BKAL 1013 Chapter 7 Financial Statement Analysis

C6- 1

Learning Objectives

1. Users of Financial Statement2. Importance of Financial Statement

Analysis3. Basic Analytical Procedures4. Solvency Analysis5. Profitability Analysis6. Efficiency Analysis7. Summary of Analytical Measures

C6

Financial Statement AnalysisFinancial Statement AnalysisTopic 7

C6- 2

USERS OF FINANCIAL STATEMENT

BusinessEntity

GovernmentTaxation

Stockholdersand Creditors

Suppliers and Customers Regulatory

Bodies

Employeesand Managers

InternalStakeholders

C6- 3

DIFFERENT USERS NEED OF INFORMATIONDIFFERENT USERS NEED OF INFORMATION

MANAGERPlanning and organizing

business

Banks To approve loan application

vendorsDetermine credit term and

credit limit

ShareholdersPredict investment return &

Future risk

C6- 4

IMPORTANCE OF FINANCIAL STATEMENT ANALYSISIMPORTANCE OF FINANCIAL STATEMENT ANALYSIS

Analysis helps user to…..

generate more meaningful information for making decision.

analyse relationship between financial statement components and the trend.

measure company’s performance & to predict potential risk in the future

C6- 5

BASIS OF COMPARISONS BASIS OF COMPARISONS

Intra company to compare one company’s performance

for several years (3 to 5 years)

Inter company (competitor) Compare company’s performance with other company (similar industries)

Industrial averageto compare company’s performance with industrial average performance (average performance of the companies in similar industries)

C6- 6

BASIC ANALYTICAL PROCEDURESBASIC ANALYTICAL PROCEDURES

COMMON-SIZEHORIZONTAL VERTICAL

PERCENTAGE ANALYSIS

C6- 7

PERCENTAGE PERCENTAGE ANALYSISANALYSIS

C6- 8

HORIZONTAL ANALYSIS HORIZONTAL ANALYSIS

Analysing performance change by percentage inrelated items in comparative financial statements.

C6- 9

Tanjak Holding Sdn BhdComparative Balance SheetDecember 31, 2008 and 2007

AssetsCurrent assets RM 550,000RM 533,000 RM 17,000 3.2%Long-term investments 95,000 177,500 (82,500) (46.5%)Fixed assets (net) 444,500 470,000 (25,500) (5.4%)Intangible assets 50,000 50,000 —

RM1,139,500RM1,230,500RM (91,000) (7.4%) LiabilitiesCurrent liabilities RM 210,000 RM 243,000RM (33,000) (13.6%)Long-term liabilities 100,000 200,000 (100,000) (50.0%)

RM 310,000 RM 443,000RM(133,000) (30.0%) Stockholders’ EquityPreferred 6% stock,RM100RM150,000 RM 150,000 — Common stock, RM10 par 500,000 500,000 — Retained earnings 179,500 137,500 RM42,000 30.5%Total stockholders’ equity RM829,500RM 787,500 RM42,000 5.3%Total liabilities andStockholders’ equity RM1,139,500RM1,230,500 RM(91,000) (7.4%)

Increase (Decrease)

2008 2007 Amount Percent

C6- 10


AssetsCurrent assets RM 550,000RM 533,000 RM 17,000 3.2%Long-term investments 95,000 177,500 (82,500) (46.5%)Fixed assets (net) 444,500 470,000 (25,500) (5.4%)Intangible assets 50,000 50,000 —

RM1,139,500RM1,230,500RM (91,000) (7.4%) LiabilitiesCurrent liabilities RM 210,000 RM 243,000RM (33,000) (13.6%)Long-term liabilities 100,000 200,000 (100,000) (50.0%)

RM 310,000 RM 443,000RM(133,000) (30.0%) Stockholders’ EquityPreferred stock,RM100 parRM150,000RM 150,000 — Common stock, RM10 par 500,000 500,000 — Retained earnings 179,500 137,500 RM42,000 30.5%

RM 829,500 RM 787,500 RM42,000 5.3% RM1,139,500RM1230,500 RM(91,000) (7.4%)

Increase (Decrease)


Horizontal Analysis: Horizontal Analysis:

Current year (2008) RM550,000Base year (2007) RM533,000

= 103.2%

Increase amount RM17,000Base year (2007) RM533,000

= 3.2%

C6- 11

Tanjak Holding Sdn BhdComparative Income Statement

For the Years Ended December 31, 2008 and 2007

Sales RM1,530,500RM1,234,000RM296,500 24.0%Sales returns 32,500 34,000 (1,500) (4.4%)Net sales 1,498,000 1,200,000 298,000) 24.8%Cost of goods sold 1,043,000 820,000 223,000 27.2% Gross profit 455,000 380,000 75,000 19.7%Selling expenses 191,000 147,000 44,000 29.9%Administrative expenses 104,000 97,400 6,600 6.8% Total operating expenses 295,000 244,400 50,600 20.7%Operating income 160,000 135,600 24,400 18.0%Other income 8,500 11,000 (2,500) (22.7%) 168,500 146,600 21,900 14.9%Other expense 6,000 12,000 (6,000) (50.0%)Income before income tax 162,500 134,600 27,900 20.7%Income tax 71,500 58,100 13,400 23.1%Net income 91,000 76,500 14,500 19.0%

Increase (Decrease)


C6- 12


For the Years EndedDecember 31, 2008 and 2007

Sales RM1,530,500RM1,234,000RM296,500 24.0%Sales returns 32,500 34,000 (1,500) (4.4%)Net sales 1,498,000 1,200,000 298,000) 24.8%Cost of goods sold 1,043,000 820,000 223,000 27.2% Gross profit 455,000 380,000 75,000 19.7%Selling expenses 191,000 147,000 44,000 29.9%Administrative expenses 104,000 97,400 6,600 6.8% Total operating expenses 295,000 244,400 50,600 20.7%Operating income 160,000 135,600 24,400 18.0%Other income 8,500 11,000 (2,500) (22.7%) 168,500 146,600 21,900 14.9%Other expense 6,000 12,000 (6,000) (50.0%)Income before income tax 162,500 134,600 27,900 20.7%Income tax 71,500 58,100 13,400 23.1%Net income 91,000 76,500 14,500 19.0%

Increase (Decrease)


Horizontal Analysis: Horizontal Analysis:

Current year (2008) RM1,498,000Base year (2007) RM1,200,000

= 124.8%

Increase amount RM298,000Base year (2007)RM1,200,000

= 24.8%

C6- 13

VERTICAL ANALYSIS VERTICAL ANALYSIS

Analysing performance change by percentage of each component to the total within a single statements

C6- 14


AssetsCurrent assets RM 550,000 48.3% RM 533,000 43.3%Long-term investments 95,000 8.3 177,500 14.4Fixed assets (net) 444,500 39.0 470,000 38.2Intangible assets 50,000 4.4 50,000 4.1

RM1,139,500 100.0%RM1,230,500 100.0% LiabilitiesCurrent liabilities RM 210,000 18.4% RM 243,000 19.7%Long-term liabilities 100,000 8.8 200,000 16.3

RM 310,000 27.2% RM 443,000 36.0% Stockholders’ EquityPreferred stock, RM100 parRM150,000 13.2% RM 150,000 12.2% Common stock, RM10 par 500,000 43.9 500,000 40.6Retained earnings 179,500 15.7 137,500 11.2

RM 829,500 72.8% RM 787,500 64.0% RM1,139,500 100.0% RM1230,500 100.0%

2008 2007 Amount Percent Amount Percent

C6- 15

Tanjak Holding Sdn BhdComparative Balance SheetsDecember 31, 2008 and 2007



RM310,000 27.2% RM 443,000 36.0% Stockholders’ EquityPreferred stock, RM100 parRM150,000 13.2% RM 150,000 12.2% Common stock, RM10 par 500,000 43.9 500,000 40.6Retained earnings 179,500 15.7 137,500 11.2

RM829,500 72.8% RM787,500 64.0% RM1,139,500 100.0% RM1230,500 100.0%


Vertical Analysis: Asset items Vertical Analysis: Asset items

2008Current assets RM550,000Total assets RM1,139,500

= 48.26%

2007Current assets RM533,000Total assets RM1,230,500

= 43.32%

C6- 16




RM310,000 27.2% RM 443,000 36.0% Stockholders’ EquityPreferred stock, RM100 parRM 150,000 13.2% RM 150,000 12.2% Common stock, RM10 par 500,000 43.9 500,000 40.6Retained earnings 179,500 15.7 137,500 11.2

