Business Financial Analysis

Business Financing and Planning

Financial Ratio Analysis

Enter the cells with a yellow highlight

1) The year & year name for the left and right column years.
2) The requested data for the Balance Sheet for both years.
3) The requested data for the Income Statement for both years.
4) The other requested data.

Company Name: Company Name

Year Year Name

Right column year: 2007 Current Year
Left column year: 2006 Previous Year

(Please note that the majority of the financial analysis is performed on the left column year.)

Company Name

Comparative Balance Sheets

Assets 2006 2007

Previous Year Current Year

Cash $95,000 $90,000

Short-term securities $55,000 $62,000
Accounts receivable $120,000 $150,000
Inventory $90,000 $100,000
Prepaid expenses $37,000 $35,000
Current Assets $397,000 $437,000
Gross: Plant & Equipment $629,000 $650,000
Less: Accum. depreciation $118,000 $135,000
Net plant & equipment $511,000 $515,000
Other tangible assets $4,000 $5,000
Intangible assets $3,000 $3,000
Total Assets $915,000 $960,000

Liabilities & Equity

Short-term notes payable $22,000 $25,000

Curr. maturities, l.t. debt $25,000 $30,000
Accounts payable $270,000 $285,000
Accrued expenses $33,000 $33,000
Taxes payable $1,200 $2,000
Other curr. liabilities $35,000 $33,000
Current Liabilites $386,200 $408,000
Long-term debt $187,000 $162,000
Less: curr. maturities $25,000 $30,000
Net long-term debt $162,000 $132,000
Preferred stock $100,000 $100,000
Common stock (@ par value) $50,000 $50,000
Capital surplus $12,800 $20,000
Retained earnings $204,000 $250,000
Total Liabilities &
Stockholders' Equity $915,000 $960,000

Comparative Income Statements

Net Sales $3,550,000 $3,700,000

Cost of goods sold $3,050,000 $3,100,000

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 Business Financial Analysis

Gross profit $500,000 $600,000

General, selling & admin. $277,000 $285,000
Operating profit $223,000 $315,000
Interest expense $5,500 $6,000
Other income (expense) $400 $500
Pretax income $217,900 $309,500
Income taxes $65,000 $75,000
Net income $152,900 $234,500

Other Requested Data:

Common stock valued at an earnings multiple of:

(Price earnings multiple or P/E ratio) 12
Common stock dividends paid per share in current yr: $2.00
Par value per share of common stock: $1.00
Percent return on preferred stock: 10.0%
Par value per share of prefered stock: $10.00
Preferred stock is convertible into how many
shares of common stock: 10
Intangible net worth: $10,000
Depreciation in right column year was: $75,000
Depreciation in left column year was: $100,000
Purchases are what percent of cost of sales: 66.7%
Credit sales are what percent of total sales: 100.0%

Company Name

Summary of Financial Ratio Analysis 2007

1. Liquidity Ratios

Net Working Capital: $29,000

Net Working Capital to Sales: 0.01
Net Working Capital to Total Assets: 0.03
Current Ratio: 1.07
Quick Assets: $302,000
Net Quick Assets: -$106,000
Net Quick Ratio: 0.74
Cash Ratio: 0.37
Basic Defense Interval: 32.6

2. Leverage and Capital Structure Ratios

Tangible equity $410,000

Long-term debt to tangible equity ratio: 0.40
Total debt to equity ratio: 1.29
Total debt to assets (debt to capital) ratio: 0.56
Fixed assets to equity ratio: 1.23
Current liabilities to equity ratio: 0.97
Overtrading ratio 0.98

3. Profitability & Values Ratios

Net profit margin (return on sales): 6.3%

Rate of return on investment (ROI): 42.5%
Rate of return on assets (ROA): 24.4%
Rate of return on equity (ROE): 55.8%
Rate of return on common stockholders equity: 70.2%
Gross profit margin: 16.2%
Operating margin: 8.5%
Operating ratio: 0.91
Asset turnover: 3.9
Earning power on assets: 33.1%
Book value: $6.40

