Chapter 17. Financial Statement Analysis

Transcription

1 Chapter 17 Financial Statement Analysis

2 17-2 Topics Covered Financial Ratios DuPont System Using Financial ratios Measuring Company Performance The Role of Financial Ratios

3 17-3 Financial Ratios Five types of financial ratios: 1. Leverage ratios show how heavily the company is in debt 2. Liquidity ratios measure how easily the firm can lay its hands on cash 3. Efficiency or turnover ratios measure how productively the firm is using its assets 4. Profitability ratios are used to measure the firm s return on its investment 5. Market value ratios are ratios with respect to stock market price

4 17-4 Leverage Ratios Long term debt ratio long term debt long term debt + equity Debt equity ratio long term debt equity

5 17-5 Leverage Ratios Total debt ratio total liabilities total assets Times interest earned EBIT interest payments Cash coverage ratio EBIT + depreciation interest payments

6 17-6 Liquidity Ratios Net working capital to total assets ratio Net working capital Total assets Current ratio current assets current liabilities Quick ratio Cash ratio cash + marketable securities + receivables current liabilities cash + marketable securities current liabilities

7 17-7 Efficiency Ratios Asset Turnover Ratio Sales Average total assets Average Collection Period Inventory Turnover Ratio average receivables average daily sales cost of goods sold average inventory Days' sales in inventories average inventory cost of goods sold/365

8 17-8 Profitability Ratios Net profit margin net income sales Operating profit margin net income + sales interest Return on assets Net Income + average total Interest assets Return on equity net income average equity

9 17-9 Profitability Ratios Payout ratio dividends earnings Plowback ratio earnings - dividends earnings 1- payout ratio Growth in equity from plowback earnings - dividends equity earnings - dividends earnings plowback ratio ROE earnings equity

10 17-10 Market Value Ratios PE Ratio stock earnings price per share Forecasted PE ratio P avg EPS Div EPS r 1 - g Dividend yield dividend per share stock price

11 17-11 Market Value Ratios Price per share P Div 1 0 r - g Market to book ratio stock price book value per share Tobins Q market value of assets estimated replcement cost

12 17-12 The DuPont System A breakdown of ROE and ROA into component ratios ROA Net Income + assets interest ROE earnings available for common equity stock

13 17-13 The DuPont System ROA sales assets x Net Income + sales interest asset turnover Operating profit margin

14 17-14 The DuPont System ROE assets equity x sales assets x Net Income + sales interest x Net Income Net Income + interest leverage ratio asset turnover Operating profit margin debt burden

15 17-15 Using Financial Ratios Financial ratios for selected industry groups, 4th quarter, 2001 All Manufacturing Food Retail Trade Pharma LT Debt ratio Total debt ratio NWC/Assets Current ratio Cash ratio Asset turnover Net profit margin 3.0% 1.9% 4.2% 22.7% ROA 0.7% 0.7% 2.4% 4.1% ROE 0.2% 0.2% 3.7% 7.6%

16 17-16 Using Financial Ratios Financial ratios for selected industry groups, 4th quarter, 2001 All Manufacturing Petroleum Aerospace LT Debt ratio Total debt ratio NWC/Assets Current ratio Cash ratio Asset turnover Net profit margin 3.0% 1.5% 2.5% ROA 0.7% 0.3% 0.6% ROE 0.2% 0.5% 1.5%

17 17-17 MVA & Economic Profit Market Value Added The difference between the market value of common stock and its book value Economic Profit capital invested multiplied by the spread between return on investment and the cost of capital. EP Economic Profit ( ROI r) Capital Invested

18 17-18 Residual Income & EVA Residual Income or EVA Net Dollar return after deducting the cost of capital EVA Residual Income Income Earned - income required Income Earned - [ Cost of Capital Investment] EVA is copyrighted by Stern-Stewart Consulting Firm and used with permission.

19 17-19 Measuring Performance Measures of Company Performance (ranked by MVA) Market to book ratio MVA ($bil) Return on assets (%) EVA ($bil) GE Microsoft Wal-Mart Stores Merck & Co Phillip Morris ExonMobil Viacom General Motors WorldCom AT&T