RM829,500 72.8% RM787,500 64.0% RM1,139,500 100.0% RM1230,500 100.0%

2008 2007Amount Percent Amount Percent

Vertical Analysis: liability items Vertical Analysis: liability items

2008 :Current liabilities RM210,000Liability & equity RM1,139,500

= 18.4%

C6- 17





RM829,500 72.8% RM787,500 64.0% RM1,139,500 100.0% RM1230,500 100.0%


Vertical Analysis: liability items Vertical Analysis: liability items

2007 :Current liabilities RM243,000Liability & equityRM1,230,500

= 19.75%

C6- 18





RM829,500 72.8% RM787,500 64.0% RM1,139,500 100.0% RM1230,500 100.0%


Vertical Analysis: Owner’s equity items Vertical Analysis: Owner’s equity items

2008:Retained earning RM179,500Liability & equity RM1,139,500

= 15.75%

2008:Retained earning RM137,500Liability & equity RM1,230,500

= 11.17%

C6- 19


For the Years Neded December 31, 2008 and 2007

Sales RM1,530,500RM1,234,000Sales returns 32,500 34,000Net sales 1,498,000 1,200,000Cost of goods sold 1,043,000 820,000Gross profit 455,000 380,000Selling expenses 191,000 147,000Administrative expenses 104,000 97,400Total operating expenses 295,000 244,400Operating income 160,000 135,600Other income 8,500 11,000 168,500 146,600Other expense 6,000 12,000Income before income tax 162,500 134,600Income tax 71,500 58,100Net income 91,000 76,500

Increase (Decrease)


vertical analysis: income statement items vertical analysis: income statement items

Net income (2008) RM 91,000Net sales (2008) RM1,498,000

= 6.07%

Net income (2007) RM 76,500Net sales (2007) RM1,200,000

= 6.4%

C6- 20

COMMON-SIZE STATEMENTS COMMON-SIZE STATEMENTS

Useful to compare the current with prior periods, individual businesses, or one business with industry percentages. All items are normally expressedin percentages.

C6- 21




RM310,000 27.2% RM 443,000 36.0% Stockholders’ EquityPreferred stock, RM100 parRM150,000 13.2% RM 150,000 12.2% Common stock, RM10 par 500,000 43.9 500,000 40.6Retained earnings 179,500 15.7 137,500 11.2

RM829,500 72.8% RM787,500 64.0% RM1,139,500 100.0% RM1230,500 100.0%

2008 2007Amount Percent Amount PercentCommon-Size StatementsCommon-Size Statements

C6- 22

BUILDING BLOCKS OF BUILDING BLOCKS OF FINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSIS

EFFICIENCYSOLVENCY PROFITABILITY

RATIO ANALYSIS

C6- 23

Ratio Ratio AnalysisAnalysis

C6- 24

Solvency AnalysisSolvency Analysis

Solvency is the ability of a business to meet its financial obligations (debts) as they are due.

Solvency analysis focuses on the ability of a business to pay or otherwise satisfy its current and noncurrent liabilities.

This ability is normally assessed by examining balance sheet relationships.

C6- 25

Solvency RatiosSolvency Ratios

Solvency (short term/ liquidity)• Working capital• Current ratio• Acid-test ratio

Solvency (long-term)• Fixed assets to long term liabilities• Ratio of liabilities to shareholder’s equity• Times interest charges• Debt ratio• Equity ratio

C6- 26

Solvency Measures — Solvency Measures — The Short-Term Creditor (liquidity)The Short-Term Creditor (liquidity)

Current assets RM550,000 RM533,000Current liabilities 210,000 243,000

Working Capital and Current RatioWorking Capital and Current RatioWorking Capital and Current RatioWorking Capital and Current Ratio

2008 2007

C6- 27

Solvency Measures — The Short-Term CreditorSolvency Measures — The Short-Term Creditor


Use: To indicate the ability to meet currently maturing obligations.


