“How Well Am I Doing?” Financial Statement Analysis

Chapter

14“How Well Am I Doing?”

Financial Statement Analysis

© The McGraw-Hill Companies, Inc., 2002Irwin/McGraw-Hill 2

Limitations of Financial Statement Analysis

Differences in accounting methods Differences in accounting methods between companies sometimes make between companies sometimes make

comparisons difficult.comparisons difficult.

Differences in accounting methods Differences in accounting methods between companies sometimes make between companies sometimes make

comparisons difficult.comparisons difficult.

We use LIFO to value We use LIFO to value inventory.inventory.

We use FIFO to value We use FIFO to value inventory.inventory.


Limitations of Financial Statement Analysis

Analysts should look beyond the ratios.Analysts should look beyond the ratios.Analysts should look beyond the ratios.Analysts should look beyond the ratios.

Economic Economic factorsfactors

Consumer Consumer tastestastes

Industry Industry trendstrends

Technological Technological changeschanges

Changes within Changes within the firmthe firm


Statements in Comparative and Common-Size Form

Dollar and percentage changes on statements

Common-size statements

Ratios

Analytical Analytical techniques used to techniques used to

examine examine relationships relationships

among financial among financial statement itemsstatement items

Analytical Analytical techniques used to techniques used to

examine examine relationships relationships

among financial among financial statement itemsstatement items


Horizontal Analysis

Horizontal analysis shows the changes Horizontal analysis shows the changes between years in the financial data in between years in the financial data in

both both dollardollar and and percentagepercentage form. form.

Horizontal analysis shows the changes Horizontal analysis shows the changes between years in the financial data in between years in the financial data in

both both dollardollar and and percentagepercentage form. form.


Horizontal Analysis

Calculating Change in Dollar Amounts

DollarDollarChangeChangeDollarDollar

ChangeChangeCurrent YearCurrent Year

FigureFigureCurrent YearCurrent Year

FigureFigureBase YearBase Year

FigureFigureBase YearBase Year

FigureFigure= –

PercentagePercentageChangeChange

PercentagePercentageChangeChange

Dollar ChangeDollar Change Base Year Figure Base Year Figure

Dollar ChangeDollar Change Base Year Figure Base Year Figure 100%100%100%100%= ×

Calculating Change as a Percentage

2001 is the 2001 is the base year.base year.2001 is the 2001 is the base year.base year.


Horizontal Analysis

Information on the following slides illustrate Information on the following slides illustrate a horizontal analysis of Clover, Co’s a horizontal analysis of Clover, Co’s

December 31, 2002 and 2001, comparative December 31, 2002 and 2001, comparative balance sheets and income statements.balance sheets and income statements.

Information on the following slides illustrate Information on the following slides illustrate a horizontal analysis of Clover, Co’s a horizontal analysis of Clover, Co’s

December 31, 2002 and 2001, comparative December 31, 2002 and 2001, comparative balance sheets and income statements.balance sheets and income statements.


Horizontal AnalysisCLOVER CO.

Comparative Balance SheetsDecember 31, 2002 and 2001

Increase (Decrease)2002 2001 Amount %

AssetsCurrent assets: Cash 12,000$ 23,500$ Accounts receivable, net 60,000 40,000 Inventory 80,000 100,000 Prepaid expenses 3,000 1,200

Total current assets 155,000 164,700

Property and equipment: Land 40,000 40,000 Buildings and equipment, net 120,000 85,000

Total property and equipment 160,000 125,000

Total assets 315,000$ 289,700$


CLOVER CO.Comparative Balance SheetsDecember 31, 2002 and 2001


AssetsCurrent assets: Cash 12,000$ 23,500$ (11,500)$ (48.9) Accounts receivable, net 60,000 40,000 Inventory 80,000 100,000 Prepaid expenses 3,000 1,200




Total assets 315,000$ 289,700$

Horizontal Analysis

($11,500 ÷ $23,500) × 100% = 48.9%($11,500 ÷ $23,500) × 100% = 48.9%($11,500 ÷ $23,500) × 100% = 48.9%($11,500 ÷ $23,500) × 100% = 48.9%

$12,000 – $23,500 = $(11,500)$12,000 – $23,500 = $(11,500)$12,000 – $23,500 = $(11,500)$12,000 – $23,500 = $(11,500)



Comparative Balance SheetsDecember 31, 2002 and 2001


AssetsCurrent assets: Cash 12,000$ 23,500$ (11,500)$ (48.9) Accounts receivable, net 60,000 40,000 20,000 50.0 Inventory 80,000 100,000 (20,000) (20.0) Prepaid expenses 3,000 1,200 1,800 150.0

Total current assets 155,000 164,700 (9,700) (5.9)

Property and equipment: Land 40,000 40,000 - 0.0 Buildings and equipment, net 120,000 85,000 35,000 41.2

Total property and equipment 160,000 125,000 35,000 28.0

Total assets 315,000$ 289,700$ 25,300$ 8.7


Horizontal Analysis

Let’s move from the Balance Sheet to the Income Statement of

Clover Co.