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 Business Financial Analysis

Earnings per share (common stock): $4.49

Cash flow per share (common stock): $6.69
Market value per share (common stock): $53.88
Capitalization rate: 8.3%
Yield: 3.71%
Payout ratio (common stock): 44.5%
Dilution percent: 66.7%
Diluted earnings per share: $1.56

4. Turnover & Activity Ratios

Accounts payable days purchases outstanding: 50.3

Accounts receivable aver. collection period: 13.3
Inventory turnover: 32.6
Average days for inventory to sell: 11.2
Asset turnover: 3.9
Gross margin return on inventory: 3.26

5. Coverage Ratios

Cash flow times interest earned ratio: 50.9

Times interest earned ratio: 52.6
Cash flow to current maturities ratio: 10.0

6. Source and Application of Funds

The source and application of funds schedule reconciles the balance sheet and income statement. It reflects where
capital came from (internal and external sources) and how it was used. The type of activity from the Statement
of Cash Flows is shown in parentheses.

Sources of Capital:
Net Income (operating) $234,500
Depreciation (operating) $100,000
Long-term debt (financing) $132,000

Total Sources $466,500

Uses of Cash:
Capital expenditures (investing) $21,000
Cash dividends (financing):
Preferred stock $10,000
Common stock $100,000
Increase in working cap. (operating) $18,200

Total Uses $149,200

Reconciliation of Net Income to Net Cash Provided (Used) by Operating Activities

Net Income $234,500

Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation $100,000
Other $0
(Increase) decrease in assets and increase
(decrease) in liabilties:
Cash $5,000
Short-term securities ($7,000)
Accounts receivable ($30,000)
Inventory ($10,000)
Prepaid expenses $2,000
Notes payable $3,000
Accounts payable $15,000
Curr. maturities long-term debt $5,000
Accrued expenses $0
Taxes payable $800
Other curr. liab. ($2,000)

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 Business Financial Analysis

Net Cash Provided (Used) by

Operating Actvities $316,300

Changes in Working Capital:

Increase (decrease) in cash ($5,000)

Increase (decrease) in short-term securities $7,000
Increase (decrease) in accounts receivable $30,000
Increase (decrease) in inventory $10,000
Increase (decrease) in prepaid expenses ($2,000)
Decrease (increase) in notes payable ($3,000)
Decrease (increase) in accounts payable ($15,000)
Decrease (increase) in curr. maturities
long-term debt ($5,000)
Decrease (increase) in accrued expenses $0
Decrease (increase) in taxes payable ($800)
Decrease (increase) in other curr. liab. $2,000

Net change in working capital $18,200

7. Z-Score Analysis to Predict Bankrupcy

Ratio Answer Coeff. Z-Score

2007

Working capital = 0.030 x 1.20 0.036

/ Total assets

Retained earnings = 0.260 x 1.40 0.365

/ Total assets

Earnings before interest = 0.329 x 3.30 1.085

& tax / Total assets

Net worth = 0.778 x 0.60 0.467

/ Total liabilities

Net Sales = 3.854 x 1.00 3.854

/ Total assets

Total Z-Score = 5.806

2006

Working capital = 0.012 x 1.20 0.077

/ Total assets

Retained earnings = 0.223 x 1.40 0.727

/ Total assets

Earnings before int. = 0.244 x 3.30 1.641

& tax / Total assets

Net worth = 0.669 x 0.60 0.703

/ Total liabilities

Net Sales = 3.880 x 1.00 3.880

/ Total assets

Total Z-Score = 7.027

Key: >= 3.00 Safe from Bankruptcy

<= 1.80 Destined for Bankruptcy

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 Business Financial Analysis

1.81 to 2.99 Danger area

Company Name

Detailed Financial Ratio Analysis 2007

1. Liquidity Ratios

Net Working Capital = Current Assets - Current liabilities

$29,000 = $437,000 - $408,000

Net Working Capital to Sales = Net working capital / Net Sales

0.01 = $29,000 / $3,700,000

Net Working Capital to Total Assets:

