activity ratios
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4 CHAPTER Foundations of Ratio and Financial Analysis 1. Introduction Financial statements users Equity investor Long term earning power Creditor short term creditor long term creditor liquidity solvency Purpose and use of ratio analysis: Can be used to compare the risk and return relationships of firms of different sizes; Can provide a profile of a firm: economic characteristics and competitive strategies unique operating, financial and investment characteristics. Categories of ratios: Four categories: Activity analysis Liquidity analysis measures the evaluates adequacy of revenue and a firm’s cash output resources to generated by meet its the firm’s near-term assets. cash obligation. solvency analysis Profitability analysis ability of the firm to satisfy its longer-term debt and investment obligations measures the income of the firm relative to its revenues and invested capital. Cautionary Notes Economic assumptions Benchmarks Timing and window dressing Negative Numbers Accounting methods Manipulation of ratios Ratio Management (window dressing) Examples are: • Press the collection of receivables at year-end • Call in advances to officers for temporary repayment • Reduce inventory below normal levels • Delay normal purchases Proceeds from these activities are then used to pay off current liabilities Negative Numbers Return on equity=income/equity income equity ROE Company A 10000 100000 10% Company B (10000) (100000) 10% dividend income Payout ratio A 10000 50000 20% B 10000 30000 33% C 10000 (50000) 20% Dividend payout ratio=dividend/income 2. Common-size statements Purpose : Evaluation of internal makeup of financial statements Evaluation of financial statement accounts across companies Output: Proportionate size of assets, liabilities, equity, revenues, & expenses P 115 Common size balance sheet Pfizer Takeda Roche 4 24 23 Short-term investments and loans 19 17 3 Accounts receivable 19 17 9 Inventory 8 8 9 Prepaid expenses and taxes 5 3 4 54% 69% 49% 8 9 3 26 17 20 4 0 22 100% 100% 100% Cash and cash equivalents Current assets Long-term investments Net property land and equipment Net goodwill and other intangibles Total assets Short-term debt 24 1 8 Accounts and notes payable 5 9 3 Income taxes payable 4 3 1 Other current liabilities 11 9 9 45% 21% 21% Long-term debt 3 1 23 Other non current liabilities 8 8 8 Deferred income taxes 1 0 6 57% 29% 57% - 2 4 Common stock and APIC 27 9 0 Retained earnings 65 59 38 Accumulated other comprehensive income (2) 0 0 Reserves and trusts (14) 1 0 Treasury stock (33) 0 0 Total equity 43% 71% 43% Total liabilities and equities 100% 100% 100% Current liabilities Total liabilities Minority interests Common size income statement Pfizer Takeda Roche Sales 100% 100% 100% COGS 16 52 32 84% 48% 68% SG&A 39 22 37 R&D Expenses 17 9 14 Other operating expenses (1) 0 0 29% 17% 17% Other income 0 5 15 Income before interest and taxes 29 22 32 Interest expenses 1 0 4 Income before taxes 27% 22% 27% Provisions for taxes 8 11 7 20% 11% 20% Gross profit Income from operations Income from continuing operations Example: ABC Common-Size Income Statements Sales Cost of goods sold Gross profit Selling, general and administrative expenses