Kế toán, kiểm toán - Chapter 14: Analyzing financial statements: A managerial perspective

Slide 14-2CHAPTER 14 Analyzing Financial Statements:A Managerial PerspectiveLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-3Why Managers Analyze Financial StatementsManagers analyze financial statements for a variety of reasons including:To control operationsTo assess the financial stability of vendors, customers, and other business partnersTo assess how their companies appear to investors and creditorsSlide 14-4Control of OperationsManagers analyze financial statements to gain insight into whether their goals have been achieved or plans implemented successfullyManagers expect that a successful implementation of their plans will be reflected in financial informationIf financial information is inconsistent with a successful implementation an investigation will be launchedLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-5Assessment of Vendors, Customers, and Other PartnersAnother important reason for analyzing financial statements is to review the financial stability of vendors, customers, and other strategic partnersIncreasingly companies are establishing strong relationships with a small number of vendors willing to commit to high quality levels and short lead timesLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-6Assessment of Vendors, Customers, and Other PartnersManagers want to be confident that the vendor will be stable and continue in existence over the foreseeable futureCompanies analyze customers to assess whether they will be able to pay the amounts they oweCompanies do not want to enter into partnerships with firms in financial difficultyLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-7Assessment of Appearance to Investors and CreditorsInvestors and creditors carefully analyze a company’s financial statementsManagers should anticipate how their financial information will appear to stakeholdersManagers can explain differences in the notes to the financial statements, or avoid transactions which cause differencesLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-8Why do managers analyze financial statements?To control operationsTo assess vendors, customers and other business partnersTo assess appearance to investors and creditorsAll of the aboveAnswer: d All of the aboveTest Your Knowledge 1Learning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-9Horizontal and Vertical AnalysesHorizontal analysisAnalysis of the dollar value and percentage changes in financial statement amounts across timeThe dollar value of the change is the new value minus the old value for each financial statement amountThe percentage change is the dollar value of the change divided by the old value for each financial statement amountLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-10Horizontal and Vertical AnalysesVertical analysisAlso called common size analysisAnalyze financial statement amounts in comparison to a base amountDivide each financial statement amount by total assets for the balance sheetDivide each financial statement amount by net sales for the income statementLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-11Analysis of the Balance SheetThe results of a horizontal analysis of the balance sheet are presented on the next slidesWhat can we conclude?HGW is expanding (increases in land, buildings, furniture and fixtures, and equipment)Funded by debt and internally generated funds (retained earnings)Learning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Horizontal Analysis of the Balance SheetSlide 14-12Learning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Horizontal Analysis of the Balance SheetSlide 14-13Learning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-14Analysis of the Balance SheetA vertical analysis of the balance sheet is presented on the next two slidesThe primary asset accounts are merchandise inventory, land, and buildingsAll account balances are greater than 20 percent of total assetsLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-15Vertical Analysis of the Balance SheetLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-16Vertical Analysis of the Balance SheetLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-17Analyzing the Income StatementA horizontal and vertical analysis of the balance sheet is presented on the next two slidesBoth net sales and cost of goods sold have increased from 2013 to 2014Gross profit has increased 43%The vertical analysis shows that net income has declined from 6.5% of sales to 5.6% of salesLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-18Horizontal AnalysisLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-19Vertical AnalysisLearning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-20Horizontal analysis evaluates:Comparable companiesChanges in expenses as a percentage of salesChanges in expenses as a percent of total assetsChanges in balances from one year to anotherAnswer: d Changes in balances from one year to anotherTest Your Knowledge 2Learning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Slide 14-21Vertical analysis evaluates:Changes in net sales as a percentage of total assetsChanges in expenses as a percentage of salesFinancial statement amounts in comparison to a base amountChanges in balances from one year to anotherAnswer: cFinancial statement amounts in comparison to a base amountTest Your Knowledge 3Learning objective 1: Explain why managers analyze financial statements and perform horizontal and vertical analyses of the balance sheet and the income statement.Learning objective 2: Discuss earnings management and the importance of comparing net income to cash flow from operations. Also, understand how MD&A, credit reports, and news articles can be used to gain insight into a company’s current and future financial performance.Slide 14-22Earnings ManagementAccounting earnings can be manipulated to make performance appear stronger than it actually isAllegations of impropriety have been leveled against many companies, including:EnronKrogerLucent, andWaste ManagementSlide 14-23Earnings ManagementWhy do managers manipulate earnings?Managers often are evaluated and rewarded based on the level of firm earningsIf earnings are below the specified bonus level, managers have an inventive to manipulate earningsManagers manipulate earnings to raise the stock price and profit from exercising stock optionsLearning objective 2: Discuss earnings management and the importance of comparing net income to cash flow from operations. Also, understand how MD&A, credit reports, and news articles can be used to gain insight into a company’s current and future financial performance.Slide 14-24Earnings ManagementA red flag suggesting that accounting irregularities may be a problem is a difference between net income and operating cash flowsIf a firm records fictitious sales income will increase but operating cash flows will not be affectedThe company does not collect cash from fictitious salesLearning objective 2: Discuss earnings management and the importance of