Comparative Income StatementsFor the Years Ended December 31, 2002 and 2001

Increase (Decrease)

2002 2001 Amount %Net sales 520,000$ 480,000$ 40,000$ 8.3Cost of goods sold 360,000 315,000 45,000 14.3

Gross margin 160,000 165,000 (5,000) (3.0)Operating expenses 128,600 126,000 2,600 2.1

Net operating income 31,400 39,000 (7,600) (19.5)Interest expense 6,400 7,000 (600) (8.6)

Net income before taxes 25,000 32,000 (7,000) (21.9)Less income taxes (30%) 7,500 9,600 (2,100) (21.9)

Net income 17,500$ 22,400$ (4,900)$ (21.9)


CLOVER CO.Comparative Income Statements

For the Years Ended December 31, 2002 and 2001Increase

(Decrease)2002 2001 Amount %

Net sales 520,000$ 480,000$ 40,000$ 8.3Cost of goods sold 360,000 315,000 45,000 14.3




Net income 17,500$ 22,400$ (4,900)$ (21.9)

Horizontal Analysis

Sales increased by 8.3% yet Sales increased by 8.3% yet net income decreased by 21.9%.net income decreased by 21.9%.

Sales increased by 8.3% yet Sales increased by 8.3% yet net income decreased by 21.9%.net income decreased by 21.9%.




Increase (Decrease)

2002 2001 Amount %Net sales 520,000$ 480,000$ 40,000$ 8.3Cost of goods sold 360,000 315,000 45,000 14.3




Net income 17,500$ 22,400$ (4,900)$ (21.9)

There were increases in both cost of goods sold There were increases in both cost of goods sold (14.3%) and operating expenses (2.1%). These (14.3%) and operating expenses (2.1%). These

increased costs more than offset the increase in sales, increased costs more than offset the increase in sales, yielding an overall decrease in net income.yielding an overall decrease in net income.

There were increases in both cost of goods sold There were increases in both cost of goods sold (14.3%) and operating expenses (2.1%). These (14.3%) and operating expenses (2.1%). These

increased costs more than offset the increase in sales, increased costs more than offset the increase in sales, yielding an overall decrease in net income.yielding an overall decrease in net income.


Trend Analysis

TrendPercentage

Current Year Amount Base Year Amount

100%= ×

Trend percentages state several years’ Trend percentages state several years’ financial data in terms of a financial data in terms of a base yearbase year, ,

which equals 100 percent. which equals 100 percent.

Trend percentages state several years’ Trend percentages state several years’ financial data in terms of a financial data in terms of a base yearbase year, ,

which equals 100 percent. which equals 100 percent.


Trend Analysis

Look at the income information for Berry, Look at the income information for Berry, Inc. for the years 2002 through 2006. We Inc. for the years 2002 through 2006. We will do a trend analysis on these amounts will do a trend analysis on these amounts

to see what we can learn about the to see what we can learn about the company.company.

Look at the income information for Berry, Look at the income information for Berry, Inc. for the years 2002 through 2006. We Inc. for the years 2002 through 2006. We will do a trend analysis on these amounts will do a trend analysis on these amounts

to see what we can learn about the to see what we can learn about the company.company.


Trend Analysis

Berry, Inc.Income Information

For the Years Ended December 31

The base year is 2002, and its amountsThe base year is 2002, and its amountswill equal 100%.will equal 100%.

The base year is 2002, and its amountsThe base year is 2002, and its amountswill equal 100%.will equal 100%.

