Slides – Accounting Intake 52

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<i><b>Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.</b></i>
<i><b>McGraw-Hill/Irwin</b></i>

<b>Statement </b>

<b>Analysis</b>

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8

<b>CHAPTER</b>

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• What are its implications ?
• To whom is it important ?

Net income margin

Net income
Revenue

= X 100 (%)

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• What are its implications ?
• To whom is it important ?

Gross margin percent

Gross Profit
Revenue

= X 100 (%)

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• What are its implications ?

• To whom is it important ?

Asset turnover

Revenue
Average assets

= (times)

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Return on assets (ROA)

Net income
Average assets

= X 100 (%)

<b>BASIC OF PROFITABILITY ANALYSIS</b>

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<b>BASIC OF PROFITABILITY ANALYSIS</b>

ROA Net income
Revenue

= <sub>X</sub>

Average assets
Revenue

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<b>Example 1 </b>

Chỉ tiêu

Company A

Company B

Revenue $6,000,000 $6,000,000
Total assets 1,200,000 6,000,000

Net Income 125,000 600,000

The following information is obtained from the financial statements of
two retail companies. One company is a gift shop in a resort area; the
other company is a discount household goods store. Neither company
has any debt.

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<b>Basic of profitability analysis</b>

Net income margin

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Return on equity (ROE)

Net income
Average equity

= X 100 (%)

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ROE Net income

Revenue

= <sub>X</sub>

Average assets
Revenue

Average equity
Average assets

ROE = Net income margin X Asset turnover X Asset-to-equity ratio

Profitability Efficiency

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<b>Cautions with ROE</b>

ROE of company A is 30%, ROE of company B is 20%.

• Did Company A perform better than company B ?

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<b>Example 2</b>

<b>Year 2009</b>

<b>VCS</b>

<b>DAC</b>

<b>DTC</b>

<b>HPS</b>

1. Net income margin (%) 17.97

22.50

15.60

12.62 2. ROA (%)

10.28

34.00

22.31

7.43 3. ROE (%)

26.51

69.02

90.11

11.96 4. ROI (%)

13.02

35.66

27.06

7.43 5. Total Liabilities-to-Total

assets ratio

0.58

0.50

0.75

0.38

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<b>Return on invested capital (ROI)</b>

• Return on invested capital is defined as:

• Alternatives of invested capital:

– Net operating assets

– Stockholders’ equity

<b>Income</b>

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<b>Return on net operating assets (RNOA)</b>

<b>NOPAT</b>

<b>(Beginning NOA + Ending NOA) / 2</b>

<b>NOPAT</b>

<b>(Beginning NOA + Ending NOA) / 2</b>

<b>Where</b>

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<b>Return on net operating assets (RNOA)</b>

<b>BALANCE SHEET</b>

Operating assets ... OA
Less operating liabilities ... (OL)

Net operating assets...
NOA

Financial liabilities ... FL
Less financial assets ... (FA)
Net financial obligations... NFO
Stockholders’ equity... SE
Net financing ... NFO + SE

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Disaggregating RNOA

<b>RNOA = </b>

<b>Operating Profit margin x Operating Asset turnover</b>

NOA

Avg.

Sales

NOPAT

NOA

Avg.

NOPAT





<b>Operating Profit margin: measures operating profitability </b>

relative to sales

<b>Operating Asset turnover (utilization): measures effectiveness </b>

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<b>Return on common equity (ROCE)</b>

<b>Net income - Preferred dividends</b>

<b>(Beginning equity + Ending equity) / 2</b>

<b>Net income - Preferred dividends</b>

<b>(Beginning equity + Ending equity) / 2</b>

Where

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