Chapter 3

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.

•Working With Financial Statements

•Working With Financial Statements

3-2

Key Concepts and Skills

• Understand sources and uses of cash and the Statement of Cash Flows

• Know how to standardize financial statements for comparison purposes

• Know how to compute and interpret important financial ratios

• Be able to compute and interpret the DuPont Identity

• Understand the problems and pitfalls in financial statement analysis

3-3

Chapter Outline

• Cash Flow and Financial Statements: A Closer Look

• Standardized Financial Statements

• Ratio Analysis

• The DuPont Identity

• Using Financial Statement Information

3-4

Sample Balance Sheet

2003 2002 2003 2002

Cash 696 58 A/P 307 303

A/R 956 992 N/P 26 119

Inventory 301 361 Other CL 1,662 1,353

Other CA 303 264 Total CL 1,995 1,775

Total CA 2,256 1,675 LT Debt 843 1,091

Net FA 3,138 3,358 C/S 2,556 2,167

Total Assets

5,394 5,033 Total Liab. & Equity

5,394 5,033

Numbers in millions

3-5

Sample Income Statement

Revenues 5,000

Cost of Goods Sold 2,006

Expenses 1,740

Depreciation 116

EBIT 1,138

Interest Expense 7

Taxable Income 1,131

Taxes 442

Net Income 689

EPS 3.61

Dividends per share 1.08

Numbers in millions, except EPS & DPS

3-6

Sources and Uses

• Sources• Cash inflow – occurs when we “sell” something• Decrease in asset account (Sample B/S)

• Accounts receivable, inventory, and net fixed assets

• Increase in liability or equity account• Accounts payable, other current liabilities, and common stock

• Uses• Cash outflow – occurs when we “buy” something• Increase in asset account

• Cash and other current assets

• Decrease in liability or equity account• Notes payable and long-term debt

3-7

企業中現金流量的來源現金流入 現金流出

現金

營運活動現金銷貨

應收帳款收現

營運活動應付帳款付現所得稅支出

融資活動發行普通股發行公司債

投資活動資產的處分

投資活動資產的購入

融資活動股利支付貸款償還

3-8

Statement of Cash Flows

• Statement that summarizes the sources and uses of cash

• Changes divided into three major categories• Operating Activity – includes net income and

changes in most current accounts• Investment Activity – includes changes in fixed

assets• Financing Activity – includes changes in notes

payable, long-term debt and equity accounts as well as dividends

3-9

Sample Statement of Cash Flows

Cash, beginning of year 58 Financing Activity

Operating Activity Decrease in Notes Payable -93

Net Income 689 Decrease in LT Debt -248

Plus: Depreciation 116 Decrease in C/S (minus RE) -94

Decrease in A/R 36 Dividends Paid -206

Decrease in Inventory 60 Net Cash from Financing -641

Increase in A/P 4 Net Increase in Cash 638

Increase in Other CL 309 Cash End of Year 696

Less: Increase in CA -39

Net Cash from Operations 1,175

Investment Activity

Sale of Fixed Assets 104

Net Cash from Investments 104

Numbers in millions

3-10

財務報表分析之特質與方法

3-11

Standardized Financial Statements

• Common-Size Balance Sheets• Compute all accounts as a percent of total assets

• Common-Size Income Statements• Compute all line items as a percent of sales

• Standardized statements make it easier to compare financial information, particularly as the company grows

• They are also useful for comparing companies of different sizes, particularly within the same industry

3-12

Ratio Analysis

• Ratios also allow for better comparison through time or between companies

• As we look at each ratio, ask yourself what the ratio is trying to measure and why is that information is important

• Ratios are used both internally and externally

3-13

Categories of Financial Ratios

• Short-term solvency or liquidity ratios

• Long-term solvency or financial leverage ratios

• Asset management or turnover ratios

• Profitability ratios

• Market value ratios

3-14

Computing Liquidity Ratios

• Current Ratio = CA / CL• 2256 / 1995 = 1.13 times

• Quick Ratio = (CA – Inventory) / CL• (2256 – 1995) / 1995 = .1308 times

• Cash Ratio = Cash / CL• 696 / 1995 = .35 times

• NWC to Total Assets = NWC / TA• (2256 – 1995) / 5394 = .05

• Interval Measure = CA / average daily operating costs• 2256 / ((2006 + 1740)/365) = 219.8 days

