Fundamentals of Financial Management-CHAPTER 3 Analysis of Financial Statements

1、3 - 1copyright 2001 by harcourt, inc.all rights reserved.nratio analysisndu pont systemneffects of improving ratiosnlimitations of ratio analysisnqualitative factorschapter 3 analysis of financial statements3 - 2copyright 2001 by harcourt, inc.all rights reserved.balance sheet: assets2001e2000cash85

2、,6327,282ar878,000632,160inventories1,716,4801,287,360 total ca2,680,1121,926,802gross fa1,197,1601,202,950less: deprec. 380,120 263,160 net fa 817,040 939,790total assets3,497,1522,866,5923 - 3copyright 2001 by harcourt, inc.all rights reserved.liabilities and equity2001e2000accounts payable436,800

3、524,160notes payable600,000720,000accruals 408,000 489,600 total cl1,444,8001,733,760long-term debt500,0001,000,000common stock1,680,936460,000retained earnings (128,584) (327,168) total equity1,552,352 132,832total l & e3,497,1522,866,5923 - 4copyright 2001 by harcourt, inc.all rights reserved.inco

4、me statementsales7,035,6005,834,400cogs5,728,0005,728,000other expenses 680,000 680,000 ebitda 627,600 (573,600)depreciation 116,960 116,960 ebit 510,640(690,560)interest exp. 88,000 176,000 ebt 422,640 (866,560)taxes (40%) 169,056 (346,624)net income 253,584 (519,936)2001e20003 - 5copyright 2001 by

5、 harcourt, inc.all rights reserved.other data2001e2000shares out.250,000100,000eps$1.014($5.199)dps$0.220$0.110stock price$12.17$2.25lease pmts$40,000$40,0003 - 6copyright 2001 by harcourt, inc.all rights reserved.nstandardize numbers; facilitate comparisonsnused to highlight weaknesses and strength

6、swhy are ratios useful?3 - 7copyright 2001 by harcourt, inc.all rights reserved.nliquidity: can we make required payments?nasset management: right amount of assets vs. sales?what are the five major categories of ratios, and what questions do they answer?3 - 8copyright 2001 by harcourt, inc.all right

7、s reserved.ndebt management: right mix of debt and equity?nprofitability: do sales prices exceed unit costs, and are sales high enough as reflected in pm, roe, and roa?nmarket value: do investors like what they see as reflected in p/e and m/b ratios?3 - 9copyright 2001 by harcourt, inc.all rights re

8、served.calculate dleons forecasted current and quick ratios for 2001.cr01 = = = 1.85x.qr01 = = 0.67x.cacl$2,680$1,445$2,680 $1,716$1,445ca - inv.cl3 - 10copyright 2001 by harcourt, inc.all rights reserved.nexpected to improve but still below the industry average.nliquidity position is weak.comments

9、on cr and qr200120001999ind.cr1.85x1.1x2.3x2.7xqr0.67x0.4x0.8x1.0 x3 - 11copyright 2001 by harcourt, inc.all rights reserved.inv. turnover = = 4.10 x.salesinventories$7,036$1,716what is the inventory turnover ratio vs. the industry average?200120001999ind.inv. t. 4.1x4.5x4.8x6.1x3 - 12copyright 2001

10、 by harcourt, inc.all rights reserved.ninventory turnover is below industry average.ndleon might have old inventory, or its control might be poor.nno improvement is currently forecasted.comments on inventory turnover3 - 13copyright 2001 by harcourt, inc.all rights reserved.receivablesaverage sales p

11、er daydso = = = = 44.9. dso is the average number of days after making a sale before receiving cash.receivablessales/360$878$7,036/3603 - 14copyright 2001 by harcourt, inc.all rights reserved.appraisal of dson dleon collects too slowly, and is getting worse.n dleon has a poor credit policy.200120001

12、999ind.dso 44.9 39.0 36.8 32.03 - 15copyright 2001 by harcourt, inc.all rights reserved.f.a. and t.a. turnover vs. industry averagefixed assetsturnover sales net fixed assets= = 8.61x.$7,036$817total assetsturnover sales total assets= = 2.01x.$7,036$3,4973 - 16copyright 2001 by harcourt, inc.all rig

13、hts reserved.nfa turnover projected to exceed industry average. good.nta turnover not up to industry average. caused by excessive current assets (a/r and inv.) 2001 2000 1999ind.fa to 8.6x6.2x10.0 x7.0 xta to 2.0 x2.0 x2.3x2.6x3 - 17copyright 2001 by harcourt, inc.all rights reserved.calculate the d

14、ebt ratio, tie, and ebitda coverage ratios. total debt total assetsdebt ratio = = = 55.6%.$1,445 + $500$3,497 ebit int. expense tie = = = 5.8x.$510.6$883 - 18copyright 2001 by harcourt, inc.all rights reserved.ebitda coverage = = 5.2x. ebitda + lease payments (in cash) interest lease loanexpense pmt

15、. repayments+ + $510.6 + $117.0 + $40 $88 + $40 + $03 - 19copyright 2001 by harcourt, inc.all rights reserved.too much debt, but projected to improve.how do the debt management ratios compare with industry averages?200120001999 ind.d/a55.6% 95.4% 54.8% 50.0%tie 5.8x -3.9x 3.3x 6.2xebitda coverage 5.