Research and development costs Restructuring Costs Earnings from operations Interest expense and other costs (credits) Earnings before income taxes Provision for income taxes Net earnings 2001 2000 100.0% 65.5 34.5% 21.0 5.9 5.0 2.6% 1.8 100.0% 59.9 40.1% 19.0 5.6 (0.3) 15.8% 0.6 0.8% 0.2 0.6% 15.2% 5.2 10.0% 3. Discussion of Ratios by Category I. Activity analysis: Activity ratios describe the relationship between the firm’s level of operations (usually defined as sales) and the assets needed to sustain operating activities. The higher the ratio, the more efficient the firm’s operations. Trends in these ratios over time and in comparison to other firms in the same industry can indicate potential deficiencies or opportunities. Activity ratio can also be used to forecast a firm’s capital requirements(both operating and long-term). activity ratios Short-term (operating) activity ratios Long-term (investment) activity ratios inventory receivables Fixed assets payables Total assets Working capital Short-term( operating) activity ratios: (1) Inventory Turnover: Cost of goods sold Averageinventory Measure the efficiency of the firm’s inventory management. This ratio is affected by the choice of accounting method. 综合类 文化传播 社会服务业 批零贸易业 信息技术业 交通运输业 建筑业 电力煤气及水 制造业 采掘业 农林牧渔 0 5 10 15 20 25 部分行业存货周转率 30 35 40 360 Average No. Days of Inventory in Stock= 365 Inventoryturnover Example: Selected financial information from Macon Resources, Inc., for the end of Year 8 is reproduced below: Sales Cost of goods sold Beginning inventory Ending inventory $1,800,000 1,200,000 200,000 400,000 Calculate : Inventory Turnover Average No. Days of Inventory in Stock 综合类 文化传播 社会服务业 批零贸易业 信息技术业 交通运输业 建筑业 电力煤气及水 制造业 采掘业 农林牧渔 0 20 40 60 80 部分行业存货周转天数 100 120 【思考题（Questions）】 1. 假设你是咨询师。假设你在King娱乐公司做管理 咨询。你的一项任务是使存货成本更加合理。在考察了前期 业绩和存货报告之后，你建议通过加强存货管理以减少存货。 你预期现有的存货周转率将从20提高到25。节省下来的资 金用于偿还流动负债——持有流动负债的年成本为10%。假 设预期销售收入为1.5亿美元，预期销货成本为1亿美元，你 预计会节约多少成本？ (2) Receivable Turnover: Sales Average trade receivables Average No. Days receivables outstanding = 360 365 Receivable Turnover Measure the effectiveness of the firm’s credit policies; Indicate the level of investment in receivables needed to maintain the firm’s sales level. Accounts Receivable Turnover 综合类 文化传播 社会服务业 房地产业 批零贸易业 信息技术业 交通运输业 建筑业 电力煤气及水 制造业 采掘业 农林牧渔 0 100 200 300 400 500 各行业应收账款周转率 600 700 综合类 文化传播 社会服务业 房地产业 批零贸易业 信息技术业 交通运输业 建筑业 电力煤气及水 制造业 采掘业 农林牧渔 0 20 40 60 各行业应收账款收款期 80 100 Amazon和Wal-mart公司收款期比较 应收账款收款期 Amazon Wal-mart 0.0 4.0 (3) Payables turnover Cost of good sold plus change in inventory Purchases Average amounts payable Average No. Days Payables outstanding = 365 Payables Turnover (4) Working Capital Turnover: Sales Only operating assets and liabilities are included Average Working Capital Working capital is defined as the excess of current assets over current liabilities Widely used measure of short-term liquidity Deficient when current liabilities exceed current assets In surplus when current assets exceed current liabilities A margin of safety for creditors A liquid reserve to meet contingencies and uncertainties A constraint for technical default in many debt agreements long-term (investment) activity ratios: (1) Fixed assets turnover = Sales Average fixed assets (2) Total assets