1、2009 The McGraw-Hill Companies,Inc.Chapter 12Financial Statement Analysis东莞电工培训 http:/ The McGraw-Hill Companies,Inc.Part AComparison of Financial Accounting Information12-3Comparison of Financial Accounting InformationType of Comparison1.Comparisons between companies Sales Growth Sales Growth2.Comp
2、arisons over time 2010 20093.Comparisons to industryCompany Risk Industry RiskExampleCompare sales growth for Under Armour with sales growth for Nike.Compare Under Armours earnings this year with its earnings last year.Compare Under Armours level of risk with the average degree of risk for the sport
3、s apparel industry.Under Armour Nike Under Armour Under Armour Under Armour Industry12-4LO1 Vertical AnalysisWe express each item in a financial statement as a percentage of the same base amount Under Armour and NikeCommon-Size Income StatementsFor the Years Ended December 31,2006 and May 31.2007($i
4、n millions)Under ArmourNikeFor the year ended:December 31,2006May 31,2007Amount%Amount%Net Sales$430.7100.0$16,325.9100.0Cost of goods sold215.149.99,165.456.1Gross profit215.650.17,160.543.9Operating expenses 158.336.85,028.730.8Operating income57.313.32,131.813.1Other income(expense)1.8.468.1.4Inc
5、ome before tax59.113.72,199.913.5Income tax expense 20.14.6708.44.4Net income$39.09.1$1,491.59.112-5Vertical AnalysisUnder Armour and NikeCommon-Size Balance SheetsDecember 31,2006 and May 31.2007(in millions)Under ArmourNikeDecember 31,2006May 31,2007Amount%Amount%AssetsCurrent assets$245.084.7$8,0
6、76.575.6Property and equipment29.910.31,678.315.7Intangible assets7.92.7540.75.0Other assets 6.62.3392.83.7Total assets$289.4100.0$10,688.3100.0Liabilities and Stockholders EquityCurrent liabilities$71.624.8$2,584.024.2Long-term liabilities3.41.21,078.610.1Common stock148.051.12,140.520.0Retained ea
7、rnings66.422.94,885.245.7Total liabilities and stockholders equity$289.4100.0$10,688.3100.012-6LO2 Horizontal AnalysisAnalyze trends in financial statement data for a single company over time Under ArmourIncome StatementFor the Years Ended December 31(in millions)YearIncrease(Decrease)20062005Amount
8、%Sales$430.7$281.1$149.653.2Cost of goods sold215.1145.269.948.1Gross profit215.6135.979.758.6Operating expenses 158.3100.058.358.3Operating income57.335.921.459.6Other income(expense)1.8(2.9)4.7N/AIncome before tax59.133.026.179.1Income tax expense 20.113.36.851.1Net income$39.0$19.7$19.398.012-7Ho
9、rizontal AnalysisUnder ArmourBalance SheetDecember 31(in millions)YearIncrease(Decrease)20062005Amount%AssetsCurrent assets$245.0$181.8$63.234.8Property and equipment29.920.99.043.1Intangible assets7.907.9N/AOther assets 6.61.05.6560.0Total assets$289.4$203.7$85.742.1Liabilities and Stockholders Equ
10、ityCurrent liabilities$71.6$47.7$23.950.1Long-term liabilities3.45.2(1.8)(34.6)Common stock148.0122.725.320.6Retained earnings66.428.138.3136.3Total liabilities and stockholders equity$289.4$203.7$85.742.12009 The McGraw-Hill Companies,Inc.Part BUsing Ratios to assess Risk and Profitability12-9LO3 R
11、isk AnalysisRisk RatiosLiquidityReceivable turnover ratioAverage collection periodInventory turnover ratioAverage days in inventoryCurrent ratioAcid-test ratioSolvencyDebt to equity ratioTimes interest earned ratio Chapter55668899CalculationsCredit sales Average net receivables365 daysReceivable tur
12、nover ratioCost of goods soldAverage inventory365 daysInventory turnover ratioCurrent assetsCurrent liabilitiesCash+net receivables+current investmentsCurrent liabilitiesTotal liabilitiesTotal stockholders equity Net income+interest expense+tax expenseInterest expenseA companys ability to pay its cu
13、rrent liabilitiesA companys ability to pay its long-term liabilities12-10Common MistakeIn comparing an income statement account with a balance sheet account,some students use the balance sheet accounts ending balance,rather than the average of its beginning and ending balances.Since income statement
