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Transcript of 786 Presentation
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Group Members
1. Ansar Abbas 7297
2. Yahya Haider 73013. Hasan Mahmood 7257
4. Saqib Ali 7299
5. Ghulam Murtza 72816. Adeel Irshad 7291
7. Naeem Khan 7288
8. Asif Shah 7304
Ansar Abbas
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FINANCIAL STATEMENT ANALYSIS
TOPIC
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GAAP
The guide lines used toprepare and maintain
financial records &reports are known asGAAP
STOCK HOLDERS REPORT
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A seven-member independentboard consisting of accounting
professionals who establishand communicate standards offinancial accounting andreporting in the United States.
FINANCIAL ACCOUNTING
STANDARDS BOARD(FASB)
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Public Company Accounting Oversight Board
The Public Company Accounting Oversight Board (orPCAOB) is a private-sector, non-profit corporationcreated by the SarbanesOxley.
A non-profit organization that regulates
auditors of publicly traded companies.
The PCAOB was established as a result of the
creation of the Sarbanes-Oxley Act of 2002. The
board's aim is to protect investors and other
stakeholders of public companies by ensuring
that the auditor of a company's financial
statements has followed a set of strict
guidelines.
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1. The mission of the Securities and
Exchange Commission (SEC) is to
protect investors, maintain fair,
orderly, and efficient markets, and
facilitate capital formation.
2. Unlike the banking world, wheredeposits are almost always
guaranteed by the federal
government, stocks, bonds and
other securities can lose value.
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STOCK HOLDERS REPORT
The annual report and
other reports givento stockholders toinform them of thecompanys financial
standing anddevelopments.
stockholders
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KEY FINANCIAL STATEMENTS
Income Statements
A historical financial reportthat indicates sources andamounts of revenues, amounts
of expense accounts, and profitor loss.
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1. The second financial statement that
you'll encounter in the annual report isthe balance sheet.
2. The basic concept underlying abalance sheet is simple enough: totalassets equals total liabilities plusequity.
Balance sheet
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1. Statement of Stockholder'sEquity is a portion of the balancesheet which contains the amountof capital earned by the companyin exchange to the stock.
2.It also records the capital thatis donated by the companyand the retained earnings.
Statement of Stock Holders
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1. The Statement of RetainedEarnings is the secondfinancial statement that should
be prepared in the accountingcycle after the incomestatement.
2. Retained earning are the
portion of net income not paidout to investors in the businessas dividends. Retainedearnings are reinvested in thebusiness firm.
STATEMENT OF RETAINED EARNING
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Statement of cash flow is a financialstatement that shows howchanges in balance sheetaccounts and income affect cashand cash equivalents, and breaksthe analysis down to operating,
investing, and financing activities.
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HASAN MAHMOOD
ROLL No. 7257
CLASS MBA
DEPARTMENT OF BUSINESS ADMINISTRATION
G.C UNIVERSITY FAISALABAD
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1. Ratio Analysis is a form
of Financial Statementanalysis.
2. It is used to obtain a
quick indication of afirm's financialperformance in severalkey areas.
Ratio Analysis
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INTERESTED PARTIES
1. Financial statement analysis isuseful to different parties toobtain the required informationabout the organization.
2. Following are the partiesinterested in financialstatement analysis.
FINANCIAL RATIOS
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a. ShareholdersShareholders are interested in financialstatement analysis to know the profitability of
the organization.b. Investors And Lenders
i. Investors and lenders are interested to know
the solvency position of an organization.ii. They analyze the financial statement position
to know about the safety of their investment
and ability to pay interest and repayment ofprinciple amount on due date.
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c. CREDITORS
Creditors analyze the financial statementto know either the organization is enable
to pay the amount of short term liabilitieson due date.
d. ManagementManagement is interested to analyze the
financial statement for measuring theeffectiveness of its policies anddecisions.
e. Government
Government is interested to analyze thefinancial position in determining theamount of tax liability.
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Assessment of
relationships among across-section of firms,countries, or someother variable at oneparticular time.
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1. A benchmark is a reference ormeasurement standard used for
comparison.
2. Benchmarking is the continuous
activity of identifying, understanding& adapting best practice and
processes that will lead to superior
performance.
3. Benchmarking measures an
organization's products, services and
processes, to establish targets,
priorities.
Benchmarking
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Time Series Analysis1. In financial analysis the dire
ction of changes over a periodof years is of crucial
importance.2. Time series or trend analysis
of ratios indicates the directionof change.
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Combined analysis simply
uses a combination of bothtime series analysis andcross-sectional analysis.