turnover = Sales Average Total assets II. Liquidity analysis: Company Liquidity refers to the ability to meet short-term obligations Liquidity is the ability to convert assets into cash or to obtain cash Short term is the longer of one-year or the company operating cycle Liquidity is a matter of degree Lack of liquidity can limit • Advantages of favorable discounts • Profitable opportunities • Management actions • Coverage of current obligations Length of cash cycle •Operating cycle •Cash cycle 营业周期 存货周转天数 应收账款周转天数 应付账款周转天数 采购 现金周期 付款 销售 收款 Current assets Current ratio= Current liabilities Rule of Thumb Analysis (2:1) > 2:1 superior coverage of current liabilities (but not too high, suggesting inefficient use of resources and reduced returns) < 2:1 deficient coverage of current liabilities 信 社 农 文 生 的 水 及 煤 气 、 力 电 交 产 息 会 林 化 通 和 批 房 技 服 牧 传 运 供 零 地 采 制 建 术 务 渔 播 输 应 贸 产 掘 造 筑 业 业 业 业 业 业 易 业 业 业 业 0.00 0.50 1.00 1.50 各行业流动比率 2.00 2.50 3.00 Current Ratio — Limitations: If liquidity is the ability to meet cash outflows with adequate cash inflows, then does the current ratio: Measure and predict the pattern of future cash inflows and outflows? Measure the adequacy of future cash inflows to outflows? Answer is generally no to both these questions Current ratio Is a static measure Does not have a causal relation to future cash inflows Current Ratio — Limitations in Numerator Adjustments often needed to counter various limitations such as Failure to reflect open lines of credit Adjust securities’ valuation since the balance sheet date Reflect revolving nature of accounts receivable Recognize profit margin in inventory Adjust inventory values to market Remove deferred charges of dubious liquidity from prepaid expenses Three important qualifications 1. Liquidity depends to a large extent on prospective cash flows 2. No direct relation between working capital account balances and patterns of future cash flows 3. Managerial policies are directed primarily at efficient and profitable asset utilization and secondly at liquidity 4. Cash flow forecasts and pro forma financial statements are preferred over the current ratio for liquidity and solvency analysis 5. Current ratio is a static measure of the ability of current assets to satisfy current liabilities Two important elements are integral to use of the current ratio 1. Quality of both current assets and current liabilities 2. Turnover rate of both current assets and current liabilities Acid-Test (Quick) Ratio Cash + Marketablesecurities+ Accountsreceivable Currentliabilitie s 综合类 制造业 信息技术业 社会服务业 批发和零售贸易 农、林、牧、渔业 交通运输、仓储业 建筑业 房地产业 电力、煤气及水的生产和供应业 传播与文化产业 采掘业 0.00 0.50 1.00 1.50 2.00 2.50 Cash ratio = Cash + Marketablesecurities Current liabilitie s Cash flow from operations ratio = Cash flow from operations Current liabilities Measures liquidity by comparing actual cash flows with current liabilities. Defensive Interval = 365× Cash + Marketablesecurities+ Accountsreceivable ProjectedExpenditures estimated outflows Indicating the days a firm could maintain the current level of operations with is present cash resources but without considering any additional revenues. 案例分析 某企业2007年、2008年末的比较资产负债 表中有关数据（单位：万元）如下表所示 。 要求：根据上表资料对资产和权益的变动 情况进行分析，并分析公司短期偿债能力 的变动情况。 