible explanations for a
stable after-tax ROE despite declining operating income:
1. Declining operating income could have been offset by an increase in non-operating income
(i.e., from discontinued operations, extraordinary gains, gains from changes in accounting
policies) because both are components of profit margin (net income/sales).
2. Another offset to declining operating income could have been declining interest rates on
any interest rate obligations, which would have decreased interest expense while allowing
pre-tax margins to remain stable.
3. Leverage could have increased as a result of a decline in equity from: (a) writing down
an equity investment, (b) stock repurchases, (c) losses; or, (d) selling new debt. The effect
of the increased leverage could have offset a decline in operating income.
4. An increase in asset turnover could also offset a decline in operating income. Asset
turnover could increase as a result of a sales growth rate that exceeds the asset growth rate, or
from the sale or write-off of assets.
5. If the effective tax rate declined, the resulting increase in earnings after tax could
offset a decline in operating income. The decline in effective tax rates could result from
increased tax credits, the use of tax loss carry-forwards, or a decline in the statutory tax
rate.
19-10
Downloaded by hao wei (isfms@189.cn)
lOMoARcPSD|18325619
Chapter 19 - Financial Statement Analysis
17. a
.
2005
2009
(
1)Op
e
r
a
t
i
n
gma
r
gi
n=
38  3
6.5%
542
76  9
6.8%
979
(
2)As
s
e
tt
ur
no
v
e
r=
542
2.21
245
979
3.36
291
(
3)I
nt
e
r
e
s
tBur
de
n=
38  3  3
0.914
38  3
1.
0
(
4)Fi
na
nc
i
a
lLe
v
e
r
a
g
e=
245
1.54
159
291
1.32
220
(
5)I
nc
omet
a
xr
a
t
e=
13
40.63%
32
37
55.22%
67
Us
i
n
gt
heDuPontf
or
mul
a
:
ROE=[
1.
0–(
5)
] (
3) (
1) (
2) (
4)
ROE(
2005)=0.
5937 0.
914 0.
065 2.
21 1.
54=0.
120=12.
0%
ROE(
2009)=0.
4478 1.
0 0.
068 3.
36 1.
32=0.
135=13.
5%
(
Be
c
a
us
eofr
oundi
n
ge
r
r
or
,t
he
s
er
e
s
ul
t
sdi
ffe
rs
l
i
g
ht
l
yf
r
om t
ho
s
eobt
a
i
ne
db
y
di
r
e
c
t
l
yc
a
l
c
ul
a
t
i
n
gROEa
sne
ti
nc
ome
/
e
q
ui
t
y
.
)
b
. As
s
e
tt
ur
no
v
e
rme
a
s
u
r
e
st
hea
bi
l
i
t
yofac
omp
a
n
yt
omi
ni
mi
z
et
hel
e
v
e
lofa
s
s
e
t
s
(
c
ur
r
e
ntorfix
e
d
)t
os
u
ppor
ti
t
sl
e
v
e
lofs
a
l
e
s
.Th
ea
s
s
e
tt
ur
no
v
e
ri
nc
r
e
a
s
e
ds
ub
s
t
a
nt
i
a
l
l
y
o
v
e
rt
hepe
r
i
od,t
hu
sc
ont
r
i
but
i
n
gt
oa
ni
nc
r
e
a
s
ei
nt
heROE.
Fi
na
nc
i
a
ll
e
v
e
r
a
g
eme
a
s
u
r
e
st
hea
mountoffina
nc
i
n
go
t
he
rt
ha
ne
q
ui
t
y
,i
nc
l
udi
n
gs
h
or
t
a
ndl
on
g
t
e
r
m de
bt
.Fi
na
nc
i
a
ll
e
v
e
r
a
g
ede
c
l
i
ne
do
v
e
rt
h
ep
e
r
i
od,t
husa
d
v
e
r
s
e
l
y
a
ffe
c
t
i
n
gt
heROE.Si
nc
ea
s
s
e
tt
ur
no
v
e
rr
o
s
es
ub
s
t
a
n
t
i
a
l
l
ymor
et
ha
nfina
nc
i
a
ll
e
v
e
r
a
g
e
de
c
l
i
ne
d,t
hene
te
ffe
c
twa
sa
ni
nc
r
e
a
s
ei
nROE.
19-11
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