14、 accounts are measured over a period of time,comparisons to related balance sheet accounts also need to be over time by taking the average of the beginning and ending points in time.12-11Receivable Turnover RatioReceivable turnover ratioNet credit salesAverage net receivablesUnder Armour$430.7($84.3
15、+$60.0)/2=6.0 timesNike6.1 timesMeasures how many times,on average,a company collects its receivables during the yearHIGH RATIOA company can quickly turn its receivables into cash12-12Average Collection PeriodAverage collection period365 daysReceivable turnover ratioUnder Armour3656.0=60.8 daysNike5
16、9.8 daysConverts the receivable turnover ratio into daysLOW RATIOThe shorter the average collection period,the better.12-13Inventory Turnover RatioMeasures how many times,on average,a company sells its entire inventory during the yearHIGH RATIOInventory is selling more quickly,less cash is tied up i
17、n inventory,and the risk of outdated inventory is lowerInventory turnover ratioCost of goods soldAverage inventoryUnder Armour$215.1($81.0+$53.6)/2=3.2 timesNike 4.4 times12-14Average Days in InventoryConverts the inventory turnover ratio into daysLOW RATIOCompanies try to minimize the number of day
18、s they hold inventoryAverage days in inventory365 daysInventory turnover ratioUnder Armour3653.2=114.1 daysNike 83.0 days12-15Current RatioCompares current assets to current liabilitiesHIGH RATIOA company has sufficient current assets to pay current liabilities as they become dueCurrent ratioCurrent
19、 assetsCurrent liabilitiesUnder Armour$245.0$71.6=3.4 to 1Nike3.1 to 112-16Acid-Test RatioBased on a more conservative measure of current assets available to pay current liabilities,the acid-test ratio provides a better indication of a companys liquidity than does the current ratioHIGH RATIOA compan
20、y has sufficient current assets(excluding inventories and prepaid expenses)to pay current liabilities as they become dueAcid-test ratioCash+net receivables+current investmentsCurrent liabilitiesUnder Armour$70.7+$84.3+$0$71.6=2.2 Nike 2.2 12-17Debt-to-Equity RatioCompares liabilities to stockholders
21、 equityLOW RATIOLower debt compared to equity,results in lower risk of bankruptcyDebt to equity ratioTotal liabilitiesTotal stockholders equityUnder Armour$71.6+$3.4$214.4=35.0%Nike 52.1%12-18Times Interest Earned RatioCompares interest payments with a companys income available to pay those chargesH
22、IGH RATIOCompany generates enough income to cover its interest paymentsTimes interest earned ratioNet income+interest expense+tax expenseInterest expenseUnder Armour$39.0+$0.5+$20.1$0.5=119.2 Nike37.7 12-19LO4 Profitability AnalysisProfitability RatiosGross profit ratioReturn on assetsProfit marginA
23、sset turnoverReturn on equityPrice-earnings ratio Chapter6777910CalculationsGross profitSalesNet incomeAverage total assetsNet incomeSalesSalesAverage total assetsNet incomeAverage stockholders equityStock priceEarnings per share 12-20Gross Profit RatioIndicates the portion of each dollar of sales a
24、bove its cost of goods soldHIGH RATIOHigher the gross profit,the better it isGross profit ratioGross profitSalesUnder Armour$215.6$430.7=50.1%Nike43.9%12-21Return on AssetsMeasures the income the company earns on each dollar invested in assetsHIGH RATIOHigher the return on assets,the better it isRet
25、urn on assetsNet incomeAverage total assetsUnder Armour$39.0($289.4+$203.7)/2=15.8%Nike14.5%12-22Profit MarginMeasures the income earned on each dollar of salesHIGH RATIOHigher the margin,the better it isProfit marginNet incomeSalesUnder Armour$39.0$430.7=9.1%Nike9.1%12-23Asset TurnoverMeasures sale