3-15

Computing Long-term Solvency Ratios

• Total Debt Ratio = (TA – TE) / TA• (5394 – 2556) / 5394 = 52.61%

• Debt/Equity = TD / TE• (5394 – 2556) / 2556 = 1.11 times

• Equity Multiplier = TA / TE = 1 + D/E• 1 + 1.11 = 2.11

• Long-term debt ratio = LTD / (LTD + TE)• 843 / (843 + 2556) = 24.80%

3-16

Computing Coverage Ratios

• Times Interest Earned = EBIT / Interest• 1138 / 7 = 162.57 times

• Cash Coverage = (EBIT + Depreciation) / Interest• (1138 + 116) / 7 = 179.14 times

3-17

Computing Inventory Ratios

• Inventory Turnover = Cost of Goods Sold / Inventory• 2006 / 301 = 6.66 times

• Days’ Sales in Inventory = 365 / Inventory Turnover• 365 / 6.66 = 55 days

3-18

Computing Receivables Ratios

• Receivables Turnover = Sales / Accounts Receivable• 5000 / 956 = 5.23 times

• Days’ Sales in Receivables = 365 / Receivables Turnover• 365 / 5.23 = 70 days

3-19

Computing Total Asset Turnover

• Total Asset Turnover = Sales / Total Assets• 5000 / 5394 = .93• It is not unusual for TAT < 1, especially if a

firm has a large amount of fixed assets

• NWC Turnover = Sales / NWC• 5000 / (2256 – 1995) = 19.16 times

• Fixed Asset Turnover = Sales / NFA• 5000 / 3138 = 1.59 times

3-20

Computing Profitability Measures

• Profit Margin = Net Income / Sales• 689 / 5000 = 13.78%

• Return on Assets (ROA) = Net Income / Total Assets• 689 / 5394 = 12.77%

• Return on Equity (ROE) = Net Income / Total Equity• 689 / 2556 = 26.96%

3-21

Computing Market Value Measures

• Market Price = $87.65 per share

• Shares outstanding = 190.9 million

• PE Ratio = Price per share / Earnings per share• 87.65 / 3.61 = 24.28 times

• Market-to-book ratio = market value per share / book value per share• 87.65 / (2556 / 190.9) = 6.56 times

3-22

財務比率分析（續）

• 經濟附加價值 (EVA)• 用以衡量公司稅後營業淨利和全部資金成本的差額。

EVA= 投入總資本（資本報酬率－平均資金成本）

=1,614.22 (20% － 16%)=64.57（億）

• 負的 EVA 表示資本報酬率不足以支付股東與債權人提供資金索取的代價，若不及時改善，公司將不斷的侵蝕老本，不利於股價表現。

3-23

財務比率分析（續）

• 市場價值比率 以每股市價來說明企業的營運績效，包

括本益比 、股利收益率及市價對帳面價值比及市場附加價值等。

)(15.2324.3

75倍

每股盈餘普通股每股市價

本益比

%4%10075

3%100

普通股每股市價每股股利

股利收益率

)(76.474.15

75 倍每股帳面價值普通股每股市價市價對帳面價值比

3-24

財務比率分析（續）

• 市場附加價值 (MVA)• 投資人原始投入資金與目前市場價值之間的差額。

MVA= 股東權益市場價值－股東權益帳面價值

=75×76 億 7,090 萬股－ 120,770 百萬

=4,545 億 4,750 萬元• MVA 數值的大小，隱含著投資人對該公司經營

能力的認同度。• MVA 為公司未來各年預計 EVA 的折現值。

3-25

Deriving the DuPont Identity

• ROE = NI / TE

• Multiply by 1 and then rearrange• ROE = (NI / TE) (TA / TA)• ROE = (NI / TA) (TA / TE) = ROA * EM

• Multiply by 1 again and then rearrange• ROE = (NI / TA) (TA / TE) (Sales / Sales)• ROE = (NI / Sales) (Sales / TA) (TA / TE)• ROE = PM * TAT * EM

3-26

杜邦等式分析

權益乘數總資產報酬率平均股東權益平均總資產

平均總資產稅後淨利

平均總資產平均總資產

平均股東權益稅後淨利

平均股東權益稅後淨利

股東權益報酬率

權益乘數總資產周轉率銷貨利潤邊際

權益乘數平均總資產銷貨收入

銷貨收入稅後淨利

權益乘數銷貨收入銷貨收入

平均總資產稅後淨利

權益乘數

ROAROE

3-27

Using the DuPont Identity

• ROE = PM * TAT * EM• Profit margin is a measure of the firm’s

operating efficiency – how well does it control costs

• Total asset turnover is a measure of the firm’s asset use efficiency – how well does it manage its assets