项目 2007年末 2008年末 2008年比2007年增减 差额 百分比 流动资产： 速动资产 3000 2800 -200 -6.67 存货 5000 6200 1200 24 流动资产合计 8000 9000 1000 12.5 固定资产净额 14000 16000 2000 14.29 资产总计 22000 25000 3000 13.64 流动负债 4000 4600 600 15 长期负债 2000 2500 500 25 13000 13000 -- -- 公积金 1800 2700 900 50 未分配利润 1200 2200 1000 83.33 股东权益合计 16000 17900 1900 11.88 负债和权益合计 22000 25000 3000 13.64 负债： 股东权益 股本 思考题 假设两家公司流动资产与流动负债金额相当，且流动资 产和流动负债的构成相同，是否意味着两家公司具有相 同的短期偿债能力？为什么？ 假设某公司对存货的计价方法有先进先出法改为加权平 均法，导致期末存货增加，进而增加公司流动资产。试 问这种存货计价方法的改变是否影响到该公司的短期偿 债能力？为什么？ 某分析师指出，“流动比率越大公司的短期偿债能力越 强，因此公司报告越高的流动资产越好。”你同意这一 说法吗？试阐述理由。 III. Long-term Debt and Solvency analysis: Debt ratios: Total debt Debt to Total capital= Debt + Equity Debt to Equity = Total debt Total Equity 综合类 文化传播 社会服务业 房地产业 批零贸易业 信息技术业 交通运输业 建筑业 电力煤气及水 制造业 采掘业 农林牧渔 0% 10% 20% 30% 40% 50% 不同行业的资产负债率 60% 70% 80% 综合类 文化传播 社会服务业 房地产业 批零贸易业 信息技术业 交通运输业 建筑业 电力煤气及水 制造业 采掘业 农林牧渔 0 0.5 1 1.5 2 2.5 不同行业的产权比率 3 3.5 Interest Coverage ratios: EBIT Times Interest Earned= Interest Expense 综合类 文化传播 社会服务业 房地产业 批零贸易业 信息技术业 交通运输业 建筑业 电力煤气及水 制造业 采掘业 农林牧渔 0 5 10 15 20 Interest coverage ratio Default rate Interest coverage ratio Default rate （%） Committed return （%） Realized return （%） Loss （%） >3.0 2.1 4.0 4.9 -0.9 2.0~2.9 4.0% 4.3 5.1 -0.8 1.5~1.9 17.9 4.7 5.0 -0.3 1.0~1.4 34.1 6.8 6.4 0.4 <1.0 35.0 6.2 6.0 0.2 思考题 有两家公司具有相同的资产和负债规模，资产和负债的构 成以及盈利情况也相同，且两家公司出于同一行业，能够 得出两家公司长期偿债能力相同的结论？为什么？ 试讨论公司以抵押借款购买建筑物对本章所介绍的偿债能 力评价指标具有什么样的影响？为什么？ 成长型的公司可以通过债务融资来避免盈利稀释，试讨论 这句话基本原理。 如果一家公司大量采用经营租赁租入资产，则可能会导致 分析过程中高估其长期偿债能力，试讨论导致这种结果的 原因。 Capital expenditure ratio: = Cash from operations (CFO) Capital expenditures Measures the relationship between the firm’s cash-generating ability and its investment expenditures. To the extent the ratio exceeds 1, in indicates the firm has cash left for debt repayment or dividends after capital expenditures. IV.Profitability Analysis: Return on sales Return on investment Gross margin Return on assets (ROA) Operating margin Return on total capital Margin before interest and tax Return on equity Pretax margin Return on common equity Profit margin Contribution margin P132-134 P134-135 Return on Sales: Gross Profit Gross Margin= Sales Operating Income Operating Margin= Sales Margin before interest and tax= Operating Income Sales Profit Margin= Net Income Sales 综合类 文化传播 社会服务业 房地产业 批零贸易业 信息技术业 交通运输业 建筑业 电力煤气及水 制造业 采掘业 农林牧渔 0% 10% 20% 30% 不同行业毛利率水平 40% 50% Return on Investment: EBIT Return on assets (ROA)= Average total assets ROA: measures operating efficiency/ performance reflects return from all financing does not distinguish return by financing sources Disaggregation of ROA EBIT sales × Average Total assets Sales 综合类 文化传播 社会服务业 房地产业 批零贸易业 信息技术业 交通运输业 建筑业 电力煤气及水 制造业 采掘业 农林牧渔 0% 2% 4% 6% 8% 10% 12% 14% 16% Net income ROE= Average stockholder’s equity Disaggregation : ROE= Net income Sales × sales Assets × Assets Equity Operating and Financial Leverage: Operating Leverage: Example: General Assumptions Company V Company F Fixed assets $0 $40 Variable costs/sales 80% 40% $200 $200 Assets A: Assuming 0% Financing, Debt $0, Equity $200 No Leverage Operating Leverage Company V Company F A B C A B C Sales (+50%) $50 $100 $150 $50 $100 $150 Variable cost 40 80 120 20 40 60 10 20 30 30 60 90 0 0 0 40 40 40 10 20 30 -10 20 50 on sales 20% 20% 20% -20% 20% 33% on