= Net working capital / Total assets
0.03 = $29,000 / $960,000

Current Ratio = Current Assets / Current liabilities

1.07 = $437,000 / $408,000

Quick Assets = Cash + Short-term securities + Accounts Receivable

$302,000 = $152,000 + $150,000

Net Quick Assets = Quick assets - Current liabilities

-$106,000 = $302,000 - $408,000

Net Quick Ratio = Quick assets / Current liabilities

0.74 = $302,000 / $408,000

Cash Ratio = Cash + Short-term securities / Current liabilities

0.37 = $152,000 / $408,000

Basic Defense Interval = Cash + Short-term securities + Accounts Receivable / Daily Expenses
32.6 = $302,000 / $9,274

Percentage composition of current assets:

Cash $90,000 21%
Short-term securities $62,000 14%
Accounts receivable $150,000 34%
Inventory $100,000 23%
Prepaid expenses $35,000 8%
Current Assets $437,000 100%

2. Leverage and Capital Structure Ratios

Tangible equity = Total equity - intangible net worth

$410,000 = $420,000 - $10,000

Long-term debt to tangible equity ratio:

= Long-term debt / Tangible equity
0.40 = $132,000 / $410,000

Total debt to equity ratio = Current liabilities + Long-term debt / Total net worth
1.29 = $540,000 / $420,000

Total debt to assets ratio (or debt to capital ratio):

= Current liabilities + Long-term debt / Total assets
= Current liabilities + Long-term debt / cur. liab. + l.t. debt + Net worth
0.56 = $540,000 / $960,000

Fixed assets to equity ratio = Fixed assets / Total net worth

1.23 = $515,000 / $420,000

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 Business Financial Analysis

Current liabilities to equity ratio:

= Current liabilities / Total net worth
0.97 = $408,000 / $420,000

Overtrading ratio = Current Liabilities / Net worth - Intangible assets

0.98 = $408,000 /
$420,000 - $3,000

Capitalization - all long-term capital

Net long-term debt $132,000 24%

Preferred stock $100,000 18%
Capital surplus $20,000 4%
Common stock $50,000 9%
Retained earnings $250,000 45%
Common stockholders'
equity $320,000 58%
Long-term Capital $552,000 100%

3. Profitability & Values Ratios

Net profit margin (return on sales):

= Net income / Net Sales
6.3% = $234,500 / $3,700,000

Rate of return on capitalization (return on investment, ROI):

= Net income / Total capitalization
42.5% = $234,500 / $552,000

Rate of return on assets (ROA):

= Net income / Total assets
24.4% = $234,500 / $960,000

Rate of return on equity (ROE):

= Net income / Total net worth
55.8% = $234,500 / $420,000

Rate of return on common stockholders' equity:

= Net income - Preferred dividend / Common stockholders' equity
70.2% = $224,500 / $320,000

Gross profit margin = Gross profit / Net Sales

16.2% = $600,000 / $3,700,000

Operating margin = Operating profit / Net Sales

8.5% = $315,000 / $3,700,000

Operating ratio = Cost of goods sold + General, selling & admin. / Net Sales
0.91 = $3,100,000 + $285,000 / $3,700,000

Asset turnover = Net Sales / Operating Assets

3.9 = $3,700,000 / $952,000

Earning power on assets = Operating margin x Asset turnover

33.1% = 8.5% x 3.89

Book value = Common stockholders' equity / number of shares outstanding

$6.40 = $320,000 / 50,000

Note: Compute shares outstanding by dividing common stock (@ par value) on balance sheet
by par value per share. Par value is simply a stated value of common stock
for accounting and legal purposes.