26、s volume in relation to the investment in assetsHIGH RATIOHigher the sales for every dollar it invests in assets,the better it isAsset turnoverSalesAverage total assetsUnder Armour$430.7($289.4+$203.7)/2=1.7 timesNike1.6 times12-24Return on EquityMeasures the income earned for each dollar in stockho
27、lders equityHIGH RATIOHigher the income earned for each dollar in stockholders equity,the better it isReturn on equityNet incomeAverage stockholders equityUnder Armour$39.0($214.4+$150.8)/2=21.4%Nike22.4%12-25Price-Earnings RatioCompares a companys share price with its earnings per shareHIGH RATIOIn
28、vestors have high expectations of future earnings for the companyPrice-earnings ratioStock priceEarnings per shareUnder Armour$50.45$0.87=58.0 Nike19.4 2009 The McGraw-Hill Companies,Inc.Part CEarnings Persistence and Earnings Quality12-27LO5 Earnings Persistence and One-Time Income ItemsCurrent ear
29、nings that will continue or persist into future years.Earnings PersistenceCertain items are part of net income in the current year but are not expected to persistOne-Time Income ItemsDiscontinued operationsExtraordinary items12-28Discontinued OperationsThe sale or disposal of a significant component
30、 of a companys operationsFederer Sports ApparelIncome StatementFor the Year Ended December 31,2010Revenues$15,500,000Cost of goods sold7,000,000Gross profit8,500,000Operating expenses1,200,000Depreciation expense1,000,000Other revenues and expenses300,000Income before tax6,000,000Income tax expense2
31、,000,000Income from continuing operations4,000,000Discontinued operation:Loss from disposal of tennis shoe segment,net of tax2,500,000Net income$1,500,00012-29Extraordinary ItemsFederer Sports ApparelIncome StatementFor the Year Ended December 31,2010Revenues$15,500,000Cost of goods sold7,000,000Gro
32、ss profit8,500,000Operating expenses1,200,000Depreciation expense1,000,000Other revenues and expenses300,000Income before tax6,000,000Income tax expense2,000,000Income from continuing operations4,000,000Discontinued operation:Loss from disposal of tennis shoe segment,net of tax 2,500,000Extraordinar
33、y item:Loss from earthquake damage,net of tax600,000Net income$900,000An event that produces a gain or loss;and is(1)unusual in nature and(2)infrequent in occurrence.12-30Other Revenues and ExpensesExtraordinary Items“Unusual in nature”and“Infrequent”Examples1.Uninsured losses from a natural disaste
34、r such as a flood,earthquake,or hurricane.2.Takeover of property by a foreign government.Other Revenues and Expenses“Unusual in nature”or“Infrequent”Examples1.Losses due to the write-down of receivables,inventory,or long-term assets.2.Gains or losses on the sale of long-term assets.3.Losses due to a
35、n employee strike.4.Losses due to business restructuring.12-31LO6 Quality of EarningsThe ability of reported earnings to reflect the companys true earnings,as well as the usefulness of reported earnings to predict future earnings.Conservative Accounting PracticesAggressive Accounting PracticesResult
36、 in reporting lower income,lower assets,and higher liabilitiesResult in reporting higher income,higher assets,and lower liabilities12-32Financial Statements by Mr.SamprasFederer Sports ApparelIncome StatementFor the Year Ended December 31,2011Revenues$18,800,000Cost of goods sold13,200,000Gross prof
37、it5,600,000Operating expenses1,600,000Depreciation expense1,000,000Inventory write-down200,000Litigation expense1,500,000Income before tax1,300,000Income tax expense450,000Net income$850,00012-33Financial Statements by Mr.SamprasFederer Sports ApparelBalance SheetDecember 3120112010Cash$2,300,000$80
38、0,000Accounts receivable1,500,0001,200,000Inventory2,800,0001,700,000Buildings11,000,00011,000,000Less:Accumulated depreciation(2,000,000)(1,000,000)Total assets$15,600,000$13,700,000Accounts payable$1,450,000$1,700,000Litigation liability1,500,0000Common stock8,000,0008,000,000Retained earnings4,65