YearItem 2006 2005 2004 2003 2002

Sales 400,000$ 355,000$ 320,000$ 290,000$ 275,000$ Cost of goods sold 285,000 250,000 225,000 198,000 190,000 Gross margin 115,000 105,000 95,000 92,000 85,000


Trend Analysis


For the Years Ended December 31 Year

Item 2006 2005 2004 2003 2002Sales 105% 100%Cost of goods sold 104% 100%Gross margin 108% 100%

2003 Amount ÷ 2002 Amount × 100%2003 Amount ÷ 2002 Amount × 100% ( $290,000 ÷ $275,000 ) × 100% = 105%( $290,000 ÷ $275,000 ) × 100% = 105%( $198,000 ÷ $190,000 ) × 100% = 104%( $198,000 ÷ $190,000 ) × 100% = 104%( $ 92,000 ÷ $ 85,000 ) × 100% = 108%( $ 92,000 ÷ $ 85,000 ) × 100% = 108%

2003 Amount ÷ 2002 Amount × 100%2003 Amount ÷ 2002 Amount × 100% ( $290,000 ÷ $275,000 ) × 100% = 105%( $290,000 ÷ $275,000 ) × 100% = 105%( $198,000 ÷ $190,000 ) × 100% = 104%( $198,000 ÷ $190,000 ) × 100% = 104%( $ 92,000 ÷ $ 85,000 ) × 100% = 108%( $ 92,000 ÷ $ 85,000 ) × 100% = 108%


Trend Analysis

Trends at Berry, Inc., indicated that cost of goods sold Trends at Berry, Inc., indicated that cost of goods sold is increasing faster than sales, which is slowing the is increasing faster than sales, which is slowing the

increase in gross margin.increase in gross margin.

Trends at Berry, Inc., indicated that cost of goods sold Trends at Berry, Inc., indicated that cost of goods sold is increasing faster than sales, which is slowing the is increasing faster than sales, which is slowing the

increase in gross margin.increase in gross margin.


For the Years Ended December 31 Year

Item 2006 2005 2004 2003 2002Sales 145% 129% 116% 105% 100%Cost of goods sold 150% 132% 118% 104% 100%Gross margin 135% 124% 112% 108% 100%


Trend Analysis

We can use the trend percentages to construct a We can use the trend percentages to construct a graph so we can see the trend over time.graph so we can see the trend over time.

We can use the trend percentages to construct a We can use the trend percentages to construct a graph so we can see the trend over time.graph so we can see the trend over time.

100

110

120

130

140

150

160

2002 2003 2004 2005 2006

Year

Per

cen

tag

e

SalesCOGSGM


Common-Size Statements

Let’s take another look at the information from the comparative income statements of

Clover Co. for 2002 and 2001.

Common-sizeCommon-size statements use percentages to statements use percentages to express the relationship of individual components express the relationship of individual components

to a total within a to a total within a singlesingle period. This is also known period. This is also known as as vertical analysisvertical analysis..

Common-sizeCommon-size statements use percentages to statements use percentages to express the relationship of individual components express the relationship of individual components

to a total within a to a total within a singlesingle period. This is also known period. This is also known as as vertical analysisvertical analysis..


Common-Size StatementsCLOVER CO.


Common-Size Percentages

2002 2001 2002 2001Net sales 520,000$ 480,000$ 100.0 100.0 Cost of goods sold 360,000 315,000

Gross margin 160,000 165,000 Operating expenses 128,600 126,000

Net operating income 31,400 39,000 Interest expense 6,400 7,000

Net income before taxes 25,000 32,000 Less income taxes (30%) 7,500 9,600

Net income 17,500$ 22,400$

Net sales Net sales is usually the base and is expressed as 100%.is usually the base and is expressed as 100%.Net sales Net sales is usually the base and is expressed as 100%.is usually the base and is expressed as 100%.





2002 2001 2002 2001Net sales 520,000$ 480,000$ 100.0 100.0 Cost of goods sold 360,000 315,000 69.2 65.6




Net income 17,500$ 22,400$ 2001 COGS ÷ 2001 Net Sales × 100% 2001 COGS ÷ 2001 Net Sales × 100% ( $315,000 ÷ $480,000 ) × 100% = 65.6%( $315,000 ÷ $480,000 ) × 100% = 65.6%2001 COGS ÷ 2001 Net Sales × 100% 2001 COGS ÷ 2001 Net Sales × 100% ( $315,000 ÷ $480,000 ) × 100% = 65.6%( $315,000 ÷ $480,000 ) × 100% = 65.6%

2002 COGS ÷ 2002 Net Sales × 100% 2002 COGS ÷ 2002 Net Sales × 100% ( $360,000 ÷ $520,000 ) × 100% = 69.2%( $360,000 ÷ $520,000 ) × 100% = 69.2%2002 COGS ÷ 2002 Net Sales × 100% 2002 COGS ÷ 2002 Net Sales × 100% ( $360,000 ÷ $520,000 ) × 100% = 69.2%( $360,000 ÷ $520,000 ) × 100% = 69.2%


Gross Margin Percentage



Gross Margin Sales

Gross Margin Sales

==

Gross profit percentage indicates how Gross profit percentage indicates how much of each sales dollar is left after deducting much of each sales dollar is left after deducting

the cost of goods sold to cover operating the cost of goods sold to cover operating expenses and a profit.expenses and a profit.

