Financial Management

Module:
Financial Statement Analysis

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Agenda
Financial Statement Analysis

Ratios Analysis

Common-size Financial
Statements

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Need for Financial Statement
Analysis

Are both the

companies
equally good
to invest in ?
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Need for Financial Statement
Analysis
FinancialStatements provide key
information

But further analysis may still be

required
Prepare Financial Statements

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Ways of Financial Statement
Analysis
FinancialStatements are analyzed
using 2 ways:

1. Financial Ratio
Analysis
2. Common-size
Financial
Statements
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Ratio Analysis
Ratios are calculated by
taking values from Balance
Sheet, Income Statement, and
Cash Flow Statement

Categories of Ratios:
Profitability ratios
Liquidity ratios
Asset Management ratios
Leverage (Debt Management)
ratios
Cash Flow2016 ratios
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 Profitability Ratios
Return on Equity (ROE)
Net Income
-------------------------------
Stockholders Equity
Return on Sales (ROS)
Net Income
-------------------
Sales
Return on Assets (ROA)
Net Income
-------------------
Total
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Ashar
 Liquidity Ratios

Current RatioCurrent Assets

---------------------------
Current Liabilities

Quick (Acid Test) Ratio

Current Assets - Inventory
--------------------------------------
Current Liabilities
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 Asset Management Ratios
Inventory Turnover Ratio
Sales
---------------
Inventory
Days Sales Outstanding (DSO
Accounts Receivable
------------------------------
Sales per Day
Asset Turnover Ratio
Sales
-------------------
Total
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Ashar
 Leverage Ratios

Debt RatioTotal Liabilities

----------------------
Total Assets

Debt-to-Equity Ratio
Total Liabilities
------------------------------
Stockholders Equity
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 Cash Flow Ratios
Cash Flow to Net Income Ratio
Cash from Operating Activities
--------------------------------------------
Net Income
Cash Times Interest Earned Ratio

Cash earned before Interest and Ta

------------------------------------------------
Interest Expense
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Common-size Financial
Statements
Financial
Statements are
compared with
Past record of the same
company
Competitors of the company

For doing this, we need to

bring the statements in a
comparable form

This form is called Common-

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Common-size Balance Sheet
Put all Balance Sheet values as a
percentage of Total Assets

Current
Assets
&
Liabilities
Increased !

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Common-size Income Statement
Putall Income Statement values as a
percentage of Sales

Sales increased but

Profitability reduced !!
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Thank You

2016 Copyright Kalpesh Ashar