IENG 215 Financial Analysis. Financial Statement Analysis Liquidity Measures current ratio quick...

IENG 215IENG 215

Financial AnalysisFinancial Analysis

Financial Statement Financial Statement AnalysisAnalysis

Liquidity Measures current ratio quick ratio working capital

Long Term Credit Risk debt to assets ratio debt to equity

Financial Statement Financial Statement AnalysisAnalysis

Profitability Measures return on assets return on equity net profit margin earnings per share

Activity Ratios accounts receivable turnover inventory turnover

LiquidityLiquidity

Working Capital

900,55

400,67300,123

sLiabilitieCurrentAssetsCurrentWC

LiquidityLiquidity Working Capital

Q: Is $55,900 sufficient working capital to cover 2-3 months of expenses?

900,55

400,67300,123

sLiabilitieCurrentAssetsCurrentWC

LiquidityLiquidity

Current Ratio (Industry > 2.0)

83.1

400,67

300,123

sLiabilitieCurrent

AssetsCurrentCR

LiquidityLiquidity

Quick Ratio (Industry > 1.0)

03.1

400,67

200,54300,123

sLiabilitieCurrent

InventoryAssetsCurrentQR

Long Term Credit Long Term Credit RiskRisk

Debt to Assets (Industry < 33%)

50.0

100,387

200,193

AssetsTotal

sLiabilitieTotalDA

Long Term Credit Long Term Credit RiskRisk

Debt to Assets (Industry < 33%)

50.0

100,387

200,193

AssetsTotal

sLiabilitieTotalDA

1996 0.54

Long Term Credit Long Term Credit RiskRisk

Debt to Equity Ratio (Industry 33-50%)

996.0

900,193

200,193

'

EquitysOwner

sLiabilitieTotalDE

Long Term Credit Long Term Credit RiskRisk

Debt to Equity Ratio (Industry 33-50%)

996.0

900,193

200,193

'

EquitysOwner

sLiabilitieTotalDE

1996 1.182

Profitability Profitability MeasuresMeasures

Return on Assets (Industry 8-10%)

047.02

800,383100,387000,18

AssetsAverageTotal

IncomeNetROA

Profitability Profitability MeasuresMeasures

Debt to Equity (Industry 12-15%)

097.0

2/)900,175900,193(

000,18

EquityOwnerAverage

IncomeNetROE

Profitability Profitability MeasuresMeasures

Net Profit Margin (Industry 4-6%)

(Industry Specific)

031.0

800,574

000,18

SalesNet

IncomeNetNPM

Profitability Profitability MeasuresMeasures

Earnings per Share (Industry Specific)

18

000,1

000,18

tan

dingOutsSharesCommon

IncomeNetEPS

Activity RatiosActivity Ratios

Accounts Receivable Turnover (Industry Specific)

ART

46.13

2/)600,38800,46(

800,574

Re

ceivableAccountsAvg

SalesNetART

Activity RatiosActivity Ratios

Inventory Turnover (Industry > 10)

365.8

2/)200,48200,54(

300,428

InventoryAverage

SoldGoodsofCostIT

Financial LeverageFinancial LeverageFirm with No LeverageBalance Sheet Assets $100,000

Liabilities $0 Owner Equity 100,000Total Liability & Owner Equity $100,000

Income from Operations $18,000Interest Expense 0Net Income $18,000

Financial LeverageFinancial LeverageFirm with No LeverageBalance Sheet Assets $100,000

Liabilities $0 Owner Equity 100,000Total Liability & Owner Equity $100,000

Income from Operations $18,000Interest Expense 0Net Income $18,000

18.0000,100

000,18

18.0000,100

000,18

ROE

ROA

Financial LeverageFinancial LeverageFirm with LeverageBalance Sheet Assets $100,000

Liabilities $50,000 Owner Equity 50,000Total Liability & Owner Equity $100,000

Income from Operations $18,000Interest Expense 4,000Net Income $14,000

Financial LeverageFinancial Leverage

28.0000, 50

000,14

14.0000,100

000,14

ROE

ROA

Firm with LeverageBalance Sheet Assets $100,000

Liabilities $50,000 Owner Equity 50,000Total Liability & Owner Equity $100,000

Income from Operations $18,000Interest Expense 4,000Net Income $14,000

Financial LeverageFinancial Leverage

28.0000, 50

000,14

14.0000,100

000,14

ROE

ROA

Firm with LeverageBalance Sheet Assets $100,000

Liabilities $50,000 Owner Equity 50,000Total Liability & Owner Equity $100,000

Income from Operations $18,000Interest Expense 4,000Net Income $14,000

Note: ROI = 18,000/100,000