Principles of
Managerial Finance
9th Edition
Chapter 4
Financial Statement Analysis
Learning Objectives
• Understand the parties interested in performing
financial ratio analysis and the common types of ratio
comparisons.
• Describe some of the cautions that should be
considered in performing financial ratio analysis.
• Use popular ratios to analyze a firm’s liquidity and the
activity of inventory, accounts receivable, accounts
payable, and total assets.
Learning Objectives
• Discuss the relationship between debt and financial
leverage and the ratios that can be used to assess the
firm’s degree of indebtedness and its ability to meet
interest payments associated with debt.
• Evaluate a firm’s profitability relative to its sales, asset
investment, and owners equity investment.
• Use the DuPont system and a summary of financial
ratios to perform a complete ratio analysis.
Using Financial Ratios
Interested Parties
• Ratio analysis involves methods of calculating and
interpreting financial ratios to assess a firm’s financial
condition and performance.
• It is of interest to shareholders, creditors, and the
firm’s own management.
Using Financial Ratios
Types of Ratio Comparisons
• Trend or time-series analysis
Used to evaluate a firm’s performance
over time
Using Financial Ratios
Types of Ratio Comparisons
• Trend or time-series analysis
• cross-sectional analysis
Used to compare different firms at the
same point in time
Using Financial Ratios
Types of Ratio Comparisons
• Trend or time-series analysis
• cross-sectional analysis 尋找proper
benchmark
– industry comparative analysis
One specific type of cross sectional analysis.
Used to compare one firm’s financial performance
to the industry’s average performance
Using Financial Ratios
Types of Ratio Comparisons
• Trend or time-series analysis Inventory =COGS/inventory
turnover
A
• cross-sectional analysis
– industry comparative analysis
• Combined Analysis
產業平均
1997 1998 1999 2000
Combined analysis simply uses a combination of
both time series analysis and cross-sectional
analysis
year
Using Financial Ratios
Cautions for Doing Ratio Analysis
• Ratios must be considered together; a single ratio by
itself means relatively little.
Inventory turnover似乎愈高愈好
但太高可能表示inventory太少，缺貨
• Financial statements that are being compared should
be dated at the same point in time.
如玩具公司12月底比6月底
• Use audited financial statements when possible.
• The financial data being compared should have been
developed in the same way.
如存貨計價與折舊提列
• Be wary of inflation distortions.
通膨影響存貨及折舊，進而影響
利潤及資產。高通膨使older firms
看起來比younger firms更efficient
更profitable
Ratio Analysis Example
Bartlett Company
見B/S
附註a
資本租賃必須資本化處理(v.s.營業租賃)
Ratio Analysis
• Liquidity Ratios
– Current Ratio
公司的現金流量愈穩定，愈能接受較低的current ratio
Current ratio
=
total current assets
total current liabilities
過高的C.R.會傷害profitability，因為C.A. is less profitable than
fixed asset and C.L. is more expensive than long-term financing
Current ratio
=
$1,223,000 = 1.97
$620,000
net working capital=CA-CL
Ratio Analysis
• Liquidity Ratios
– Current Ratio
– Quick Ratio
Quick ratio
= Total Current Assets - Inventory
total current liabilities
Quick ratio
= $1,223,000 - $289,000 = 1.51
$620,000
If inventory is less liquid, then Q.R. is a better measure
for liquidity than C.R.
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
無法衡量CA和CL個別組
成份子的差異
– Inventory Turnover
Average age of inventory=360÷inventory turnover=50天
Inventory Turnover = Cost of Goods Sold
Inventory
Inventory Turnover = $2,088,000 = 7.2
$289,000
Grocery store很高，飛機製造商很低
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
– Average Collection Period
ACP = Accounts Receivable
Net Sales/360
ACP =
$503,000
or =360÷(net sales/A.R.)