39、0,0004,000,000Total liabilities and stockholders equity$15,600,000$13,700,00012-34Financial Statements by Mr.SamprasFederer Sports ApparelStatement of Cash FlowsFor the Year Ended December 31,2011Cash Flows from Operating ActivitiesNet income$850,000AdjustmentsDepreciation expense1,000,000Increase i
40、n accounts receivable(300,000)Increase in inventory(1,100,000)Decrease in accounts payable(250,000)Increase in litigation liability1,500,000Net cash flows from operating activities1,700,000Cash Flows from Investing ActivitiesNet cash flows from investing activities0Cash Flows from Financing Activiti
41、esPayment of cash dividends(200,000)Net cash flows from financing activities(200,000)Net increase(decrease)in cash1,500,000Cash at the beginning of the period800,000Cash at the end of the period$2,300,00012-35Sampras Retired and McEnroe hiredMr.McEnroes Proposed Changes1.Estimate of bad debt.At the
42、end of 2011,Mr.Sampras estimated that future bad debts will be 6%to 10%of current accounts receivable.He decided to play it safe and recorded an allowance equal to 10%or$150,000.Mr.McEnroe proposes changing the estimate to be 6%of accounts receivable or$90,000.This change would increase net accounts
43、 receivable and decrease bad debt expense by$60,000.2.Write-down of inventory.Mr.Sampras recorded a$200,000 write-down of inventory with the following entry.Mr.McEnroe insists the write-down was not necessary because the decline in inventory value was only temporary.Therefore,Mr.McEnroe proposes eli
44、minating this entry,which would increase inventory and decrease loss on inventory write-down by$200,000.December 31,2011Loss on Inventory Write-downInventory(Write-down of inventory)Debit200,000Credit200,00012-36Sampras Retired and McEnroe hired3.Change in depreciation estimate.A building was purcha
45、sed for$11 million at the beginning of 2010.Mr.Sampras recorded depreciation expense of$1 million in 2010 and 2011 using the straight-line method over 10 years and an estimated salvage value of$1 million.Beginning in 2011,Mr.McEnroe proposes calculating depreciation over 20 years instead of 10 and a
46、n estimated salvage value of$500,000.The change decreases accumulated depreciation and depreciation expense in 2011 by$500,000.4.Loss contingency.At the end of 2011,the companys lawyer advised Mr.Sampras that there was a 70%chance of losing a litigation suit of$1,500,000 filed against the company.Mr
47、.Sampras recorded the following entry.Mr.McEnroe argues that the likelihood of losing the litigation is reasonably possible,but not probable.Therefore,he proposes removing the litigation entry from the accounting records.The change would decrease liabilities and litigation expense by$1,500,000.Decem
48、ber 31,2011Litigation ExpenseLitigation Liability(Litigation against the company)Debit1,500,000Credit1,500,00012-37Mr.McEnroes Financial StatementsFederer Sports ApparelIncome StatementFor the Year Ended December 31,2011SamprasChangesMcEnroeRevenues$18,800,000$18,800,000Cost of goods sold13,200,0001
49、3,200,000Gross profit5,600,0005,600,000Operating expenses1,600,000(60,000)1,540,000Depreciation expense1,000,000(500,000)500,000Inventory write-down200,000(200,000)0Litigation expense1,500,000(1,500,000)0Income before tax1,300,0002,260,0003,560,000Income tax expense450,000450,000Net income$850,0002,
50、260,000$3,110,00012-38Mr.McEnroes Financial StatementsFederer Sports ApparelBalance SheetDecember 31SamprasChangesMcEnroeAssetsCash$2,300,000$2,300,000Accounts receivable1,500,00060,0001,560,000Inventory2,800,000200,0003,000,000Buildings11,000,00011,000,000Less:Acc.depr.(2,000,000)500,000(1,500,000)
