Financial statment presentation

ARUN DASSI 13AKSHAY SHELAR 52ABIJEET DIWATE 14PRAFUL UBEROI 59SAMAD SHAIKH 49HEMANT GANDHI 16 IRSHAD TIGALA 58 DURGESH SAWANT 41

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Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions.

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There are various methods or techniques that are used in analyzing financial statements, among them are horizontal or trend analysis, and vertical analysis and ratios analysis, which are most widely used.

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Horizontal and Vertical Analysis:Ratios Analysis:

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Horizontal Analysis or Trend Analysis:Comparison of two or more year's financial data is known as horizontal analysis, or trend analysis. Horizontal analysis is facilitated by showing changes between years in both dollar and percentage form.

Trend Percentage:Horizontal analysis of financial statements can also be carried out by computing trend percentages. Trend percentage states several years' financial data in terms of a base year. The base year equals 100%, with all other years stated in some percentage of this base

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Vertical Analysis:Vertical analysis is the procedure of preparing and presenting common size statements. Common size statement is one that shows the items appearing on it in percentage form as well as in dollar form. Each item is stated as a percentage of some total of which that item is a part. Key financial changes and trends can be highlighted by the use of common size statements.

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Review of Financial Statements

RatiosTypes of RatiosExamples

The DuPont Method

SummaryStrengthsWeaknessesRatios and Forecasting

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Assessment of the firm’s past, present and future financial conditions

Done to find firm’s financial strengths and weaknesses

Primary Tools:Financial StatementsComparison of financial ratios to past, industry,

sector and all firms

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Balance Sheet

Income Statement

Cash flow Statement

Statement of Retained Earnings

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Ratio analysis - tool for measuring a firm’s liquidity, profitability, and reliance on debt financing, as well as the effectiveness of management’s resource utilization.

The ratios analysis is the most powerful tool of financial statement analysis. Ratios simply means one number expressed in terms of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another.

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Financial Ratios:Liquidity Ratios

Assess ability to cover current obligationsLeverage Ratios

Assess ability to cover long term debt obligations

Operational Ratios:Activity (Turnover) Ratios

Assess amount of activity relative to amount of resources used

Profitability RatiosAssess profits relative to amount of resources

usedValuation Ratios:

Assess market price relative to assets or earnings

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Activity RatiosActivity Ratios

Inventory turnoverInventory turnover ratio indicates the ratio indicates the number of times number of times

merchandise merchandise moves through a moves through a

business.business.

Net salesNet sales

Average of inventoryAverage of inventory

Total asset turnover ratioTotal asset turnover ratio indicates how much in indicates how much in

sales each dollar sales each dollar invested in assets invested in assets

generates.generates.

Net salesNet sales

Average of total Average of total assetsassets

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Liquidity RatiosLiquidity Ratios

Acid-test (or quick)Acid-test (or quick) ratio measures the ratio measures the

ability of a firm to meet ability of a firm to meet its debt payments on its debt payments on

short notice. short notice.

Cash and equivalents Cash and equivalents + short-term investments + short-term investments

+ accounts receivable+ accounts receivable

Total current Total current liabilitiesliabilities

Current ratioCurrent ratio compares compares current assets to current assets to current liabilities.current liabilities.

Total current Total current assetsassets

Total current Total current liabilitiesliabilities

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Profitability Profitability

RatiosRatiosProfitability ratiosProfitability ratios measure the organization’s overall financial measure the organization’s overall financial

performance by evaluating its ability to generate revenues in excess performance by evaluating its ability to generate revenues in excess of operating costs and other expenses.of operating costs and other expenses.

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• Leverage ratios measure the extent to which a firm relies Leverage ratios measure the extent to which a firm relies on debt financing.on debt financing.

• Total liabilities to total assets ratio > 50 percent indicates Total liabilities to total assets ratio > 50 percent indicates that a firm is relying more on borrowed money than owners’ that a firm is relying more on borrowed money than owners’

equity.equity.

