Tài chính doanh nghiệp - Chapter 2: Financial statements and analysis

Chapter 2Financial Statements and AnalysisLearning GoalsReview the contents of the stockholders’ report and the procedures for consolidating international financial statements.Understand who uses financial ratios, and how.Use ratios to analyze a firm’s liquidity and activity.Discuss the relationship between debt and financial leverage and the ratios used to analyze a firm’s debt.2Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Learning Goals (cont.)Use ratios to analyze a firm’s profitability and market value.Use a summary of financial ratios and the DuPont system of analysis to perform a complete ratio analysis.3Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Stockholders’ ReportThe guidelines used to prepare and maintain financial records and reports are known as generally accepted accounting principles (GAAP).GAAP is authorized by the Financial Accounting Standards Board (FASB).The Sarbanes-Oxley Act of 2002, passed to eliminate the many disclosure and conflict of interest problems of corporations, established the Public Company Accounting Oversight Board (PCAOB), which is a not-for-profit corporation that overseas auditors.4Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Stockholders’ Report (cont.)The PCAOB is charged with protecting the interests of investors and furthering the public interest in the preparation of informative, fair, and independent audit reports.Public corporations with more than $5 million in assets and more than 500 stockholders are required by the SEC to provide their stockholders with an annual stockholders report.5Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Four Key Financial Statements: The Income StatementThe income statement provides a financial summary of a company’s operating results during a specified period.Although they are prepared annually for reporting purposes, they are generally computed monthly by management and quarterly for tax purposes.6Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Four Key Financial Statements7Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Four Key Financial Statements: The Balance SheetThe balance sheet presents a summary of a firm’s financial position at a given point in time.Assets indicate what the firm owns, equity represents the owners’ investment, and liabilities indicate what the firm has borrowed.8Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Four Key Financial Statements9Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Four Key Financial Statements (cont.)10Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Four Key Financial Statements: Statement of Retained EarningsThe statement of retained earnings reconciles the net income earned and dividends paid during the year, with the change in retained earnings.11Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Four Key Financial Statements12Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Four Key Financial Statements: Statement of Cash FlowsThe statement of cash flows provides a summary of the cash flows over the period of concern, typically the year just ended.This statement not only provides insight into a company’s investment, financing and operating activities, but also ties together the income statement and previous and current balance sheets.13Copyright © 2006 Pearson Addison-Wesley. All rights reserved.The Four Key Financial Statements14Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Consolidating International Financial StatementsFASB 52 mandated that U.S. based companies translate their foreign-currency denominated assets and liabilities into dollars using the current rate (translation) method.Under the translation method, companies translate all foreign-currency-denominated assets and liabilities into dollars at the exchange rate prevailing at the fiscal year ending date (the current rate).Income statement items are usually treated similarly.15Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Consolidating International Financial Statements (cont.)Equity accounts, on the other hand, are translated into dollars by using the exchange rate that prevailed when the parent’s equity investment was made (the historical rate).Retained earnings are adjusted to reflect each year’s operating profits (or losses).16Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Using Financial Ratios: Interested PartiesRatio 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.17Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Using Financial Ratios: Types of Ratio ComparisonsTrend or time-series analysisUsed to evaluate a firm’s performance over time18Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Using Financial Ratios: Types of Ratio Comparisons (cont.)Trend or time-series analysisCross-sectional analysisUsed to compare different firms at the same point in time19Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Using Financial Ratios: Types of Ratio Comparisons (cont.)Trend or time-series analysisCross-sectional analysisIndustry comparative analysisOne specific type of cross sectional analysis. Used to compare one firm’s financial performance to the industry’s average performance20Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Using Financial Ratios: Types of Ratio Comparisons (cont.)Trend or time-series analysisCross-sectional analysisBenchmarkingA type of cross sectional analysis in which the firm’s ratio values are compared to those of a key competitor or group of competitors that it wishes to emulate21Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Using Financial Ratios: Types of Ratio Comparisons (cont.)Trend or time-series analysisCross-sectional analysisCombined AnalysisCombined analysis simply uses a combination of both time series analysis and cross-sectional analysis22Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Using Financial Ratios: Types of Ratio Comparisons (cont.)23Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Using Financial Ratios: Types of Ratio Comparisons (cont.)24Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Using Financial Ratios: Cautions for Doing Ratio AnalysisRatios must be considered together; a single ratio by itself means relatively little.Financial statements that are being compared should be dated at the same point in time.Use audited financial statements when possible.The financial data being compared should have been developed in the same way.Be wary of inflation distortions.25Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Ratio