《會計英語第四版》課件單元9

LessonNine:Interpretation

ofFinancialStatements

Aims:1.Toexplainthebasicsourceoffinancialstatementanalysis.2.Tocalculateaccountingratiosandknowhowaretheseratiosusedtoanalyzefinancialstatements.3.Todeveloptheabilitytoanalyzethefinancialstatementsofanorganization.4.Todescribetheimportanceoffinancialanalysiswhenmakingdecisions.9.1

IntroductiontoFinancialStatementAnalysis(1)Anappreciationofhowthefiguresinthefinancialstatementshavebeencompiled.i.e.athoroughknowledgeofbasicbookkeepingandthefundamentalaccountingconcepts;(2)Anawarenessoftheusersoffinancialstatementsandtheirspecificneeds;(3)Anunderstandingofthedeficienciesofthefinancialstatements,especiallywherehistoricalcostaccountinghasbeenused;(4)Theabilitytoanalyzeandquestiontheinformationgiven.Thefiguresinthefinancialstatementsshouldrarelybetakenatfacevalue;(5)Anappreciationofthetypeofbusinessundertakenbythecompanyandanawarenessofinternalandexternalfactorswhichmayaffectthebusiness;(6)Theabilitytocommunicateinformationinaclearandconcisemannerintheformofwrittenreportsorbusinessletters,ororallyinmeetings.9.2

RatioAnalysisTheusersoffinancialstatementswillanalyzeandappraisethestatementsbyexaminingthefiguresandmakingcomparisonswith:(1)Correspondingfiguresfromdifferentaccountingperiods.(2)Forecastorbudgetedfigures;(3)Thesamefiguresintheaccountsofasimilarorganization.9.3

TheUsesofRatioAnalysisRatioanalysisisausefultooltoindicatespecificareasofabusinesswhichmeritfurtherinvestigation.Thecalculationofrelevantratioswillprovidetheuserwithanumberofpertinentquestionstowhichtheremaybeanumberofalternativeanswers.9.4

TheLimitationsofRatioAnalysisRatioswillsufferfromthesamedeficienciesastheinformationfromwhichtheyarecalculated.Thefinancialstatementsofmostorganizationshavemajordrawbacks:1.HistoricalCostAccounting2.SeasonalFluctuations3.TimeLag4.Aggregation5.WindowDressing6.Non-standardizationofAccountingPolicies7.DifferentPatternsofAssetOwnership9.6

ProfitabilityRatiosProfitabilityistheabilityofanentitytoearnprofits.Thisabilitytoearnprofitsdependsupontheeffectivenessandefficiencyofoperationsaswellasresourcesavailabletotheenterprise.Theseareusuallyexpressedasapercentageandareusedtocommentontheprofitandlossaccountfigures.9.7

ReturnonCapitalEmployed(ROCE)orReturnonNetAssets(RONA)Itisanimportantratioandisoftenknownastheprimaryratio.Itisameasureoftheoverallprofitabilityofthebusiness.Itshowsthepercentagereturnonthecapitalinvestedinthebusiness.Itshowshowmuchprofithasbeenearnedforevery$100invested.Itindicateshowefficientlymanagementisusingthebusinessresourcestoearnprofits.9.8

NetProfitRatioThenetprofitratioisnetprofitasapercentageofsales.Itshowshowmuchnetprofitisearnedforevery$1ofsalerevenue.20122013Profit140160Sales8001

000Net

Profit

Margin17.5%16%9.9

GrossProfitMarginThegrossprofitmarginisthegrossprofitasapercentageofsales.Itshowshowmuchgrossprofithasbeenmadeforevery$100ofsales.Salesmarginsvarywidelybetweendifferentindustriesbuttendtobesimilarwithinindustries.20122013Gross

Profit250300Sales8001

000Gross

Profit

Margin31.25%30%9.10

OverheadstoSalesRatioTheoverheadstosalesratioistheoverheadsasapercentageofsales.Assalesvolumeincreases,thisratioshoulddecrease.20122013Overheads120150Sales8001

000Overheads

to

sales15%15%9.11

InvestorsRatiosandGearingGearingmeasurestheproportionofcapitalemployedsubscribedbydebtcapital(borrowingpluspreferenceshares)asopposedtoequity(ordinarysharesplusreserves).20122013Debt

capital(100+100)(100+100)Total

capital

employed506580Gearing

Ratio39.5%34.5%9.12

DividendYieldDividendyieldisameasureoftherevenueearningcapacityofasharetoitsshareholder.Itrelatesthedividendfortheyeartothemarketvalueoftheshare.20122013Dividend

for

year7.5￠10￠×100Market

value200￠250￠Dividend

Yield3.75%4%9.13

EarningsPerShare(EPS)Earningspersharerelatestheprofitsearnedbytheordinaryshares(irrespectiveofthesizeofthedividend)tothenumberofissuedordinaryshares.20122013Profit

for

the

financial

year(after

tax)90100Less

Preference

dividend66Ordinary

share

earnings8494Number

of

ordinary

shares200200Earnings

per

ordinary

share

42￠

47￠9.14

PriceEarningsRatio(P/E)Theprice/earningsratiorelatesthemarketvalueofasharetotheearningspershare.Thisfacilitatesthecomparisonoftheperformanceofthesharesofdifferentcompanies.20122013Market

Value200250Earnings

per

share4247P/E4.85.39.15

LiquidityRatiosTheseratiosareusedtoassesstheabilityoftheorganizationtomeetitsfinancialobligationsi.e.assesswhethertheorganizationhassufficientliquidresources(cash)topayitscreditors.9.16

CurrentRatioThecurrentratioistheratioofCurrentAssetstoCurrentLiabilities.20122013Current

assets150230Current

liabilities144220Current

Ratio1.04∶11.05∶19.17

QuickRatioThequickratio(AcidTestRatio)istheratioofCurrentAssetsexcludingstocktoCurrentLiabilities.Iftheratioistoohigh,thecompanymaybeholdingexcessiveliquidassets.Iftheratioistoolow,thecompanymayhavealiquidityproblem.20122013Current

assets

excluding

stock090160Current

liabilities144220Quick

Ratio0.63∶10.73∶19.18

StockTurnoverThisratioshowsthenumberoftimetheaveragestockisbeingsoldinaperiod.StockTurnover=9.19

DebtorsCollectionPeriodThisratioisusedtoappraisethecompanyperformanceinitsd