2008 2007Current assets RM550,000 RM533,000Current liabilities 210,000 243,000Working capitalWorking capital RM340,000RM340,000 RM290,000RM290,000

C6- 28


Current assets RM550,000 RM533,000Current liabilities 210,000 243,000Working capital RM340,000 RM290,000

Current ratioCurrent ratio 2.6 2.6 2.2 2.2




Divide current

assets by current

liabilities

Divide current

assets by current

liabilities

2008 2007

C6- 29


Quick assets:Cash RM 90,500 RM64,700Marketable securities 75,000 60,000Accounts receivable (net) 115,000 120,000 Total RM280,500 RM244,700

Current liabilities RM210,000 RM243,000

Acid-Test RatioAcid-Test RatioAcid-Test RatioAcid-Test Ratio

2008 2007

C6- 30


Acid-Test RatioAcid-Test RatioAcid-Test RatioAcid-Test Ratio

Use: To indicate instant debt-paying ability.Use: To indicate instant debt-paying ability.

2008 2007Quick assets:

Cash RM 90,500RM 64,700Marketable securities 75,000 60,000Accounts receivable (net) 115,000 120,000 Total RM280,500RM244,700

Current liabilities RM210,000RM243,000Acid-test ratioAcid-test ratio 1.3 1.3 1.0 1.0

C6- 31

Solvency Measures — The Long-Term CreditorSolvency Measures — The Long-Term Creditor

Ratio of Fixed Assets to Long-Term LiabilitiesRatio of Fixed Assets to Long-Term LiabilitiesRatio of Fixed Assets to Long-Term LiabilitiesRatio of Fixed Assets to Long-Term Liabilities

Fixed assets (net) RM444,500 RM470,000Long-term liabilities RM100,000 RM200,000

2008 2007

C6- 32


Use: To indicate the margin of safety to long-term creditors.

Use: To indicate the margin of safety to long-term creditors.

2008 2007

Fixed assets (net) RM444,500 RM470,000Long-term liabilities RM100,000 RM200,000

Ratio of fixed assets toRatio of fixed assets to

long-term liabilitieslong-term liabilities 4.4 4.4 2.4 2.4

Ratio of Fixed Assets to Long-Term LiabilitiesRatio of Fixed Assets to Long-Term LiabilitiesRatio of Fixed Assets to Long-Term LiabilitiesRatio of Fixed Assets to Long-Term Liabilities

C6- 33


Ratio of Liabilities to Stockholders’ EquityRatio of Liabilities to Stockholders’ EquityRatio of Liabilities to Stockholders’ EquityRatio of Liabilities to Stockholders’ Equity

2008 2007

Total liabilities RM310,000 RM443,000Total stockholders’ equityRM829,500RM787,500

C6- 34


Ratio of Liabilities to Stockholders’ EquityRatio of Liabilities to Stockholders’ EquityRatio of Liabilities to Stockholders’ EquityRatio of Liabilities to Stockholders’ Equity

Use: To indicate the margin of safety to creditors.Use: To indicate the margin of safety to creditors.

2008 2007

Total liabilities RM310,000 RM443,000Total stockholders’ equityRM829,500RM787,500Ratio of liabilities toRatio of liabilities to

stockholders’ equitystockholders’ equity 0.37 0.37 0.56 0.56

C6- 35


Number of Times Interest Charges EarnedNumber of Times Interest Charges EarnedNumber of Times Interest Charges EarnedNumber of Times Interest Charges Earned

2008 2007

Income before income tax RM 900,000 RM 800,000Add interest expense 300,000 250,000Amount available for interest 1,200,000 1,050,000

C6- 36


Number of Times Interest Charges EarnedNumber of Times Interest Charges EarnedNumber of Times Interest Charges EarnedNumber of Times Interest Charges Earned

Use: To assess the risk to debtholders in terms of number of times interest charges were earned.

Use: To assess the risk to debtholders in terms of number of times interest charges were earned.

