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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10

<b>CHAPTER</b>

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Credit analysis

<b>Liquidity </b>

• A company’s ability to

meet short-term

obligations.

– Are the company’s current

assets adequate to its

current liabilities?

– How long is the company’s

operating cycle?

– How much of cash does

the company generate from

operations?

<b>Solvency</b>

• A company’s ability to

meet long-term

obligations.

– What is the company’s

capital structure?

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<b>Liquidity analysis</b>

Current ratio

Current assets
Current liabilities
=

Working capital = Current assets – Current liabilities

Quick ratio

Cash & Cash equivalents + Marketable
securities + Accounts receivable

Current liabilities
=

Cash-to-current
liabilities ratio

Cash & cash equivalents + marketable securities
Current liabilities

=

Cash-to-current
assets ratio

Cash & cash equivalents + marketable securities
Current assets

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<b>As at 31/12/2011</b> <b>VCS DAC</b> <b>HPS</b>

<b>1</b> Current ratio 0,91 1,19 4,06

<b>2</b> Quick ratio 0,19 0,60 3,04

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<b>Liquidity analysis</b>

Cash flow ratio

Operating cash flow
Current liabilities
=

Cash-to-maturing
debt ratio

Operating cash flow

Maturing debts
=

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<b>For the year ended Dec. 31, 2011</b> <b>VCS</b> <b>DAC</b> <b>HPS</b>

(in VND mil.)

<b>1</b> Current liabilities at year end 1,047,892 18,523 4,102

<b>2</b> Maturing debts at year end 755,232 8,694

<b>-3</b> Net cash flows form operating
activities

(163,851) (7,546) 1,711

<b>4</b> Cash flow ratio -0.16 -0.41 0.42

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<b>Liquidity analysis</b>

Purchasing Payments for purchasing _{Selling Collecting money from selling}

Payment
period

Days to sell inventory _Collection
period

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Operating

cycle

<b>=</b>

Days to sell

inventory

+

Collection

period

-

Payment

period

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Days to sell

inventory ₃₆₀

Cost of goods sold

=

<b>Liquidity analysis</b>

Average inventory

÷

Collection
period

360

Sales

= Average account
receivables

÷

Payment
period

360

Cost of goods sold

= Average account

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Days to sell

inventory ₃₆₀

Cost of goods sold

=

<b>Liquidity analysis</b>

Average inventory

÷

Collection
period

360

Sales

= Average account
receivables

÷

Payment

period

360

Cost of goods sold

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Inventory
turnover

Cost of goods sold
Average inventory
=

<b>Liquidity analysis</b>

Accounts receivable
turnover
Sales
Average accounts
receivable
=
Accounts payable
turnover

Cost of goods sold
Average accounts

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Total debt-to-equity
capital ratio

Total liabilities
Shareholders’ equity

=

Total debt ratio
(total
debt-to-total capital ratio)

Total liabilities
Total capital
=

Debt-to-equity ratio
(Long-term debt to
equity capital ratio)

Long-term debt
Shareholders’ equity
=

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Time interest
earned ratio
EBIT
Interest expense
=

<b>Solvency analysis</b>

Earnings to fixed
charges ratio

Earnings available for fixed charges
Fixed charges

=

Earnings available for fixed charges:

• Pretax income from continuing operations
• Interest incurred (both expensed and

capitalized)

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