Earnings per share = Net income - Preferred dividend /

(common stock) Number of shares outstanding
$4.49 = $234,500 - $10,000 / 50,000

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 Business Financial Analysis

Cash flow per share = Net income + Depreciation / Number of shares outstanding
(common stock)
$6.69 = $234,500 + $100,000 / 50,000

Market value = Earnings per share (EPS) x Price earnings multiple (P/E)
$53.88 = $4.49 x 12.00

Capitalization rate = 1 / Price earnings multiple (P/E)

8.3% = 1 / 12.00

Yield = Dividends per share / price per share

3.71% = $2.00 / $53.88

Common Stock Payout ratio = Common stock dividends paid / Net income - Preferred dividend
44.5% = $100,000 / $224,500

Dilution percent = Com. stock converted from pref. stock /

Total shares outstanding after conversion
66.7% = 100,000 / 150,000

Diluted earnings per share = Total net income / Total shares outstanding after conversion
$1.56 = $234,500 / 150,000

4. Turnover & Activity Ratios

Accounts payable days purchases outstanding

= Accounts payable x 365 / Annual purchases
50.3 = $285,000 x 365 / $2,067,700

Accounts receivable average collection period

= Average accounts recievable x 365 / Annual credit sales
13.3 = $135,000 x 365 / $3,700,000

Inventory turnover = Cost of goods sold / Average ending inventory

32.6 = $3,100,000 / $95,000

Average days for = Average ending inventory x 365 / Cost of goods sold
inventory to sell
11.2 = $95,000 x 365 / $3,100,000

Assset turnover = Net Sales / Average Assets

3.9 = $3,700,000 / $937,500

Gross margin return = (Pretax Income / Net Sales) x

on inventory (Net sales / Aver. ending inventory)
3.26 = $309,500 / $3,700,000
x $3,700,000 / $95,000

5. Coverage Ratios

Cash flow times interest earned ratio:

= Earnings before interest and taxes + Depreciation - Dividends
/ Total debt interest expense
50.9 = $315,500 + $100,000 - $110,000
/ $6,000

Times interest earned ratio = Earnings before interest and taxes / Total debt interest expense
52.6 = $315,500 / $6,000

Cash flow to current maturities ratio:

= Pretax income + Depreciation - Dividends
/ Current Maturities of long-term debt
10.0 = $299,500 / $30,000

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 Business Financial Analysis SCR

Business Financing and Planning

Financial Ratio Analysis

Enter the cells with a yellow highlight

1) The year & year name for the left and right column years.
2) The requested data for the Balance Sheet for both years.
3) The requested data for the Income Statement for both years.
4) The other requested data.

Company Name: Company Name

Year Year Name

Right column year: 2007 Current Year
Left column year: 2006 Previous Year

(Please note that the majority of the financial analysis is performed on the left column year.)

Company Name

Comparative Balance Sheets

Assets 2006 2007

Previous Year Current Year

Cash $95,000 $90,000

Short-term securities $55,000 $62,000
Accounts receivable $120,000 $150,000
Inventory $90,000 $100,000
Prepaid expenses $37,000 $35,000
Current Assets $397,000 $437,000
Gross: Plant & Equipment $629,000 $650,000
Less: Accum. depreciation $118,000 $135,000
Net plant & equipment $511,000 $515,000
Other tangible assets $4,000 $5,000
Intangible assets $3,000 $3,000
Total Assets $915,000 $960,000

Liabilities & Equity

Short-term notes payable $22,000 $25,000

Curr. maturities, l.t. debt $25,000 $30,000
Accounts payable $270,000 $285,000
Accrued expenses $33,000 $33,000
Taxes payable $1,200 $2,000
Other curr. liabilities $35,000 $33,000
Current Liabilites $386,200 $408,000
Long-term debt $187,000 $162,000
Less: curr. maturities $25,000 $30,000
Net long-term debt $162,000 $132,000
Preferred stock $100,000 $100,000
Common stock (@ par value) $50,000 $50,000
Capital surplus $12,800 $20,000
Retained earnings $204,000 $250,000
Total Liabilities &
Stockholders' Equity $915,000 $960,000

Comparative Income Statements

Net Sales $3,550,000 $3,700,000

Cost of goods sold $3,050,000 $3,100,000

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 Business Financial Analysis SCR