2008 2007

Income before income tax RM 900,000 RM 800,000Add interest expense 300,000 250,000Amount available for interest 1,200,000 1,050,000

Number of times earnedNumber of times earned 4.0 4.0 4.2 4.2

C6- 37


Debt Ratio Debt Ratio Debt Ratio Debt Ratio

Total liabilities RM 310,000 RM 443,000 Total assets RM1,139,500 RM1,230,500

2008 2007

C6- 38


Use: To measure the extent of credit used to finance the assets.

Use: To measure the extent of credit used to finance the assets.

2008 2007

Total liabilities RM 310,000 RM 443,000 Total assets RM1,139,500 RM1,230,500

Debt RatioDebt Ratio 0.27 0.27 0.36 0.36

Debt RatioDebt RatioDebt RatioDebt Ratio

C6- 39


Equity Ratio Equity Ratio Equity Ratio Equity Ratio

Stockholders’ equity RM 829,500 RM 787,500 Total assets RM1,139,500 RM1,230,500

2008 2007

C6- 40


Use: To measure the extent of owners’ equity used to finance the assets.

Use: To measure the extent of owners’ equity used to finance the assets.

2008 2007

Stockholders’ equity RM 829,500 RM 787,500 Total assets RM1,139,500 RM1,230,500

Equity RatioEquity Ratio 0.73 0.73 0.64 0.64

Equity RatioEquity RatioEquity RatioEquity Ratio

C6- 41

Profitability AnalysisProfitability Analysis

Profitability is the ability of an entity to earn profits.

This ability to earn profits depends on the effectiveness and efficiency of operations as well as resources available.

Profitability analysis focuses primarily on the relationship between operating results reported in the income statement and resources reported in the balance sheet.

C6- 42

Profitability RatiosProfitability Ratios

• Profit margin• Gross profit margin• Rate earned on total assets (ROA)• Rate earned on stockholders’s equity (ROE)• Rate earned on common stockholder’s equity• Earning per share• Price earning ratio• Dividends per share• Dividend yield

C6- 43

Profitability Measures — OperatingProfitability Measures — Operating

Profit Margin Profit Margin Profit Margin Profit Margin

Use: To assess the efficiency of the business in controlling all costs relating to sales.

Use: To assess the efficiency of the business in controlling all costs relating to sales.

2008 2007Net profit RM 91,000 RM 76,500Net sales 1,498,000 1,200,000

Profit margin 0.06 0.06 Profit margin 0.06 0.06

C6- 44

Profitability Measures — OperatingProfitability Measures — Operating

Gross Profit Margin Gross Profit Margin Gross Profit Margin Gross Profit Margin

Use: To assess the efficiency of the business in dealing with purchases and its related costs.

Use: To assess the efficiency of the business in dealing with purchases and its related costs.

2008 2007Gross profit RM 455,000 RM 380,000Net sales 1,498,000 1,200,000

Gross profit margin 0.3 0.32 Gross profit margin 0.3 0.32

C6- 45

Profitability Measures — The Common StockholderProfitability Measures — The Common Stockholder

Rate Earned on Total AssetsRate Earned on Total AssetsRate Earned on Total AssetsRate Earned on Total Assets

2008 2007Net income RM 91,000 RM 76,500Plus interest expense 6,000 12,000

Total 97,000 88,500Total assets:

Beginning of year 1,230,500 1,187,500End of year 1,139,500 1,230,500Total 2,370,000 2,418,000Average 1,185,000 1,209,000

C6- 46


Rate Earned on Total AssetsRate Earned on Total AssetsRate Earned on Total AssetsRate Earned on Total Assets

Use: To assess the profitability of the assets.Use: To assess the profitability of the assets.

2008 2007Net income RM 91,000 RM 76,500Plus interest expense 6,000 12,000

Total 97,000 88,500Total assets:

Beginning of year 1,230,500 1,187,500End of year 1,139,500 1,230,500Total 2,370,000 2,418,000Average 1,185,000 1,209,000

Rate earned on total assetsRate earned on total assets 8.2% 8.2% 7.3% 7.3%

C6- 47


Rate Earned on Stockholders’ EquityRate Earned on Stockholders’ EquityRate Earned on Stockholders’ EquityRate Earned on Stockholders’ Equity

2008 2007Net income RM 91,000 RM 76,500Stockholders’ equity:

Beginning of year 787,500 750,000End of year 829,500 787,500Total 1,617,000 1,537,500Average 808,500 768,750

C6- 48


Rate Earned on Stockholders’ EquityRate Earned on Stockholders’ EquityRate Earned on Stockholders’ EquityRate Earned on Stockholders’ Equity

Use: To assess the profitability of the investment by stockholders.