Gross profit percentage indicates how Gross profit percentage indicates how much of each sales dollar is left after deducting much of each sales dollar is left after deducting

the cost of goods sold to cover operating the cost of goods sold to cover operating expenses and a profit.expenses and a profit.





2002 2001 2002 2001Net sales 520,000$ 480,000$ 100.0 100.0 Cost of goods sold 360,000 315,000 69.2 65.6

Gross margin 160,000 165,000 30.8 34.4 Operating expenses 128,600 126,000 24.8 26.2

Net operating income 31,400 39,000 6.0 8.2 Interest expense 6,400 7,000 1.2 1.5

Net income before taxes 25,000 32,000 4.8 6.7 Less income taxes (30%) 7,500 9,600 1.4 2.0

Net income 17,500$ 22,400$ 3.4 4.7

What conclusions can we draw?What conclusions can we draw?What conclusions can we draw?What conclusions can we draw?


Let’s use the financial statements of Norton Corporation to complete

a ratio analysis.


NORTON CORPORATION Balance Sheets

December 31, 2002 and 2001

2002 2001Assets

Current assets: Cash 30,000$ 20,000$ Accounts receivable, net 20,000 17,000 Inventory 12,000 10,000 Prepaid expenses 3,000 2,000




Total assets 346,390$ 300,000$


NORTON CORPORATION Balance Sheets

December 31, 2002 and 2001

2002 2001Liabilities and Stockholders' Equity

Current liabilities: Accounts payable 39,000$ 40,000$ Notes payable, short-term 3,000 2,000

Total current liabilities 42,000 42,000

Long-term liabilities: Notes payable, long-term 70,000 78,000

Total liabilities 112,000 120,000

Stockholders' equity: Common stock, $1 par value 27,400 17,000 Additional paid-in capital 158,100 113,000

Total paid-in capital 185,500 130,000 Retained earnings 48,890 50,000

Total stockholders' equity 234,390 180,000

Total liabilities and stockholders' equity 346,390$ 300,000$


NORTON CORPORATION Income Statements

For the Years Ended December 31, 2002 and 2001

2002 2001Net sales 494,000$ 450,000$ Cost of goods sold 140,000 127,000




Net income 53,690$ 46,200$


Ratio Analysis – The Common Stockholder

Use this information to calculate ratios to measure the well-

being of the common stockholders of

Norton Corporation.

NORTON CORPORATION

2002Number of common shares outstanding Beginning of year 17,000 End of year 27,400

Net income 53,690$

Stockholders' equity

Beginning of year 180,000

End of year 234,390

Dividends per share 2

Dec. 31 market price per share 20

Interest expense 7,300

Total assets



Earnings Per Share

Indicates how much income was earned for each Indicates how much income was earned for each share of common stock outstanding.share of common stock outstanding.

Indicates how much income was earned for each Indicates how much income was earned for each share of common stock outstanding.share of common stock outstanding.

Earningsper Share

Net Income – Preferred Dividends Average Number of Common Shares

Outstanding

=

$53,690 – $0 (17,000 + 27,400)/2

= = $2.42Earningsper Share


Price-Earnings Ratio

Price-EarningsRatio

Market Price Per Share Earnings Per Share

=

This measure is often used by investors as a This measure is often used by investors as a general guideline in gauging stock values. general guideline in gauging stock values.

Generally, the higher the price-earnings ratio, the Generally, the higher the price-earnings ratio, the more opportunity a company has for growth.more opportunity a company has for growth.

This measure is often used by investors as a This measure is often used by investors as a general guideline in gauging stock values. general guideline in gauging stock values.

Generally, the higher the price-earnings ratio, the Generally, the higher the price-earnings ratio, the more opportunity a company has for growth.more opportunity a company has for growth.

Price-EarningsRatio

$20.00 $2.42

= = 8.26 times


Dividend Payout Ratio

Gauges the portion of current earnings being paid out Gauges the portion of current earnings being paid out in dividends. Investors seeking current income would in dividends. Investors seeking current income would

like this ratio to be large.like this ratio to be large.