• Equity multiplier is a measure of the firm’s financial leverage

3-28

Expanded DuPont Analysis – Aeropostale Data

• Balance Sheet Data• Cash = 138,356• Inventory = 61,807• Other CA = 12,284• Fixed Assets = 94,601• EM = 1.654

• Computations• TA = 307,048• TAT = 2.393

• Income Statement Data• Sales = 734,868• COGS = 505,152• SG&A = 141,520• Interest = (760)• Taxes = 34,702

• Computations• NI = 54,254• PM = 7.383%• ROA = 17.668%• ROE = 29.223%

3-29

Aeropostale Extended DuPont Chart

ROE = 29.223%

ROA = 17.668% EM = 1.654

PM = 7.383% TAT = 2.393

NI = 54,254 Sales = 734,868 Sales = 734,868 TA = 307,048

Total Costs = - 680,614 Sales = 734,868

COGS = - 505,152 SG&A = - 141,520

Interest = - (760) Taxes = - 34,702

Fixed Assets = 94,601 Current Assets = 212,447

Cash = 138,356

Other CA = 12,284

Inventory = 61,807

x

x

++

3-30

Why Evaluate Financial Statements?

• Internal uses• Performance evaluation – compensation and

comparison between divisions• Planning for the future – guide in estimating

future cash flows

• External uses• Creditors• Suppliers• Customers• Stockholders

3-31

Benchmarking

• Ratios are not very helpful by themselves; they need to be compared to something

• Time-Trend Analysis• Used to see how the firm’s performance is

changing through time• Internal and external uses

• Peer Group Analysis• Compare to similar companies or within

industries• SIC and NAICS codes

3-32

Real World Example - I

• Ratios are figured using financial data from the 2003 Annual Report for Home Depot

• Compare the ratios to the industry ratios in Table 3.12 in the book

• Home Depot’s fiscal year ends Feb. 1• Be sure to note how the ratios are

computed in the table so that you can compute comparable numbers.

• Home Depot sales = $64,816 MM

3-33

Real World Example - II

• Liquidity ratios• Current ratio = 1.40x; Industry = 1.8x• Quick ratio = .45x; Industry = .5x

• Long-term solvency ratio• Debt/Equity ratio (Debt / Worth) = .54x;

Industry = 2.2x.

• Coverage ratio• Times Interest Earned = 2282x; Industry =

3.2x

3-34

Real World Example - III

• Asset management ratios:• Inventory turnover = 4.9x; Industry = 3.5x• Receivables turnover = 59.1x (6 days); Industry =

24.5x (15 days)• Total asset turnover = 1.9x; Industry = 2.3x

• Profitability ratios• Profit margin before taxes = 10.6%; Industry =

2.7%• ROA (profit before taxes / total assets) = 19.9%;

Industry = 4.9%• ROE = (profit before taxes / tangible net worth) =

34.6%; Industry = 23.7%

3-35

Potential Problems

• There is no underlying theory, so there is no way to know which ratios are most relevant

• Benchmarking is difficult for diversified firms• Globalization and international competition makes

comparison more difficult because of differences in accounting regulations

• Varying accounting procedures, i.e. FIFO vs. LIFO• Different fiscal years• Extraordinary events

3-36

會計數字無法反映實際價值

會計方法的選擇影響比較效度

多角化投資的影響

通貨膨脹的影響

標竿選擇的問題

會計數字的品質問題

財務報表分析的限制

3-37

Work the Web Example

• The Internet makes ratio analysis much easier than it has been in the past

• Click on the web surfer to go to www.investor.reuters.com • Choose a company and enter its ticker symbol• Click on Ratios and then Financial Condition

and see what information is available

3-38

Quick Quiz

• What is the Statement of Cash Flows and how do you determine sources and uses of cash?

• How do you standardize balance sheets and income statements and why is standardization useful?

• What are the major categories of ratios and how do you compute specific ratios within each category?

• What are some of the problems associated with financial statement analysis?

Chapter 3

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.

•End of Chapter•End of Chapter