assets 5% 10% 15% -5% 10% 25% on equity 5% 10% 15% -5% 10% 25% Scenario contribution Fixed cost Operating income Return contribution Contribution Margin Ratio = Variable costs =1- sales sales Operating leverage effect (OLE): contribution Contribution Margin Ratio OLE= Return on Sales = Operating Income % Change in income = OLE×% Change in Sales Company F: OLE=60%/20%= 3 Financial Leverage: B: Assuming 50% Financing, Debt $100, Equity $100,Interest Rate 5% Scenario Financial Leverage Total Leverage Company V Company F A B C A B C Operating income 10 20 30 -10 20 50 Interest 5 5 5 5 5 5 5 15 25 -15 15 45 on assets 5% 10% 15% -5% 10% 25% on equity 5% 15% 25% -15% 15% 45% Net income Return No Leverage Company V A B C Sales (+50%) $50 $100 $150 Variable cost 40 80 120 Financial Leverage 10 20 30 Company V 0 0 0 Scenario 10 20 30 Operating income 10 20 30 Interest 5 5 5 5 15 25 on assets 5% 10% 15% on equity 5% 15% 25% Scenario contribution Fixed cost Operating income Return on assets 5% 10% 15% on equity 5% 10% 15% Net income A B C Return Financial leverage effect (FLE) : Operating Income FLE= Net Income Company V: FLE=1.333 % Change in income = FLE×% Change in Sales Total leverage effect (TLE) : contribution TLE= OLE× FLE = Net Income Company F: TLE=3×1.333=4 % Change in income = TLE×% Change in Sales 思考题 2006年铜价大涨，某上市铜企盈利大增， 在年度分红时实施了高送转。你如何看待 这种由于价格上涨所带来的上市公司盈利 的增加？ Other Ratios: Earnings Per Share (EPS) : Simple Capital Structure Net income – Preferred Dividends EPS= Weighted Average Common Shares Outstanding Complex Capital Structure: EPS = Net income less preferred dividends Weighted average Common shares - EPS impact of dilutive options & warrants Basic EPS Diluted EPS - EPS impact of dilutive convertibles Sources of Potential Dilution Debt Preferreed stock Options Warrants 0% 20% 40% 60% 80% 100% Example: Computations P152, Exhibit 4-15. Capital structure Options, warrants, or convertible securities outstanding? Simple capital structure Complex capital structure Basic EPS Diluted EPS Net Income – Preferred dividends Weighted average common shares Net income to common shares adjusted for Interest (net of tax) and preferred dividends on dilutive securities Weighted average common shares including dilutive Securities Dividend Payout Ratio: Dividends Dividend Payout= Net income Generally , growth firms have low dividend payout ratios as they retain most of their income to finance expansion. More established, mature firms tend to have higher payout ratios. 案例：江西纸业（600053）是一家造纸及纸制品业上市 公司，其2000~2002年利润表如下（单位：千元）： 2001年，江西纸业巨亏，原因部分在于变更了坏 帐计提政策，由原按应收款项余额3%计提改为帐 龄分析法。更为重要的一个变更是，由于往来正 常、规范，故对母公司的内部往来不计提坏帐准 备，现变更为对母公司的应收款项也按账龄分析 法计提准备。变更的结果就是对与大股东往来计 提坏帐23371万元，直接计入当年损益，致使当 年巨亏2.99亿。2000年公司刚刚完成了配股。 另外，公司对应收大股东款项由2000年末的686 万元增长为2001年末的93859万元。公司对期初 报表进行了更正，其他应收款中增加应收大股东 的欠款70766万元，应收账款由大股东原欠483万 元增至5798万元。具体大股东欠款如下： 年份 2001年 项目 坏帐准备 5799 2-3年 1740 其他应收 93279 1-4年 21632 99078 23372 应收账款 5799 3年以上 2899 其他应收 94522 1-5年 33085 小计 2003年 帐龄 应收账款 小计 2002年 余额 100320 35985 应收账款 5799 3年以上 2899 其他应收 93555 1-6年 56968 小计 99354 59868 2001年、2002年注册会计师审计意见为保留意见，保留 事项均包括：公司应收大股东款项非常巨大，虽按账龄 分析法计提了坏帐准备，但未能获取充分适当的证据对 上述款项的可收回性做出判断。 要求： （1）评价公司2000年的盈利质量； （2）评价会计政策变更对公司盈利的影响，分析变 更的合理性。 Exercises: P 154: 2. P 155: 4 P 159: 18 P 162:27, a,b Solutions:
