Act 211, Chapter 12

Views:
 
Category: Entertainment
     
 

Presentation Description

No description available.

Comments

Presentation Transcript

Chapter 12:

Chapter 12 Financial Statement Analysis McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Part A:

Part A Comparison of Financial Accounting Information 12- 2

Comparison of Financial Accounting Information:

Comparison of Financial Accounting Information 12- 3

LO1 Vertical Analysis:

LO1 Vertical Analysis In performing vertical analysis, we express each item in a financial statement as a percentage of the same base amount. UNDER AMROUR AND NIKE Common-Size Income Statements For the Years Ended December 31, 2009 and May 31, 2009 ($ in millions) UNDER ARMOUR NIKE For the year ended: December 31, 2009 May 31, 2009 Amount % Amount % Net Sales $856.4 100.0 $19,176.1 100.0 Cost of goods sold 443.4 51.8 10,571.7 55.1 Gross profit 413.0 48.2 8,604.4 44.9 Operating expenses 327.7 38.3 6,745.9 35.2 Operating income 85.3 9.9 1,858.5 9.7 Other income (expense) (2.9) (0.3) 98.0 0.5 Income before tax 82.4 9.6 1,956.5 10.2 Income tax expense 35.6 4.1 469.8 2.4 Net income 46.8 5.5 1,486.7 7.8 12- 4

Vertical Analysis (Balance Sheet):

Vertical Analysis (Balance Sheet) UNDER AMROUR AND NIKE Common-Size Balance Sheets December 31, 2009 and May 31. 2009 (in millions) UNDER AMROUR NIKE December 31, 2009 May 31, 2009 Amount % Amount % Assets Current assets $448.0 82.1 $9,734.0 73.4 Property and equipment 72.9 13.4 1,957.7 14.8 Intangible assets 5.7 1.0 660.9 5.0 Other assets Total assets 19.0 3.5 897.0 6.8 $545.6 100.0 $13,249.6 100.0 Liabilities and Stockholders’ Equity Current liabilities $120.2 22.0 $3,277.0 24.7 Long-term liabilities 25.4 4.7 1,279.2 9.7 Common stock 197.8 36.3 3,242.0 24.5 Retained earnings 202.2 37.0 5,451.4 41.1 Total liab. and stockholders’ equity $545.6 100.0 $13,249.6 100.0 12- 5

LO2 Horizontal Analysis:

LO2 Horizontal Analysis Analyze trends in financial statement data for a single company over time. UNDER ARMOUR Income Statement For the Years Ended December 31 (in millions) Year Increase (Decrease) 2009 2008 Amount % Sales $856.4 $725.2 $131.2 18.1 Cost of goods sold 443.4 370.3 73.1 19.7 Gross profit 413.0 354.9 58.1 16.4 Operating expenses 327.7 278.0 49.7 17.9 Operating income 85.3 76.9 8.4 10.9 Other expenses 2.9 7.0 (4.1) (58.6) Income before tax 82.4 69.9 12.5 17.9 Income tax expense 35.6 31.7 3.9 12.3 Net income $46.8 $38.2 $8.6 22.5 12- 6

Horizontal Analysis (Balance Sheet):

Horizontal Analysis (Balance Sheet) UNDER ARMOUR Balance Sheet December 31 (in millions) Year Increase (Decrease) 2009 2008 Amount % Assets Current assets $448.0 $396.4 $51.6 13.0 Property and equipment 72.9 73.5 (0.6) (0.8) Intangible assets 5.7 5.5 0.2 3.6 Other assets 19.0 12.2 6.8 55.7 Total assets $545.6 $487.6 $58.0 11.9 Liabilities and Stockholders’ Equity Current liabilities $120.2 $133.1 (12.9) (9.7) Long-term liabilities 25.4 23.4 2.0 8.5 Common stock 197.8 175.1 22.7 13.0 Retained earnings 202.2 156.0 46.2 29.6 Total liabilities and stockholders’ equity $ 545.6 $487.6 $ 58.0 11.9 12- 7

PowerPoint Presentation:

i >clicker question

Part B:

Part B Using Ratios to assess Risk and Profitability 12- 9

LO3 Risk Analysis:

LO3 Risk Analysis Risk Ratios Chapter Calculations Liquidity Receivable turnover ratio 5 Net Credit sales Average accounts receivables Average collection period 5 365 days Receivable turnover ratio Inventory turnover ratio 6 Cost of goods sold Average inventory Average days in inventory 6 365 days Inventory turnover ratio Current ratio 8 Current assets Current liabilities Acid-test ratio 8 Cash + net receivables + current investments Current liabilities Solvency Debt to equity ratio 9 Total liabilities Total stockholders’ equity Times interest earned ratio 9 Net income + interest expense + tax expense Interest expense A company’s ability to pay its current liabilities A company’s ability to pay its long-term liabilities 12- 10

Receivable Turnover Ratio:

Receivable Turnover Ratio Receivable turnover ratio Under Armour Nike Net credit sales ‘ Average net receivables $856.4 = 9.2 times 6.2 times ($94.1 + $92.2) / 2 Measures how many times, on average, a company collects its receivables during the year. HIGH RATIO A company can quickly turn its receivables into cash 12- 11

Average Collection Period:

Average Collection Period Converts the receivable turnover ratio into days. LOW RATIO The shorter the average collection period, the better. Average collection period Under Armour Nike 365 Days 365 days 9.2 = 39.7 Days 58.9 Days Receivable turnover ratio 12- 12

Inventory Turnover Ratio:

Inventory Turnover Ratio Measures how many times, on average, a company sells its entire inventory during the year. HIGH RATIO Inventory is selling more quickly, less cash is tied up in inventory, and the risk of outdated inventory is lower Inventory turnover ratio Under Armour Nike Cost of goods sold $ 443.4 . ($182.2 + $148.5) / 2 = 2.7 Times 4.4 Times Average inventory 12- 13

Average Days in Inventory:

Average Days in Inventory Converts the inventory turnover ratio into days. LOW RATIO Companies try to minimize the number of days they hold inventory Average days in inventory Under Armour Nike 365 Days 365 days 2.7 = 135.2 Days 83.0 Days Inventory turnover ratio 12- 14

Current Ratio:

Current Ratio Compares current assets to current liabilities. HIGH RATIO A company has sufficient current assets to pay current liabilities as they become due Current ratio Under Armour Nike Current assets $448.0 $120.1 = 3.7 to 1 3.0 to 1 Current liabilities 12- 15

Acid-Test Ratio:

Acid-Test Ratio Based on a more conservative measure of current assets available to pay current liabilities, the acid-test ratio provides a better indication of a company’s liquidity than does the current ratio. HIGH RATIO A company has sufficient current assets (excluding inventories and prepaid expenses) to pay current liabilities as they become due Acid-test ratio Under Armour Nike Cash + net receivables + current investments $187.3 + 0 + $92.2 $120.1 = 2.3 to 1 2.0 to 1 Current liabilities 12- 16

Debt to Equity Ratio:

Debt to Equity Ratio Compares liabilities to stockholders’ equity. LOW RATIO Lower debt compared to equity, results in lower risk of bankruptcy Debt to equity ratio Under Armour Nike Total liabilities $120.1 + $25.4 $400.1 = 36.4% 52.4% Total stockholders’ equity 12- 17

Times Interest Earned Ratio:

Times Interest Earned Ratio Compares interest payments with a company’s income available to pay those charges. HIGH RATIO Company generates enough income to cover its interest payments Times interest earned ratio Under Armour Nike Net income + interest expense + tax expense $46.8 + $2.4 + $35.6 $2.4 = 35.3 42.9 Interest expense 12- 18

LO4 Profitability Analysis:

LO4 Profitability Analysis Profitability Ratios Chapter Calculations Gross profit ratio 6 Gross profit Net Sales Return on assets 7 Net income Average total assets Profit margin 7 Net income Net Sales Asset turnover 7 Net Sales Average total assets Return on equity 10 Net income Average stockholders’ equity Price-earnings ratio 10 Stock price Earnings per share 12- 19

Gross Profit Ratio:

Gross Profit Ratio Indicates the portion of each dollar of sales above its cost of goods sold. HIGH RATIO Higher the gross profit, the better it is Gross profit ratio Under Armour Nike Gross profit $413.0 $856.4 = 48.2 % 44.9% Net Sales 12- 20

Return on Assets:

Return on Assets Measures the income the company earns on each dollar invested in assets. HIGH RATIO Higher the return on assets, the better it is Return on assets Under Armour Nike Net income $46.8 ‘ ($487.6 + $545.6)/2 = 9.1 % 11.6% Average total assets 12- 21

Profit Margin:

Profit Margin Measures the income earned on each dollar of sales. HIGH RATIO Higher the profit margin, the better it is Profit margin Under Armour Nike Net income $46.8 ‘ $856.4 = 5.5% 7.8% Net Sales 12- 22

Asset Turnover:

Asset Turnover Measures sales volume in relation to the investment in assets. HIGH RATIO Higher the sales for every dollar it invests in assets, the better it is Asset turnover Under Armour Nike Net Sales $856.4 ‘ ($487.6 + $545.6) /2 = 1.7 Times 1.5 Times Average total assets 12- 23

Return on Equity:

Return on Equity Measures the income earned for each dollar in stockholders’ equity. HIGH RATIO Higher the income earned for each dollar in stockholders’ equity, the better it is Return on equity Under Armour Nike Net income $46.8 ($331.1 + $400.1)/2 = 12.8% 18.0% Average stockholders’ equity 12- 24

Price-Earnings Ratio:

Price-Earnings Ratio Compares a company’s share price with its earnings per share. HIGH RATIO Investors have high expectations of future earnings for the company Price-earnings ratio Under Armour Nike Stock price $27.27 $0.94 = 29.0 18.6 Earnings per share 12- 25

PowerPoint Presentation:

i >clicker question

PowerPoint Presentation:

Good Luck on the LAST Chapter’s Homework!!!

authorStream Live Help