= 58.9 days
$3,074,000/360
是否合理端視公司給顧客credit sales的期間
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
– Average Payment Period
APP =
Accounts Payable
Annual Purchases/360
=360÷(annual purchase/A.P.)
APP =
$382,000
= 94.1 days
(.70 x $2,088,000)/360
假設annual purchase
=70% of COGS
是否合理端視supplier
給公司信用採購的term
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
– Total Asset Turnover
Total Asset Turnover
How efficient the firm uses
assets to generate sales
Total Asset Turnover
=
Net Sales
Total Assets
= $3,074,000 = .85
$3,579,000
資產愈新的公司其asset turnover 愈低
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
• Financial Leverage Ratios
– Debt Ratio Financial risk
ROE
Debt Ratio = Total Liabilities/Total Assets
Debt Ratio = $1,643,000/$3,597,000 = 45.7%
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
• Leverage Ratios
– Times Interest Earned Ratio
=interest coverage ratio
Times Interest Earned = EBIT/Interest
Times Interest Earned = $418,000/$93,000 = 4.5
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
• Leverage Ratios
– Fixed-Payment coverage
Ratio (FPCR) 為了將這兩項調整為稅
FPCR =
前項目
EBIT + Lease Payments
Interest + Lease Payment+ {(Principal Payment + PSD) x [1/(1-t)]}
FPCR =
$418,000 + $35,000
$93,000 + $35,000 + {($71,000 + $10,000) x [1/(1-.29)]}
= 1.9
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
• Leverage Ratios
• Profitability Ratios
– Common-Size Income
Statements
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
• Leverage Ratios
• Profitability Ratios
– Gross Profit Margin
GPM = Gross Profit/Net Sales
GPM = $986,000/$3,074,000 = 32.1%
Ratio Analysis
•
•
•
•
Liquidity Ratios
Activity Ratios
Leverage Ratios
Profitability Ratios
– Operating Profit Margin
OPM = EBIT/Net Sales
OPM = $418,000/$3,074,000 = 13.6%
Ratio Analysis
•
•
•
•
Liquidity Ratios
Activity Ratios
Leverage Ratios
Profitability Ratios
– Net Profit Margin
NPM = Net Profits After Taxes/Net Sales
NPM = $231,000/$3,074,000 = 7.5%
Ratio Analysis
•
•
•
•
Liquidity Ratios
Activity Ratios
Leverage Ratios
Profitability Ratios
– Return on Total Assets (ROA)
ROA = Net Profits After Taxes/Total Assets
ROA = $231,000/$3,597,000 = 6.4%
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
• Leverage Ratios
• Profitability Ratios
– Return on Equity (ROE)
ROE = Net Profits After Taxes/Stockholders Equity
ROE = $231,000/$1,954,000 = 11.8%
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
• Leverage Ratios
• Profitability Ratios
– Earnings Per Share (EPS)
EPS = Earnings Available to Common Stockholders
Number of Shares Outstanding
EPS = $221,000/76,262 = $2.90
Ratio Analysis
• Liquidity Ratios
• Activity Ratios
• Leverage Ratios
• Profitability Ratios
– Price Earnings (P/E) Ratio
P/E = Market Price Per Share of Common Stock
Earnings Per Share =investor confidence
P/E = $32.25/$2.90 = 11.1
M/B=market to book ratio=
mkt price per share of common stock
book value per share of common stock
DuPont System of Analysis
• The DuPont system is used to dissect the firm’s
financial statements and to assess its financial
condition.
• It merges the income statement and balance sheet
into two summary measures of profitability: ROA and
ROE as shown in figure 4.2 on the following slide.
• The top portion focuses on the income statement, and
the bottom focuses on the balance sheet.
• The advantage of the DuPont system is that it allows
you to break ROE into a profit on sales component, an
efficiency-of-asset-use component, and a use-ofleverage component.
和1999年比較
better
better
better
Higher leverage
Summarizing All Ratios
Summarizing All Ratios