Gauges the portion of current earnings being paid out Gauges the portion of current earnings being paid out in dividends. Investors seeking current income would in dividends. Investors seeking current income would

like this ratio to be large.like this ratio to be large.

DividendPayout Ratio

Dividends Per Share Earnings Per Share

=

DividendPayout Ratio

$2.00 $2.42= = 82.6%


Dividend Yield Ratio

DividendYield Ratio

Dividends Per Share Market Price Per Share

=

Identifies the return, in terms of cash dividends, on the Identifies the return, in terms of cash dividends, on the current market price of the stock.current market price of the stock.

Identifies the return, in terms of cash dividends, on the Identifies the return, in terms of cash dividends, on the current market price of the stock.current market price of the stock.

DividendYield Ratio

$2.00 $20.00= = 10.00%


Return on Total Assets

Measures how well assets have been employed.Measures how well assets have been employed.Measures how well assets have been employed.Measures how well assets have been employed.

Return on

Total Assets

$53,690 +[7,300 × (1 – 0.30)]

($300,000 + $346,390) ÷ 2= = 18.19%

Return on

Total Assets

Net Income + [Interest Expense × (1 – Tax Rate)]

Average Total Assets=


Return on Common Stockholders’ Equity

Return on CommonStockholders’ Equity

Net Income – Preferred Dividends

Average Stockholders’ Equity

=

Indicates how well the company employed the owners’ Indicates how well the company employed the owners’ investments to earn income.investments to earn income.

Indicates how well the company employed the owners’ Indicates how well the company employed the owners’ investments to earn income.investments to earn income.

Return on CommonStockholders’ Equity

$53,690 – $0 ($180,000 + $234,390) ÷ 2

= = 25.91%


Financial Leverage

Financial leverageFinancial leverage involves acquiring assets with funds at a fixed rate of interest.

Return on investment in

assets>>

Fixed rate of return on

borrowed funds

PositivePositive financial leverage

=

Return on investment in

assets<

Fixed rate of return on

borrowed funds

NegativeNegative financial leverage

=


Book Value Per Share

Measures the amount that would be distributed to Measures the amount that would be distributed to holders of each share of common stock if all assets holders of each share of common stock if all assets

were sold at their balance sheet carrying amounts and were sold at their balance sheet carrying amounts and if all creditors were paid off.if all creditors were paid off.

Measures the amount that would be distributed to Measures the amount that would be distributed to holders of each share of common stock if all assets holders of each share of common stock if all assets

were sold at their balance sheet carrying amounts and were sold at their balance sheet carrying amounts and if all creditors were paid off.if all creditors were paid off.

= $ 8.55Book Value per Share

$234,390 27,400

=

Book Value per Share

Common Stockholders’ Equity Number of Common Shares Outstanding

=


Ratio Analysis – The Short-Term Creditor

NORTON CORPORATION

2002

Cash 30,000$

Accounts receivable, net


End of year 20,000

Inventory


End of year 12,000

Total current assets 65,000

Total current liabilities 42,000

Sales on account 494,000

Cost of goods sold 140,000

We will useWe will use this this information to information to

calculate ratios to calculate ratios to measure the well-measure the well-being of the short-being of the short-term creditors for term creditors for

Norton Norton Corporation.Corporation.

We will useWe will use this this information to information to

calculate ratios to calculate ratios to measure the well-measure the well-being of the short-being of the short-term creditors for term creditors for

Norton Norton Corporation.Corporation.


Working Capital

December 31, 2002

Current assets 65,000$

Current liabilities (42,000)

Working capital 23,000$


Current Ratio

CurrentRatio

Current Assets Current Liabilities

=

CurrentRatio

$65,000 $42,000

= = 1.55 : 1

Measures the ability of the company to pay currentMeasures the ability of the company to pay currentdebts as they become due.debts as they become due.

Measures the ability of the company to pay currentMeasures the ability of the company to pay currentdebts as they become due.debts as they become due.


Acid-Test (Quick) Ratio

Quick Assets Current Liabilities

=Acid-Test

Ratio

This ratio is like the current ratio but This ratio is like the current ratio but excludesexcludes current assets such as inventories that may be current assets such as inventories that may be

difficult to quickly convert into cash. difficult to quickly convert into cash.

This ratio is like the current ratio but This ratio is like the current ratio but excludesexcludes current assets such as inventories that may be current assets such as inventories that may be

difficult to quickly convert into cash. difficult to quickly convert into cash.