Gross profit $500,000 $600,000

General, selling & admin. $277,000 $285,000
Operating profit $223,000 $315,000
Interest expense $5,500 $6,000
Other income (expense) $400 $500
Pretax income $217,900 $309,500
Income taxes $65,000 $75,000
Net income $152,900 $234,500

Other Requested Data:

Common stock valued at an earnings multiple of:

(Price earnings multiple or P/E ratio) 12
Common stock dividends paid per share in current yr: $2.00
Par value per share of common stock: $1.00
Percent return on preferred stock: 10.0%
Par value per share of prefered stock: $10.00
Preferred stock is convertible into how many
shares of common stock: 10
Intangible net worth: $10,000
Depreciation in right column year was: $75,000
Depreciation in left column year was: $100,000
Purchases are what percent of cost of sales: 66.7%
Credit sales are what percent of total sales: 100.0%

Company Name

Summary of Financial Ratio Analysis 2007

1. Liquidity Ratios

Net Working Capital: $29,000

Net Working Capital to Sales: 0.01
Net Working Capital to Total Assets: 0.03
Current Ratio: 1.07
Quick Assets: $302,000
Net Quick Assets: -$106,000
Net Quick Ratio: 0.74
Cash Ratio: 0.37
Basic Defense Interval: 32.6

2. Leverage and Capital Structure Ratios

Tangible equity $410,000

Long-term debt to tangible equity ratio: 0.40
Total debt to equity ratio: 1.29
Total debt to assets (debt to capital) ratio: 0.56
Fixed assets to equity ratio: 1.23
Current liabilities to equity ratio: 0.97
Overtrading ratio 0.98

3. Profitability & Values Ratios

Net profit margin (return on sales): 6.3%

Rate of return on investment (ROI): 42.5%
Rate of return on assets (ROA): 24.4%
Rate of return on equity (ROE): 55.8%
Rate of return on common stockholders equity: 70.2%
Gross profit margin: 16.2%
Operating margin: 8.5%
Operating ratio: 0.91
Asset turnover: 3.9
Earning power on assets: 33.1%
Book value: $6.40

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Earnings per share (common stock): $4.49

Cash flow per share (common stock): $6.69
Market value per share (common stock): $53.88
Capitalization rate: 8.3%
Yield: 3.71%
Payout ratio (common stock): 44.5%
Dilution percent: 66.7%
Diluted earnings per share: $1.56

4. Turnover & Activity Ratios

Accounts payable days purchases outstanding: 50.3

Accounts receivable aver. collection period: 13.3
Inventory turnover: 32.6
Average days for inventory to sell: 11.2
Asset turnover: 3.9
Gross margin return on inventory: 3.26

5. Coverage Ratios

Cash flow times interest earned ratio: 50.9

Times interest earned ratio: 52.6
Cash flow to current maturities ratio: 10.0

6. Source and Application of Funds

The source and application of funds schedule reconciles the balance sheet and income statement. It reflects where
capital came from (internal and external sources) and how it was used. The type of activity from the Statement
of Cash Flows is shown in parentheses.

Sources of Capital:
Net Income (operating) $234,500
Depreciation (operating) $100,000
Long-term debt (financing) $132,000

Total Sources $466,500

Uses of Cash:
Capital expenditures (investing) $21,000
Cash dividends (financing):
Preferred stock $10,000
Common stock $100,000
Increase in working cap. (operating) $18,200

Total Uses $149,200

Reconciliation of Net Income to Net Cash Provided (Used) by Operating Activities

Net Income $234,500

Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation $100,000
Other $0
(Increase) decrease in assets and increase
(decrease) in liabilties:
Cash $5,000
Short-term securities ($7,000)
Accounts receivable ($30,000)
Inventory ($10,000)
Prepaid expenses $2,000
Notes payable $3,000
Accounts payable $15,000
Curr. maturities long-term debt $5,000
Accrued expenses $0
Taxes payable $800
Other curr. liab. ($2,000)

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 Business Financial Analysis SCR

Net Cash Provided (Used) by

Operating Actvities $316,300

Changes in Working Capital:

Increase (decrease) in cash ($5,000)

Increase (decrease) in short-term securities $7,000
Increase (decrease) in accounts receivable $30,000
Increase (decrease) in inventory $10,000
Increase (decrease) in prepaid expenses ($2,000)
Decrease (increase) in notes payable ($3,000)
Decrease (increase) in accounts payable ($15,000)
Decrease (increase) in curr. maturities
long-term debt ($5,000)
Decrease (increase) in accrued expenses $0
Decrease (increase) in taxes payable ($800)
Decrease (increase) in other curr. liab. $2,000

Net change in working capital $18,200

7. Z-Score Analysis to Predict Bankrupcy

Ratio Answer Coeff. Z-Score

2007

Working capital = 0.030 x 1.20 0.036

/ Total assets

Retained earnings = 0.260 x 1.40 0.365

/ Total assets

Earnings before interest = 0.329 x 3.30 1.085

& tax / Total assets

Net worth = 0.778 x 0.60 0.467

/ Total liabilities

Net Sales = 3.854 x 1.00 3.854

/ Total assets

Total Z-Score = 5.806

2006

Working capital = 0.012 x 1.20 0.077

/ Total assets

Retained earnings = 0.223 x 1.40 0.727

/ Total assets

Earnings before int. = 0.244 x 3.30 1.641

& tax / Total assets

Net worth = 0.669 x 0.60 0.703

/ Total liabilities

Net Sales = 3.880 x 1.00 3.880

/ Total assets

Total Z-Score = 7.027

Key: >= 3.00 Safe from Bankruptcy

<= 1.80 Destined for Bankruptcy

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 Business Financial Analysis SCR

1.81 to 2.99 Danger area

Company Name

Detailed Financial Ratio Analysis 2007

1. Liquidity Ratios

Net Working Capital = Current Assets - Current liabilities

$29,000 = $437,000 - $408,000

Net Working Capital to Sales = Net working capital / Net Sales

0.01 = $29,000 / $3,700,000

Net Working Capital to Total Assets:

= Net working capital / Total assets
0.03 = $29,000 / $960,000

Current Ratio = Current Assets / Current liabilities

1.07 = $437,000 / $408,000

Quick Assets = Cash + Short-term securities + Accounts Receivable

$302,000 = $152,000 + $150,000

Net Quick Assets = Quick assets - Current liabilities

-$106,000 = $302,000 - $408,000

Net Quick Ratio = Quick assets / Current liabilities

0.74 = $302,000 / $408,000

Cash Ratio = Cash + Short-term securities / Current liabilities

0.37 = $152,000 / $408,000

Basic Defense Interval = Cash + Short-term securities + Accounts Receivable / Daily Expenses
32.6 = $302,000 / $9,274

Percentage composition of current assets:

Cash $90,000 21%
Short-term securities $62,000 14%
Accounts receivable $150,000 34%
Inventory $100,000 23%
Prepaid expenses $35,000 8%
Current Assets $437,000 100%

2. Leverage and Capital Structure Ratios

Tangible equity = Total equity - intangible net worth

$410,000 = $420,000 - $10,000

Long-term debt to tangible equity ratio:

= Long-term debt / Tangible equity
0.40 = $132,000 / $410,000

Total debt to equity ratio = Current liabilities + Long-term debt / Total net worth
1.29 = $540,000 / $420,000

Total debt to assets ratio (or debt to capital ratio):

= Current liabilities + Long-term debt / Total assets
= Current liabilities + Long-term debt / cur. liab. + l.t. debt + Net worth
0.56 = $540,000 / $960,000

Fixed assets to equity ratio = Fixed assets / Total net worth

1.23 = $515,000 / $420,000

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 Business Financial Analysis SCR

Current liabilities to equity ratio:

= Current liabilities / Total net worth
0.97 = $408,000 / $420,000

Overtrading ratio = Current Liabilities / Net worth - Intangible assets

0.98 = $408,000 /
$420,000 - $3,000

Capitalization - all long-term capital

Net long-term debt $132,000 24%

Preferred stock $100,000 18%
Capital surplus $20,000 4%
Common stock $50,000 9%
Retained earnings $250,000 45%
Common stockholders'
equity $320,000 58%
Long-term Capital $552,000 100%

3. Profitability & Values Ratios

Net profit margin (return on sales):

= Net income / Net Sales
6.3% = $234,500 / $3,700,000

Rate of return on capitalization (return on investment, ROI):

= Net income / Total capitalization
42.5% = $234,500 / $552,000

Rate of return on assets (ROA):

= Net income / Total assets
24.4% = $234,500 / $960,000

Rate of return on equity (ROE):

= Net income / Total net worth
55.8% = $234,500 / $420,000

Rate of return on common stockholders' equity:

= Net income - Preferred dividend / Common stockholders' equity
70.2% = $224,500 / $320,000

Gross profit margin = Gross profit / Net Sales

16.2% = $600,000 / $3,700,000

Operating margin = Operating profit / Net Sales

8.5% = $315,000 / $3,700,000

Operating ratio = Cost of goods sold + General, selling & admin. / Net Sales
0.91 = $3,100,000 + $285,000 / $3,700,000

Asset turnover = Net Sales / Operating Assets

3.9 = $3,700,000 / $952,000

Earning power on assets = Operating margin x Asset turnover

33.1% = 8.5% x 3.89

Book value = Common stockholders' equity / number of shares outstanding

$6.40 = $320,000 / 50,000

Note: Compute shares outstanding by dividing common stock (@ par value) on balance sheet
by par value per share. Par value is simply a stated value of common stock
for accounting and legal purposes.

Earnings per share = Net income - Preferred dividend /

(common stock) Number of shares outstanding
$4.49 = $234,500 - $10,000 / 50,000

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 Business Financial Analysis SCR

Cash flow per share = Net income + Depreciation / Number of shares outstanding
(common stock)
$6.69 = $234,500 + $100,000 / 50,000

Market value = Earnings per share (EPS) x Price earnings multiple (P/E)
$53.88 = $4.49 x 12.00

Capitalization rate = 1 / Price earnings multiple (P/E)

8.3% = 1 / 12.00

Yield = Dividends per share / price per share

3.71% = $2.00 / $53.88

Common Stock Payout ratio = Common stock dividends paid / Net income - Preferred dividend
44.5% = $100,000 / $224,500

Dilution percent = Com. stock converted from pref. stock /

Total shares outstanding after conversion
66.7% = 100,000 / 150,000

Diluted earnings per share = Total net income / Total shares outstanding after conversion
$1.56 = $234,500 / 150,000

4. Turnover & Activity Ratios

Accounts payable days purchases outstanding

= Accounts payable x 365 / Annual purchases
50.3 = $285,000 x 365 / $2,067,700

Accounts receivable average collection period

= Average accounts recievable x 365 / Annual credit sales
13.3 = $135,000 x 365 / $3,700,000

Inventory turnover = Cost of goods sold / Average ending inventory

32.6 = $3,100,000 / $95,000

Average days for = Average ending inventory x 365 / Cost of goods sold
inventory to sell
11.2 = $95,000 x 365 / $3,100,000

Assset turnover = Net Sales / Average Assets

3.9 = $3,700,000 / $937,500

Gross margin return = (Pretax Income / Net Sales) x

on inventory (Net sales / Aver. ending inventory)
3.26 = $309,500 / $3,700,000
x $3,700,000 / $95,000

5. Coverage Ratios

Cash flow times interest earned ratio:

= Earnings before interest and taxes + Depreciation - Dividends
/ Total debt interest expense
50.9 = $315,500 + $100,000 - $110,000
/ $6,000

Times interest earned ratio = Earnings before interest and taxes / Total debt interest expense
52.6 = $315,500 / $6,000

Cash flow to current maturities ratio:

= Pretax income + Depreciation - Dividends
/ Current Maturities of long-term debt
10.0 = $299,500 / $30,000

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