Analysis ExampleWe will illustrate the use of financial ratios for analyzing financial statements using the Bartlett Company Income Statements and Balance Sheets presented earlier in Tables 2.1 and 2.2.26Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Current ratio = total current assets total current liabilitiesCurrent ratio = $1,233,000 = 1.97 $620,000Ratio AnalysisLiquidity RatiosCurrent Ratio27Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Quick ratio = Total Current Assets - Inventory total current liabilities Quick ratio = $1,233,000 - $289,000 = 1.51 $620,000Ratio Analysis (cont.)Liquidity RatiosCurrent RatioQuick Ratio28Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Inventory Turnover = Cost of Goods Sold InventoryInventory Turnover = $2,088,000 = 7.2 $289,000Ratio Analysis (cont.)Liquidity RatiosActivity RatiosInventory Turnover29Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Average Age of Inventory = 365 Inventory TurnoverInventory Turnover = 365 = 50.7 days 7.2Ratio Analysis (cont.)Liquidity RatiosActivity RatiosAverage Age of Inventory30Copyright © 2006 Pearson Addison-Wesley. All rights reserved.ACP = Accounts Receivable Net Sales/365ACP = $503,000 = 59.7 days $3,074,000/365Ratio Analysis (cont.)Liquidity RatiosActivity RatiosAverage Collection Period31Copyright © 2006 Pearson Addison-Wesley. All rights reserved.APP = Accounts Payable Annual Purchases/365APP = $382,000 = 95.4 days (.70 x $2,088,000)/365Ratio Analysis (cont.)Liquidity RatiosActivity RatiosAverage Payment Period32Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Total Asset Turnover = Net Sales Total Assets Total Asset Turnover = $3,074,000 = .85 $3,597,000 Ratio Analysis (cont.)Liquidity RatiosActivity RatiosTotal Asset Turnover33Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Insert Table 2.6 hereRatio Analysis (cont.)34Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Debt Ratio = Total Liabilities/Total AssetsDebt Ratio = $1,643,000/$3,597,000 = 45.7%Ratio Analysis (cont.)Liquidity RatiosActivity RatiosFinancial Leverage RatiosDebt Ratio35Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Times Interest Earned = EBIT/InterestTimes Interest Earned = $418,000/$93,000 = 4.5Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosTimes Interest Earned Ratio36Copyright © 2006 Pearson Addison-Wesley. All rights reserved.FPCR = EBIT + Lease Payments Interest + Lease Pymts + {(Princ Pymts + PSD) x [1/(1-t)]}FPCR = $418,000 + $35,000 = 1.9 $93,000 + $35,000 + {($71,000 + $10,000) x [1/(1-.29)]}Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosFixed-Payment coverage Ratio (FPCR)37Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosProfitability RatiosCommon-Size Income Statements38Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Ratio Analysis (cont.)39Copyright © 2006 Pearson Addison-Wesley. All rights reserved.GPM = Gross Profit/Net SalesGPM = $986,000/$3,074,000 = 32.1%Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosProfitability RatiosGross Profit Margin40Copyright © 2006 Pearson Addison-Wesley. All rights reserved.OPM = EBIT/Net SalesOPM = $418,000/$3,074,000 = 13.6%Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosProfitability RatiosOperating Profit Margin (OPM)41Copyright © 2006 Pearson Addison-Wesley. All rights reserved.NPM = Earnings Available to Common Stockholders SalesNPM = $221,000/$3,074,000 = 7.2%Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosProfitability RatiosNet Profit Margin (NPM)42Copyright © 2006 Pearson Addison-Wesley. All rights reserved.EPS = Earnings Available to Common Stockholders Number of Shares OutstandingEPS = $221,000/76,262 = $2.90Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosProfitability RatiosEarnings Per Share (EPS)43Copyright © 2006 Pearson Addison-Wesley. All rights reserved.ROA = Earnings Available to Common Stockholders Total AssetsROA = $221,000/$3,597,000 = 6.1%Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosProfitability RatiosReturn on Total Assets (ROA)44Copyright © 2006 Pearson Addison-Wesley. All rights reserved.ROE = $221,000/$1,754,000 = 12.6%ROE = Earnings Available to Common Stockholders Total EquityRatio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosProfitability RatiosReturn on Equity (ROE)45Copyright © 2006 Pearson Addison-Wesley. All rights reserved.P/E = Market Price Per Share of Common Stock Earnings Per Share P/E = $32.25/$2.90 = 11.1Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosProfitability RatiosMarket RatiosPrice Earnings (P/E) Ratio46Copyright © 2006 Pearson Addison-Wesley. All rights reserved.BV/Share = Common Stock Equity Number of Shares of Common Stock BV/Share = $1,754,000/72,262 = $23.00Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosProfitability RatiosMarket RatiosMarket/Book (M/B) Ratio47Copyright © 2006 Pearson Addison-Wesley. All rights reserved.M/B Ratio = Market Price/Share of Common Stock Book Value/Share of Common StockM/B Ratio = $32.25/$23.00 = 1.40Ratio Analysis (cont.)Liquidity RatiosActivity RatiosLeverage RatiosProfitability RatiosMarket RatiosMarket/Book (M/B) Ratio48Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Summarizing All Ratios49Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Summarizing All Ratios (cont.)50Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Summarizing All Ratios (cont.)51Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Summarizing All Ratios (cont.)52Copyright © 2006 Pearson Addison-Wesley. All rights reserved.DuPont System of AnalysisThe DuPont system of analysis 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 the equation below and in Figure 2.2 on the following slide.53Copyright © 2006 Pearson Addison-Wesley. All rights reserved.DuPont System of Analysis (cont.)54Copyright © 2006 Pearson Addison-Wesley. All rights reserved.Modified DuPont FormulaThe Modified DuPont Formula relates the firm’s ROA to its ROE using the financial leverage multiplier (FLM), which is the ratio of total assets to common stock equity:55Copyright © 2006 Pearson Addison-Wesley. All rights reserved.ROE = 6.1% X 2.06 = 12.6%Modified DuPont Formula (cont.)Use of the FLM to convert ROA into ROE reflects the impact of financial leverage on the owner’s return.Substituting the values for Bartlett Company’s ROA of 6.1 percent calculated earlier, and Bartlett’s FLM of 2.06 ($3,597,000 total assets ÷ $1,754,000 common stock equity) into the Modified DuPont formula yields:56Copyright © 2006 Pearson Addison-Wesley. All rights reserved.