COMBINED ANALYSIS
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GROSS PROFIT RATIO
1. It is the ratio of gross profit to net sales
express as a percentage2. It shows the relationship between GP
and sales gross.
FORMULA:
profit ratio = gross profit/net sales *100
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OPERATING RATIO
1. It is the ratio of cost of goods
sold plus operating expenses to
net sales
2. This ratio shows the
operational efficiency of the
business
FORMULA
operating ratio=CGS + operating
expenses /net sales * 100
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EXPENSE RATIO
1. It indicate the relationship of various
expenses to net sales
2. It reveals the average total in expensesFORMULA:
expense ratio= expenses/ net sales * 100
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NET PROFIT RATIO
1. It is the ratio of net profit to net sales also
expressed as a percentage
2. It is used to measure overall profitability ofbusiness.
FORMULA:net profit ratio=net profit/net sales *100ssssss
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STOCK TURNOVER RATIO
It shows the relationship between CGS
and average stock during certain time
period It measure the velocity of conversion of
stock into sale.
FORMULAStock turnover ratio= CGS/ avg. stock
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It indicates the number of times, the
debtors are turned over during a year
It measure the velocity of debt collection ofa firm
FORMULA
Debtor turnover ratio = total credit sale/avg.
debtors
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AVERAGE COLLECTION PERIOD
When debtors turnover ratio is
calculated in terms of days called
average collection period.FORMULA
Average collection period = average
debtors/total credit purchase * 360
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CREDITORS TURNOVER RATIO
It compares the creditors with credit
purchase
It signified the credit period enjoyed by
the firm in paying creditors
FORMULA
creditors turnover ratio=credit purchase
/ avg. creditors
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AVERAGE PAYMENT PERIOD
It shows the number of days taken by
a firm to pay its creditors.
FORMULA
Average payment period= average
creditors / credit purchase * 360
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WORKING CAPITAL TURNOVER RATIO
It measure the efficiency with which the
working capital is being used by a firm
FORMULA
working capital turnover ratio =CGS/net working capital
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This ratio measures the efficiencyand profit earning capacity of the
concern.ssFORMULA
fixed asset turnover ratio= CGS /
fixed assets
FIXED ASSET TURNOVER RATIO
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It indicates the efficiency withwhich the firm uses its assets togenerate sale.
FORMULA
Total asset turnover ratio= CGS /total assets
TOTAL ASSET TURNOVER RATIO
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Liquidity
Liquidity is the amount of capital that isavailable for investment and spending
Current Ratio:-
A liquidity ratio that measures a company's ability to
pay short-term obligations.
The Current Ratio formula is:
LIQUIDITY RATIOS
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The acid test ratio (or quick ratio) isa measurement of a company's ability topay short term liabilities without selling
inventory.The acid test ratio can be calculated asfollows:
Acid test ratio =(Accounts receivable+ Cash equivalents + Cash) / Currentliabilities
ACID TEST / QUICK RATIO
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INVENTORY TURNOVER RATIO
The inventory turnover ratiomeasuresthe number of times a company sells its
inventory during the year.Formula
Inventory Turnover Ratio = cost of
goods sold / average inventory
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Number of days an average inventory itemtakes to sell:
For example, assume that average
inventory is $47,500 and cost of goodssold is $500,000. The average age ofinventory is ($47,500/$500,000) X 365days = 34.7 days
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The average amount of time needed tocollects accounts receivable
Collection Period =
Collection Period = 365days
Accounts Receivable X 365 daysCredit Sales
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Financial LeverageThe financial leverage ratioindicates theextent to which the business relies on debt
financing.FORMULA:-
Financial Leverage Ratio = total debt /shareholders equity.
The financial leverage ratioindicates theextent to which the business relies on debtfinancing.
Debt Ratios
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Common Size Income Statement
An income statement in which eachaccount is expressed as a percentage
of the value of sales.
Gross Profit Margin(formula):-
PROFITABILITY RATIOS
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FORMULA:-
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Market ratio relate
the firms value, asmeasured by itscurrent share
price, to certainaccounting values.
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The P/E ratio measures the amount that investorsare willing to pay for each dollar of a firm' earnings
FORMULA:-
Price Earnings Ratio = Market price per equity share/ Earnings per share
EXAMPLE:-
The market price of a share is $30 and earning per share is$5.
Calculate price earnings ratio?
CALCULATION:-
Price earnings ratio = 30 / 5=6
PRICE/EARNING RATIO
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1. Market book ratio providesan assessment of howinvestors view the firms
performance .
2. Firms expected to earnhigh returns relative to theirrisk typically sell at higher
m/b multiples.
MARKET RATIOS
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