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
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