基礎(chǔ)會計學英文版Lesson10-enUnderstanding and Using Financial Statements

Lesson

10Understanding

and

Using

FinancialStatementsTask

Team

ofFUNDAMENTAL

ACCOUNTINGSchool

of

Business,

Sun

Yat-sen

UniversityOutline2Demand

and

supply

of

financial

analysisBasic

analytical

proceduresAnalysis

methodsComprehensive

analysis

of

financial

ratiosThe

limitations

of

financial

analysisWhat’s

wrong

with

accountinginformation?3InvestorsManagersEmployeesCustomersauditorsGovernment/regulatoryagenciesInternal

analystsIntermediariesFinancial

analystsBond

rating

agenciesDemand

and

supply

of

financial

analysisDemand

Supply4Basic

analytical

proceduresConcludeContriveanalysisschemeAnalyzedataDetermineobjectiveCollectdata5Techniques

of

Financial

Statement

Analysis6Horizontal

analysis

or

Trend

analysisVertical

analysis–

Common-size

financial

statementRatio

analysisHorizontal

analysis7

Horizontal

analysis,

or

trend

analysis,

istechnique

for

evaluating

a

series

of

financstatement

data

over

a

period

of

time.Purpose

is

to

determine

the

increase

or

decrease.Commonly

applied

to

the: balance

sheet,income

statement,

andstatement

of

retained

earnings.Horizontal

analysis8Horizontal

analysis9Vertical

analysis10

Vertical

analysis

is

used

to

show

therelationship

of

the

component

parts

to

thetotal

in

a

single

statementIn

the

vertical

analysis

of

the

balance

sheet,asset

or

equity

item

is

stated

as

a

percent

oftotal

assets;In

the

vertical

analysis

of

the

income

statemeneach

item

is

stated

as

a

percent

of

net

sales;A

example

of

vertical

analysisYear

ended201320122011Net

Sales100.00100.00100.00Less:

Cost

of

goods

sold854.9685.6187.88Gross

profit

on

sales15.0114.3911.40Selling

expenses11.2911.0111.41Administrative

expenses2.712.592.40Interest

expenses0.200.15-0.81Total

expenses14.2013.7513.00Income

before

taxes0.810.641.40Income

taxes0.020.030.06Net

income0.890.611.3411Ratio

analysis

expresses

the

relationship

among

selecteditems

of

financial

statement

data.Financial

Ratio

ClassificationsLiquidityProfitabilitySolvencyMeasuresshort-term

ability

of

thecompany

to

pay

itsmaturing

obligationsand

to

meetunexpected

needsfor

cash.Measuresthe

income

or

operatingsuccess

of

acompany

for

a

givenperiod

of

time.Measures

the

abilityof

the

company

tosurvive

over

a

longperiod

of

time.12Ratio

AnalysisIllustration13Ratio

AnalysisRatio

Analysis14All

sales

were

on

account.

The

allowance

for

doubtful

accounts

was

$3,200

onDecember

31,

2009,

and

$3,000

on

December

31,

2008.15Ratio

AnalysisMeasure

the

short-term

ability

of

the

company

to

pay

itsmaturing

obligations

and

to

meet

unexpected

needs

for

caShort-term

creditors

such

as

bankers

and

suppliersparticularly

interested

in

assessing

liquidity.Ratios

include

the

current

ratio,

the

acid-test

ratreceivables

turnover,

and

inventory

turnover.16Ratio

Analysis

–

Liquidity

RatiosCompute

the

Current

Ratio

for

2012.Current

Assets=

Current

RatioCurrent

Liabilities$369,900$203,500The

ratio

of

1.82:1

means

that

for

every

dollar

of

current

liabilitiesthe

company

has

$1.82

of

current

assets.=

1.82

:

1Ratio

Analysis

–

Liquidity

Ratio17Compute

the

Acid-Test

Ratio

for

2012.$60,100

+

$69,000

+

$107,800=

1.16

:

1$203,500The

acid-test

ratio

measures

immediate

liquidity.Cash

+

Short-Term

Investments

+

Receivables

(NeAtc)id-TestCurrent

LiabilitiesRatio=18Ratio

Analysis

–

Liquidity

RatioCompute

the

Receivables

Turnover

ratio

for

2012.$1,818,500($107,800

+

$102,800)

/

2It

measures

the

number

of

times,

on

average,

thecompany

collects

receivables

during

the

period.=

17.3

timesNet

Credit

SalesAverage

Net

ReceivablesReceivablesTurnover19=Ratio

Analysis

–

Liquidity

Ratio$1,818,500($107,800

+

$102,800)

/

2A

variant

of

the

receivables

turnover

ratio

is

to

convertan

average

collection

period

in

terms

of

days.365

days

/

17.3

times

=

every

21.1

daysThis

means

that

receivables

are

collected

on

average

ever21

days.20Receivables

Turnover=

17.3

timesRatio

Analysis

–

Liquidity

RatioCompute

the

Inventory

Turnover

ratio

for

2012.=

8.1

times($133,000

+

$115,500)

/

2Inventory

turnover

measures

the

number

of

times,

onaverage,theinventory

is

sold

during

the

period.Average

Inventory$1,011,500Cost

of

Good

SoldInventoryTurnover21=Ratio

Analysis

–

Liquidity

Ratios$1,011,500($133,000

+

$115,500)