$50,000 $42,000

= 1.19 : 1=Acid-Test

Ratio

Quick assets are Cash,Quick assets are Cash,Marketable Securities, Accounts Receivable and Marketable Securities, Accounts Receivable and

current Notes Receivable.current Notes Receivable.

Quick assets are Cash,Quick assets are Cash,Marketable Securities, Accounts Receivable and Marketable Securities, Accounts Receivable and

current Notes Receivable.current Notes Receivable.


Accounts Receivable Turnover

Measures how many times a company converts its Measures how many times a company converts its receivables into cash each year.receivables into cash each year.

Measures how many times a company converts its Measures how many times a company converts its receivables into cash each year.receivables into cash each year.

= 26.70 times $494,000 ($17,000 + $20,000) ÷ 2

Accounts ReceivableTurnover

=

Sales on Account Average Accounts Receivable

Accounts ReceivableTurnover

=


Average Collection Period

Measures, on average, how many days it takes to Measures, on average, how many days it takes to collect an account receivable. collect an account receivable.

Measures, on average, how many days it takes to Measures, on average, how many days it takes to collect an account receivable. collect an account receivable.

Average Collection

Period=

365 Days Accounts Receivable Turnover

= 13.67 daysAverage

Collection Period

= 365 Days 26.7 Times


Inventory Turnover

Cost of Goods Sold Average Inventory

InventoryTurnover

=

Measures the number of times merchandise Measures the number of times merchandise inventory is sold and replaced during the year.inventory is sold and replaced during the year.Measures the number of times merchandise Measures the number of times merchandise

inventory is sold and replaced during the year.inventory is sold and replaced during the year.

= 12.73 times $140,000 ($10,000 + $12,000) ÷ 2

InventoryTurnover

=


Average Sale Period

Measures how many days, on average, it Measures how many days, on average, it takes to sell the inventory.takes to sell the inventory.

Measures how many days, on average, it Measures how many days, on average, it takes to sell the inventory.takes to sell the inventory.

= 28.67 daysAverage

Sale Period=

365 Days 12.73 Times

Average Sale Period

= 365 Days Inventory Turnover


Ratio Analysis – The Long-Term Creditor

Use this information to calculate ratios to Use this information to calculate ratios to measure the well-being of the long-term measure the well-being of the long-term

creditors for Norton Corporation.creditors for Norton Corporation.

Use this information to calculate ratios to Use this information to calculate ratios to measure the well-being of the long-term measure the well-being of the long-term

creditors for Norton Corporation.creditors for Norton Corporation.

NORTON CORPORATION

2002Earnings before interest 84,000$ and taxes

Interest expense 7,300

Total stockholders' equity 234,390

Total liabilities 112,000

Referred to as net Referred to as net operating income.operating income.Referred to as net Referred to as net operating income.operating income.


Times Interest Earned Ratio

The most common measure of the ability The most common measure of the ability of a firm’s operations to provide protection of a firm’s operations to provide protection

to the long-term creditor.to the long-term creditor.

The most common measure of the ability The most common measure of the ability of a firm’s operations to provide protection of a firm’s operations to provide protection

to the long-term creditor.to the long-term creditor.

Times Interest Earned

$84,0007,300

= = 11.51 times

Times Interest Earned

Earnings before interest and taxesInterest expense=


Debt-to-Equity Ratio

Measures the amount of assets being provided by Measures the amount of assets being provided by creditors for each dollar of assets being provided by creditors for each dollar of assets being provided by

the owners of the company.the owners of the company.

Measures the amount of assets being provided by Measures the amount of assets being provided by creditors for each dollar of assets being provided by creditors for each dollar of assets being provided by

the owners of the company.the owners of the company.

$112,000 $234,390

Debt–to–Equity Ratio

= = 0.48 to 1

Total Liabilities Stockholders’ Equity

Debt–to–Equity Ratio

=


Published Sources of Financial Ratios

Source ContentEDGAR SEC www.sec.gov

Reports filed with the SEC.

Almanac of Business and Industrial Financial Ratios

Common-size income statements and ratios.

Annual Statements of Study www.rmahq.org

Common-size statements arranged by industry.

Business & Company ASAPBusiness articles and periodicals.

Hoover's Online www.hoovers.com

Capsule profiles of 10,000 U.S. companies.


End of Chapter 14

“How Well Am I Doing?” Financial Statement Analysis

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