Use: To assess the profitability of the investment by stockholders.

Net income RM 91,000 RM 76,500Stockholders’ equity:


Rate earned on equityRate earned on equity 11.3% 11.3% 10.0% 10.0%

2008 2007

C6- 49


Rate Earned on Common Stockholders’ EquityRate Earned on Common Stockholders’ EquityRate Earned on Common Stockholders’ EquityRate Earned on Common Stockholders’ Equity

2008 2007Net income RM 91,000 RM 76,500Less preferred dividends 9,000 9,000Remainder—common stock 82,000 67,500Common stockholders’ equity:


C6- 50


Rate Earned on Common Stockholders’ EquityRate Earned on Common Stockholders’ EquityRate Earned on Common Stockholders’ EquityRate Earned on Common Stockholders’ Equity

Use: To assess the profitability of the investment by common stockholders.


2008 2007Net income RM 91,000 RM 76,500Less preferred dividends 9,000 9,000Remainder—common stock 82,000 82,000 67,500 67,500Common stockholders’ equity:

Beginning of year 637,500 600,000End of year 679,500 637,500Total 1,317,000 1,237,500Average 658,500 658,500 618,750 618,750

Rate earned on common equityRate earned on common equity 12.5% 12.5% 10.9% 10.9%

C6- 51


Earnings Per Share on Common StockEarnings Per Share on Common StockEarnings Per Share on Common StockEarnings Per Share on Common Stock

2008 2007Net income RM 91,000 RM 76,500Less preferred dividends 9,000 9,000Remainder—common stock 82,000 67,500Shares of common stock 50,000 50,000

C6- 52


Earnings Per Share on Common StockEarnings Per Share on Common StockEarnings Per Share on Common StockEarnings Per Share on Common Stock

2008 2007Net income RM 91,000 RM 76,500Less preferred dividends 9,000 9,000Remainder—common stock 82,000 67,500Shares of common stock 50,000 50,000

Earnings per share on commonEarnings per share on common RM1.64 RM1.64 RM1.35 RM1.35



C6- 53


Price-Earnings RatioPrice-Earnings RatioPrice-Earnings RatioPrice-Earnings Ratio

2008 2007Market price per share of common RM20.50 RM13.50Earnings per share on common RM 1.64 RM 1.35

C6- 54


Price-Earnings RatioPrice-Earnings RatioPrice-Earnings RatioPrice-Earnings Ratio

Use: To indicate future earnings prospects, based on the relationship between market value of common stock and earnings.

Use: To indicate future earnings prospects, based on the relationship between market value of common stock and earnings.

2008 2007Market price per share of commonRM41.00 RM27.00Earnings per share on common RM 1.64 RM 1.35

Price-earnings ratio on commonPrice-earnings ratio on common 25 25 20 20

C6- 55


Dividends per ShareDividends per ShareDividends per ShareDividends per Share

Use: To indicate the rate of return to common stockholders in terms of dividends.


2008 2007Dividends on common stock RM40,000 RM30,000Common stock outstanding 50,000 50,000

Dividends per share RM0.80 RM0.60 Dividends per share RM0.80 RM0.60

C6- 56


Dividend YieldDividend YieldDividend YieldDividend Yield

2008 2007Dividends per share of common RM 0.80 RM 0.60Market price per share of common RM41.00 RM27.00

C6- 57


Dividend YieldDividend YieldDividend YieldDividend Yield



2008 2007Dividends per share of common RM 0.80 RM 0.60Market price per share of commonRM41.00 RM27.00

Dividend yield on common stockDividend yield on common stock 1.95%1.95% 2.22%2.22%

C6- 58

Efficiency AnalysisEfficiency Analysis

Efficiency is the ability of a business to manage the resources available in an effective way.

Efficiency analysis focuses on the ability of a business to manage its receivables and inventories.

This ability is normally assessed by examining balance sheet relationships.