comparing net income to cash flow from operations. Also, understand how MD&A, credit reports, and news articles can be used to gain insight into a company’s current and future financial performance.Slide 14-25Cash Flow versus EarningsLearning objective 2: Discuss earnings management and the importance of comparing net income to cash flow from operations. Also, understand how MD&A, credit reports, and news articles can be used to gain insight into a company’s current and future financial performance.Slide 14-26Other Sources of Information on Financial PerformanceA number of other information sources can be used to gain insight into a company’s financial performanceManagement discussion and analysisContained in the annual reportManagement provides users with explanations for financial results that are not obvious from reading the basic financial statementsLearning objective 2: Discuss earnings management and the importance of comparing net income to cash flow from operations. Also, understand how MD&A, credit reports, and news articles can be used to gain insight into a company’s current and future financial performance.Slide 14-27Other Sources of Information on Financial PerformanceA number of other information sources can be used to gain insight into a company’s financial performanceCredit reportsA number of firms sell credit reports that provide information on a company’s credit historyThe ratings help managers evaluate the likelihood that a company they do business with will pay its bills on timeLearning objective 2: Discuss earnings management and the importance of comparing net income to cash flow from operations. Also, understand how MD&A, credit reports, and news articles can be used to gain insight into a company’s current and future financial performance.Slide 14-28Other Sources of Information on Financial PerformanceA number of other information sources can be used to gain insight into a company’s financial performanceNews articles are another very valuable source of financial informationLexis-Nexis is an example of a company that, for a fee, provides access to articles from major newspapers, magazines, and newswire servicesLearning objective 2: Discuss earnings management and the importance of comparing net income to cash flow from operations. Also, understand how MD&A, credit reports, and news articles can be used to gain insight into a company’s current and future financial performance.Slide 14-29Management Discussion & Analysis (MD&A) ExampleLearning objective 2: Discuss earnings management and the importance of comparing net income to cash flow from operations. Also, understand how MD&A, credit reports, and news articles can be used to gain insight into a company’s current and future financial performance.Learning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-30Ratio AnalysisManagers frequently perform financial analyses using various ratiosTo control operationsTo assess the stability of vendors, customers, and other business partnersTo assess how their companies appear to investors and creditorsSlide 14-31Ratio AnalysisRatios are grouped into 3 categoriesProfitability ratios examine the firm’s ability to generate incomeTurnover ratios reveal the efficiency with which a company uses its assetsDebt related ratios relate the amount of debt a company has and its ability to repay its obligationsLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-32Profitability RatiosEarnings per shareAmount of earnings generated per share of common stockThe more earnings per share a company can generate, the higher its stock pricePrice-earnings ratioIndicates how much investors are willing to pay per dollar of earningsLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-33Profitability RatiosGross margin percentageIndicates how much a company earns per dollar of sales, taking into account the cost of the items it sellsReturn on total assetsIndicates how profitable a company is in relation to its assetsReturn on common stockholders’ equityThe return a company is able to earn on funds invested by shareholdersLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-34Profitability Ratio Formulas Learning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-35Profitability Ratio Formulas Learning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-36Profitability Ratios for HGWnLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-37Turnover RatiosAsset turnoverShows how efficiently assets are used to generate salesAccounts receivable turnoverThe more times accounts receivable turn over, the sooner they are collectedDays’ sales in receivablesA measure of how long it will take to collect receivablesLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-38Turnover RatiosInventory turnoverIndicates how many times inventory turns overGenerally, the higher the ratio, the more efficient the management of inventory levelsDays’ sales in inventoryA measure of how long it will take to sell inventoryLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-39Turnover Ratio Formulas Learning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-40Turnover Ratio Formulas Learning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-41Turnover Ratios for HGWLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-42The efficient use of assets is indicated by:Turnover ratiosDebt-related ratiosThe ratio of debt to equityThe ratio of current assets to current liabilitiesAnswer: a Turnover ratiosTest Your Knowledge 4Learning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-43Debt-Related RatiosCurrent ratioA measure of a company’s ability to pay short term obligationsAcid test ratio (quick ratio)Compared to the current ratio, a more stringent test of a company’s ability to pay short term obligationsLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-44Debt-Related RatiosDebt to equity ratioA measure of the relative amount of debt versus equity in a firm’s capital structure. Firms with relatively high values may have too much debtTimes interest earnedA measure of a company’s ability to make interest payments on its debtLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-45Debt-Related Ratios Learning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-46Debt-Related Ratios for HGWLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-47Too Much DebtLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-48The ratio times interest earned can be used to evaluate:The amount of debt versus equity financingThe extent to which interest income exceeds interest expenseThe extent to which interest expense exceeds interest incomeThe likelihood that a company will be able to make required interest paymentsAnswer: d The likelihood that a company will be able to make required interest paymentsTest Your Knowledge 5Learning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-49Strategic PartnersLearning objective 3: Calculate and interpret profitability ratios, turnover ratios, and debt-related ratios.Slide 14-50Copyright © 2016 John Wiley & Sons, Inc. 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