16、2x -3.3x 3.6x 8.0 x3 - 20copyright 2001 by harcourt, inc.all rights reserved.very bad in 2000, but projected to exceed industry average in 2001. looking good.profit margin vs. industry average?200120001999 ind.p.m.3.6%-8.9%2.6% 3.5%p.m. = = = 3.6%. ni sales$253.6$7,0363 - 21copyright 2001 by harcour

17、t, inc.all rights reserved.bep = = 14.6%.bep vs. industry average? ebit total assets $510.6 $3,4973 - 22copyright 2001 by harcourt, inc.all rights reserved.nbep removes effect of taxes and financial leverage. useful for comparison.nprojected to be below average.nroom for improvement.200120001999ind.

18、bep14.6%-24.1% 14.2%19.1%3 - 23copyright 2001 by harcourt, inc.all rights reserved.return on assetsroa = = 7.3%. net income total assets $253.6 $3,4973 - 24copyright 2001 by harcourt, inc.all rights reserved.roe = = 16.3%. net income common equity $253.6 $1,5522001 20001999ind.roa 7.3% -18.1% 6.0% 9

19、.1%roe16.3%-391.4% 13.3%18.2%both below average but improving.3 - 25copyright 2001 by harcourt, inc.all rights reserved.nroa is lowered by debt-interest lowers ni, which also lowers roa = ni/assets.nbut use of debt lowers equity, hence could raise roe = ni/equity.effects of debt on roa and roe3 - 26

20、copyright 2001 by harcourt, inc.all rights reserved.calculate and appraise the p/e, p/cf, and m/b ratios.price = $12.17.eps = = = $1.01.p/e = = = 12x. ni shares out.$253.6250price per shareeps$12.17$1.013 - 27copyright 2001 by harcourt, inc.all rights reserved.industryp/e ratiobanking 17.15computer

21、software services 33.01drug 41.81electric utilities (eastern u.s.) 19.40internet services* 290.35semiconductors 78.41steel 12.71tobacco 11.59water utilities 21.84typical industry average p/e ratios* because many internet companies have negative earnings and no p/e, there was only a small sample of i

22、nternet companies. 3 - 28copyright 2001 by harcourt, inc.all rights reserved. ni + depr. shares out.cf per share = = $1.48.$253.6 + $117.0250 price per share cash flow per share p/cf = = = 8.21x.$12.17$1.483 - 29copyright 2001 by harcourt, inc.all rights reserved. com. equity shares out.bvps = = = $

23、6.21.$1,552250 mkt. price per share book value per share m/b = = 1.96x.$12.17$6.213 - 30copyright 2001 by harcourt, inc.all rights reserved.np/e: how much investors will pay for $1 of earnings. high is good.np/cf: how much investors will pay for $1 of cash flow. high is good.nm/b: how much paid for

24、$1 of bv. higher is better.np/e and m/b are high if roe is high, risk is low. 2001 20001999 ind.p/e12.0 x-0.4x 9.7x14.2xp/cf8.21x-0.6x 8.0 x11.0 xm/b1.96x 1.7x 1.3x 2.4x3 - 31copyright 2001 by harcourt, inc.all rights reserved.( )( )( ) = roe x x = roe.profitmargintaturnoverequitymultiplier ni sales

25、salesta ta ce19992.6% x2.3x2.2 =13.3%2000-8.9% x2.0 x 21.6 = -391.4%20013.6% x2.0 x2.3 =16.3%ind.3.5% x2.6x2.0 =18.2%3 - 32copyright 2001 by harcourt, inc.all rights reserved.the du pont system focuses on:nexpense control (p.m.)nasset utilization (tato)ndebt utilization (eq. mult.)it shows how these

26、 factors combine to determine the roe.3 - 33copyright 2001 by harcourt, inc.all rights reserved.simplified dleon dataa/r878 debt1,945other ca1,802 equity1,552net fa 817total assets $3,497 l&e$3,497q. how would reducing dso to 32 days affect the company?sales $7,035,600 day 360= = $19,543.3 - 34copyr

27、ight 2001 by harcourt, inc.all rights reserved.effect of reducing dso from 44.9 days to 32 days:old a/r= 19,543 x 44.9 = 878,000new a/r = 19,543 x 32.0 = 625,376 cash freed up: 252,624initially shows up as additional cash.3 - 35copyright 2001 by harcourt, inc.all rights reserved.what could be done w

28、ith the newcash? effect on stock price and risk?new balance sheetadded cash$ 253 debt$1,945a/r625 equity1,552other ca1,802net fa 817total assets$3,497 total l&e$3,4973 - 36copyright 2001 by harcourt, inc.all rights reserved.potential use of freed up cashnrepurchase stock. higher roe, higher eps.nexp

29、and business. higher profits.nreduce debt. better debt ratio; lower interest, hence higher ni.nall these actions would improve stock price.3 - 37copyright 2001 by harcourt, inc.all rights reserved.what are some potential problems and limitations of financial ratio analysis?ncomparison with industry averages is difficult if the firm operates many different divisions.3 - 38copyright 2001 by harcourt,