C6- 59

Efficiency RatiosEfficiency Ratios

• Account receivable turnover

• Number of days sales in receivables

• Inventory turnover

• Number of days sales in inventory

• Ratio of net sales to assets

C6- 60

Efficiency Measures — Receivable AnalysisEfficiency Measures — Receivable Analysis

Accounts Receivable TurnoverAccounts Receivable TurnoverAccounts Receivable TurnoverAccounts Receivable Turnover

Net sales on account RM1,498,000RM1,200,000Accounts receivable (net):

Beginning of year 120,000 140,000End of year 115,000 120,000Total 235,000 260,000

Average 117,500 130,000

2008 2007

C6- 61

Efficiency Measures — Receivable AnalysisEfficiency Measures — Receivable Analysis

Accounts Receivable TurnoverAccounts Receivable TurnoverAccounts Receivable TurnoverAccounts Receivable Turnover

Use: To assess the efficiency in collecting receivables and in the management of credit.


Net sales on account RM1,498,000RM1,200,000Accounts receivable (net):


Average 117,500 130,000

Accts. receivable turnoverAccts. receivable turnover 12.7 12.7 9.2 9.2

2008 2007

C6- 62

Efficiency Measures — Receivables AnalysisEfficiency Measures — Receivables Analysis

Number of Days’ Sales in ReceivablesNumber of Days’ Sales in ReceivablesNumber of Days’ Sales in ReceivablesNumber of Days’ Sales in Receivables



2008 2007Accounts receivable (net)

end of year RM 115,000 RM 120,000Net sales on account 1,498,000 1,200,000Average daily sales on

on account (sales 365) 4,104 3,288

Number of days’ sales in Number of days’ sales in

receivablesreceivables 28 28 36.5 36.5

C6- 63

Efficiency Measures — Inventory AnalysisEfficiency Measures — Inventory Analysis

Inventory TurnoverInventory TurnoverInventory TurnoverInventory Turnover

2008 2007Cost of goods sold RM1,043,000RM 820,000Inventories:


Average 273,500 297,000

C6- 64


Inventory TurnoverInventory TurnoverInventory TurnoverInventory Turnover

Use: To assess the efficiency in the management of inventory.


2008 2007Cost of goods sold RM1,043,000RM 820,000Inventories:


Average 273,500 297,000

Inventory turnoverInventory turnover 3.8 3.8 2.8 2.8

C6- 65


Number of Days’ Sales in InventoryNumber of Days’ Sales in InventoryNumber of Days’ Sales in InventoryNumber of Days’ Sales in Inventory



2008 2007Inventories, end of year RM 264,000 RM 283,000Cost of goods sold 1,043,000 820,000Average daily cost of

goods sold (COGS 365) 2,858 2,247

Number of days’ sales Number of days’ sales

in inventoryin inventory 92.4 92.4 125.9 125.9

C6- 66

Efficiency Measures — The Common StockholderEfficiency Measures — The Common Stockholder

Ratio of Net Sales to AssetsRatio of Net Sales to AssetsRatio of Net Sales to AssetsRatio of Net Sales to Assets

2008 2007Net sales RM1,498,000RM1,200,000Total assets:

Beginning of year 1,053,000 1,010,000End of year 1,044,500 1,053,000Total 2,097,500 2,063,000

Average 1,048,750 1,031,500 Excludes long-term investmentsExcludes long-term investments

C6- 67

Efficiency Measures — The Common StockholderEfficiency Measures — The Common Stockholder

Ratio of Net Sales to AssetsRatio of Net Sales to AssetsRatio of Net Sales to AssetsRatio of Net Sales to Assets

Use: To assess the effectiveness of the use of assets.

Use: To assess the effectiveness of the use of assets.

2008 2007Net sales on account RM1,498,000RM1,200,000Total assets:

Beginning of year 1,053,000 1,010,000End of year 1,044,500 1,053,000Total 2,097,500 2,063,000

Average 1,048,750 1,031,500

Ratio of net sales to assetsRatio of net sales to assets 1.4 1.4 1.2 1.2

BKAL 1013 Chapter 7 Financial Statement Analysis

Documents

Transcript of BKAL 1013 Chapter 7 Financial Statement Analysis