Leverage Leverage

RatiosRatios

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Standardize financial information for comparisons

Evaluate current operationsCompare performance with past

performanceCompare performance against other

firms or industry standardsStudy the efficiency of operationsStudy the risk of operations

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A firm has resourcesIt converts resources into profits through

production of goods and servicessales of goods and services

RatiosMeasure relationships between resources and

financial flowsShow ways in which firm’s situation deviates

fromIts own pastOther firmsThe industryAll firms

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AssetsCurrent assets:

Cash & securitiesReceivablesInventories

Fixed assets:Tangible assetsIntangible assets

Liabilities and EquityCurrent liabilities:

Payables Short-term debt

Long-term liabilitiesShareholders' equity

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Assets:Current Assets: $7,681.00Non-Current Assets: $3,790.00Total Assets: $11,471.00

Liabilities:Current Liabilities: $5,192.00LT Debt & Other LT Liab.: $971.00Equity: $5,308.00Total Liab. and Equity: $11,471.00

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Sales $25,265.00Costs of Goods Sold -$19,891.00Gross Profit $5,374.00Cash operating expense -$2,761.00EBITDA 2,613.00Depreciation & Amortization -$156.00Other Income (Net) -$6.00EBIT $2,451.00Interest -$0.00EBT $2,451.00Income Taxes -$785.00Special Income/Charges -$194.00Net Income (EAT) $1,666.00

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Current Ratio:

Quick (Acid Test) Ratio:

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Debt Ratio:

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Return on Assets (ROA):

Return on Equity (ROE):

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Net Profit Margin:

Retention Ratio

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Total Asset Turnover Ratio:

Inventory Turnover Ratio:

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Method to breakdown ROE into:ROA and Equity Multiplier

ROA is further broken down as:Profit Margin and Asset Turnover

Helps to identify sources of strength and weakness in current performance

Helps to focus attention on value drivers

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P rofit M arg in T o tal A sse t Tu rno ver

R O A E q uity M u ltip lier

R O E

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R O E

EquityCommon

Assets Total

Assets Total

IncomeNet MultiplierEquity ROAROE

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R O E

Assets Total

Sales

Sales

IncomeNet TurnoverAsset TotalMarginProfit ROA

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R O E

EquityCommon

Assets Total

Assets Total

Sales

Sales

IncomeNet MultiplierEquity TurnoverAsset TotalMarginProfit ROE

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Multiplier EquityROA

Multiplier EquityTurnover Asset TotalMarginProfit Equity Common

AssetsTotal

AssetsTotal

Sales

Sales

IncomeNet ROE

31.39%

2.16111452.0

2.16112.20250.0659$5,308.00

$11,471.00

$11,471.00

$25,265.00

$25,265.00

$1,666.00ROE

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Ratios help to:Evaluate performanceStructure analysisShow the connection between activities and

performanceBenchmark with

Past for the companyIndustry

Ratios adjust for size differences

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A firm’s industry category is often difficult to identify

Published industry averages are only guidelines

Accounting practices differ across firmsSometimes difficult to interpret deviations in

ratiosIndustry ratios may not be desirable targetsSeasonality affects ratios

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Common stock valuation based onExpected cashflows to stockholdersROE and are major determinants of cashflows

to stockholdersRatios influence expectations by:

Showing where firm is nowProviding context for current performance

Current information influences expectations by:Showing developments that will alter future

performance

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Simplifies Financial Statements

Facilitates inter-firm comparison

Helps in Planning

Helps in investment decisions

Makes intra-firm comparison possible

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Comparative study requiredRatios alone are not adequateProblems of price level changeLack of adequate standardLimited use of single ratiosPersonal bias

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Annual reportsVia E mail, SEC or company websites

Published collections of dataInvestment sites on the web

Exampleshttp://moneycentral.msn.com/investorhttp://dell.comhttp://www.marketguide.com

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Thank You

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Financial statment presentation

Economy & Finance

Transcript of Financial statment presentation