/

2A

variant

of

inventory

turnover

is

the

days

in

inventory.365

days

/

8.1

times

=

every

45.1

daysInventory

turnover

ratios

vary

considerably

amongindustries.Inventory

Turnover=

8.1

times22Ratio

Analysis

–

Liquidity

RatiosMeasure

the

income

or

operating

success

of

a

company

for

a23given

period

of

time.Income,

or

the

lack

of

it,

affects

the

company’s

abito

obtain

debt

and

equity

financing,

liquidity

posiand

the

ability

to

grow.Ratios

include

the

profit

margin,

asset

turnover,

reon

assets,

return

on

common

stockholders’

equity,earnings

per

share,

price-earnings,

and

payout

ratiRatio

Analysis

–

Profitability

RatCompute

the

Profit

Margin

ratio

for

2012.$199,000$1,818,500Measures

the

percentage

of

each

dollar

of

sales

that

results

in

netincome.=

10.9%Net

IncomeNet

SalesProfit

Margin24=Ratio

Analysis

–

Profitability

RatCompute

the

Asset

Turnover

ratio

for

2012.$1,818,500($970,200

+

$852,800)

/

2Measures

how

efficiently

a

company

uses

its

assets

to

generate

sales.=

2.0

timesNet

SalesAverage

AssetsAssetTurnover25=Ratio

Analysis

–

Profitability

RatCompute

the

Return

on

Assets

ratio

for

2012.$199,000($970,200

+

$852,800)

/

2An

overall

measure

of

profitability.=

21.8%Net

IncomeAverage

AssetsReturn

onAssets26=Ratio

Analysis

–

Profitability

RatCompute

the

Return

on

Common

Stockholders’

Equityratio

for

2012.Net

Income

–

Preferred

Dividends$199,000

-

$0($566,700

+

$465,400)

/

2Shows

how

many

dollars

of

net

income

the

company

earned

for

eachdollar

invested

by

the

owners.=

38.6%Average

Common

Stockholders’

EquityReturn

onCommonStockholdersEquity27=Ratio

Analysis

–

Profitability

RatiCompute

the

Earnings

Per

Share

for

2012.A

measure

of

the

net

income

earned

on

each

share

of

common

stock.$199,00057,000

(given)=

$3.49

per

shareNet

IncomeWeighted

Average

CommonOutstandingSharesEarnings

PerShare28=Ratio

Analysis

–

Profitability

RatCompute

the

Price

Earnings

Ratio

for

2012.$25

(given)$3.49The

price-earnings

(P-E)

ratio

reflects

investors’

assessments

of

a

compafuture

earnings.=

7.16

timesMarket

Price

per

Share

of

StockEarnings

Per

SharePrice

EarningsRatio29=Ratio

Analysis

–

Profitability

RatCompute

the

Payout

Ratio

for

2012.Measuresthe

percentage

of

earnings

distributed

in

the

form

of

cashdividends.*

From

analysis

of

retained

earnings.=

39%$77,700

*$199,000Cash

DividendsNet

IncomePayoutRatio30=Ratio

Analysis

–

Profitability

RatSolvency

ratios

measure

the

ability

of

a

company

to

surviover

a

long

period

of

time.

Debt

to

total

assets

and

times

interest

earned

are

twratios

that

provide

information

about

debt-payingability.31Ratio

Analysis

–

Solvency

RatiosCompute

the

Debt

to

Total

Assets

Ratio

for

2012.Measures

the

percentage

of

the

total

assets

that

creditors

provide.$403,500$970,200=

41.6%Total

DebtTotal

AssetsDebt

to

TotalAssets

Ratio32=Ratio

Analysis

–

Solvency

RatiosCompute

the

Times

Interest

Earned

ratio

for

2012.$199,000

+

$84,000

+

$18,000$18,000Provides

anindication

of

the

company’s

ability

tomeetinterest

paymentsthey

come

due.=

16.7

timesIncome

before

Income

Taxes

andInterest

ExpenseInterest

ExpenseTimes

InterestEarned33=Ratio

Analysis

–

Solvency

RatiosDupond

AnalysisNet

incomeNet

SalesROE=Net

Margin

X

Asset

Turnover

X

Leverage

FactorNet

incomeowner’s

equitySalesAssetsAssetsOwner’s

equity34Dupond

analysis

for

five

firmsFirmNetMarginAssetTurnoverROALeverageFactorROEA8.36%0.564.65%2.4311.31%B22.83%0.122.80%1.825.11%C3.87%0.863.34%1.966.52%D1.42%1.361.94%3.647.04%35E4.24%1.124.74%1.326.25%Why

ratio

analysis

is

useful?They

facilitate

inter-company

comparison;

They

downplay

the

impact

of

size

and

allow

evaluation

ovtime

or

across

entities

without

undue

concern

for

theeffects

of

size

difference;

They

serve

as

benchmarks

for

targets

such

as

financingratios

and

debt

burden;

They

help

provide

an

informed

basis

for

makinginvestment-related

decisionsbycomparing

an

entity’sfinancial

performance

to

another;……36How

is

ratio

analysis

limited?37

It

is

restricted

to

information

reportethe

financial

statements;It

is

based

on

past

performance.

Comparability

is

hampered

whenaccounting

policies

are

not

uniform

acroan

industry;The

past

may

not

predict

the

future.How

is

ratio

analysis

limited?

(cont)38

Trends

and

relationships

mustbe

carefullyevaluated

with

reference

to

industry

norms,budgets,

and

strategic

decisions;

Because

of

some

potential

problems

in

standard,comparison

must

be

careful.Standards

of

comparison

for

financialstatement

analysisPrior

years’resultsIndustryaveragesInternalprojections

orbudgetMay

include

inefficiencies

or

reflectdifferent

operating

policies

than

in

effect

inthe

current

year.May

not

be

representative

or

desirable

forthis

firm.May

not

be

available;

may

be

based

ondifferent

or

budgets

operating

policies

thanin

effect

in

the

current

year.Standard

ofcomparisonPotential

problem39What

should

an

analyst

keep

in

mind

aboutfinancial

analysis?40

An

overview

of

all

ratios

can

provide

importantinformation

concerning

the

strategic

decisions

ofcompany