ch14 Financial Statement Analysis Ke toan quan tri

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Financial Statement
Analysis
Managerial Accounting
Fifth Edition
Weygandt Kimmel Kieso
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study objectives
1.

Discuss the need for comparative analysis.

2.

Identify the tools of financial statement analysis.

3.

Explain and apply horizontal analysis.

4.

Describe and apply vertical analysis.

5.

Identify and compute ratios used in analyzing a firm’s
liquidity, profitability, and solvency.

6.

Understand the concept of earning power, and how
irregular items are presented.

7.
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Understand the concept of quality of earnings.


preview of chapter 14

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Basics
Basics of
of Financial
Financial Statement
Statement
Analysis
Analysis
Analyzing financial statements involves:

Comparison
Bases

Characteristics
Liquidity
Profitability
Solvency

Tools of
Analysis

Intracompan
y

Horizontal

Industry
averages

Ratio

Vertical

Intercompan
y
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SO 1
SO 2

Discuss the need for comparative analysis.
Identify the tools of financial statement


Horizontal
Horizontal Analysis
Analysis
Horizontal analysis, also called trend
analysis, is a technique for evaluating a series of
financial statement data over a period of time.
Its purpose is to determine the increase or
decrease that has taken place.
Horizontal analysis is commonly applied to the
balance sheet, income statement, and statement
of retained earnings.

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SO 3 Explain and apply horizontal analysis.


Horizontal
Horizontal Analysis
Analysis
Balance
TheseSheet
changes
suggest that the

company expanded
its asset base
during 2007 and
financed this
expansion
primarily by
retaining income
rather than
assuming additional
long-term debt.
Illustration 14-5
Horizontal analysis of
balance sheets
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14-7

SO 3 Explain and apply horizontal analysis.


Horizontal
Horizontal Analysis
Analysis
Income
Statement
Overall, gross profit
and net income
were up
substantially. Gross
profit increased
17.1%, and net

income, 26.5%.
Quality’s profit
trend appears
favorable.
Illustration 14-6
Horizontal analysis of
Income statements
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SO 3 Explain and apply horizontal analysis.


Horizontal
Horizontal Analysis
Analysis
Retained
Earnings
Statement

Illustration 14-7
Horizontal analysis of
retained earnings
statements

We saw in the horizontal analysis of the balance sheet that ending
retained earnings increased 38.6%. As indicated earlier, the company
retained a significant portion of net income to finance additional plant
facilities.
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14-9

SO 3 Explain and apply horizontal analysis.


Horizontal
Horizontal Analysis
Analysis
Summary financial information for Rosepatch
Company is as follows.

Compute the amount and percentage changes in 2011 using
horizontal analysis, assuming 2010 is the base year.

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Solution on
notes page

SO 3 Explain and apply horizontal analysis.


Vertical
Vertical Analysis
Analysis
Vertical analysis, also called common-size
analysis, is a technique that expresses each
financial statement item as a percent of a base
amount.

On an income statement, we might say that
selling expenses are 16% of net sales.
Vertical analysis is commonly applied to the
balance sheet and the income statement.

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SO 4 Describe and apply vertical analysis.


Vertical
Vertical Analysis
Analysis
Balance
TheseSheet
results
reinforce the
earlier
observations that
Quality is
choosing to
finance its
growth through
retention of
earnings rather
than through
issuing
additional
debt.

Illustration
14-8
Vertical analysis of
balance sheets
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SO 4 Describe and apply vertical analysis.


Vertical
Vertical Analysis
Analysis
Income
Statement
Quality appears
to be a profitable
enterprise that is
becoming even
more successful.

Illustration 14-9
Vertical analysis of
Income statements
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SO 4 Describe and apply vertical analysis.

Vertical
Vertical Analysis
Analysis
Enables a comparison of companies of different sizes.
Illustration 14-10
Intercompany income
statement comparison

J.C. Penney earned net income more than 4,208 times larger than
Quality’s, J.C. Penney’s net income as a percent of each sales dollar (5.6%)
is only 44% of Quality’s (12.6%).
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SO 4 Describe and apply vertical analysis.


Ratio
Ratio Analysis
Analysis
Ratio analysis expresses the relationship among
selected items of financial statement data.
Financial Ratio Classifications

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Liquidity

Profitability

Solvency

Measures shortterm ability of
the company to
pay its maturing
obligations and
to meet
unexpected
needs for cash.

Measures the
income or
operating
success of a
company for a
given period of
time.

Measures the
ability of the
company to
survive over a
long period of
time.

SO 5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,

Ratio
Ratio Analysis
Analysis
A single ratio by itself is not very
meaningful.
The discussion of ratios will
include the following
types of comparisons.

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SO 5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,


Ratio
Ratio Analysis
Analysis
Liquidity Ratios
Measure the short-term ability of the company to
pay its maturing obligations and to meet
unexpected needs for cash.
 Short-term creditors such as bankers and
suppliers are particularly interested in
assessing liquidity.
 Ratios include the current ratio, the acid-test
ratio, receivables turnover, and inventory
turnover.
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SO 5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,


Ratio
Ratio Analysis
Analysis
1. Current Ratio

Liquidity Ratios

Illustration 14-12

The ratio of 2.96:1 means that for every dollar of current
liabilities, Quality has $2.96 of current assets.
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Solution on
notes page

SO 5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,


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Ratio
Ratio Analysis
Analysis

Liquidity Ratios

2. Acid-Test Ratio
Illustration 14-13

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SO 5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,


Ratio
Ratio Analysis
Analysis

Liquidity Ratios

2. Acid-Test Ratio
Illustration 14-14

Measures immediate short-term liquidity.
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Solution on
notes page

SO 5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,


Ratio
Ratio Analysis
Analysis

Liquidity Ratios

3. Receivables Turnover

Number of times, on average, the company collects
receivables.

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Solution on
notes page

Illustration 14-15

SO 5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,

Ratio
Ratio Analysis
Analysis
$2,097,000
($180,000 + $230,000) / 2

Liquidity Ratios
Receivables
Turnover
=
10.2 times

A variant of the receivables turnover ratio is to
convert it to an average collection period in
terms of days.
365 days / 10.2 times = every 35.78 days
This means that receivables are collected on
average every 36 days.
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SO 5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,


Ratio
Ratio Analysis
Analysis

Liquidity Ratios

4. Inventory Turnover

Illustration 14-16

Number of times, on average, the inventory is sold.
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Solution on
notes page

SO 5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,


Ratio
Ratio Analysis
Analysis
$1,281,000
($500,000 + $620,000) / 2

Liquidity Ratios
Inventory
Turnover
= 2.3 times

A variant of inventory turnover is the days in
inventory.
365 days / 2.3 times = every 159 days

Inventory turnover ratios vary considerably among
industries.

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SO 5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,