FS Analysis
Four Basic Traditional Techniques
- Horizontal or Comparative Analysis - Two periods. Percentage Change = Amount of Change/Base
- Trend Analysis - Normally two or more year analysis
- Vertical or Common-size analysis- In Income Statement, the base is Net Sales - 100% (GS-Sales Returns and Allowances)
- Financial Mix Ratio- FS are interralated.
4.a Profitability Ratio
4.b Growth Ratio
4.c Liquidity Ratio
4.d Leverage/Solvency Ratio
In FS Analysis, only
Financial Mix Ratio is challenge. What are the 4 classification?
- Financial Mix Ratio- FS are interralated.
4.a Profitability Ratio
4.b Growth Ratio
4.c Liquidity Ratio
4.d Leverage/Solvency Ratio
FS Analysis
____measure the ability of the business to gerate profit in relation to sales, investments, assets, equities or ordinary outstanding
Profitability Ratios
FS Analysis
Types of Interesting Profiablitiy Ratios and Formulas
- Return on Sales (ROS) = Profit/Net Sale
- Return on Investment (ROI) oka Return on Asset = Profit / Average Investment or Assets
- Return on Equity (ROE) = Profit / Average Shareholder’s Equity
Return on Ordinary Equity = Profit - Preference Dividends / Average Ordinary Shareholders’ Equity
- Earning Per Share (EPS) = Profit - Preference Dividends Requirement / Average Ordinary SHARES Oustanding
(You’ll get pesos)
NOTE:
*Preference Dividend is cumulative preference shares
Remember that in computing Financial Mix Ratios thru:
Income Statement - Net amount/Net Sales
Balance Sheet - Average Amount
Okay
FS Analysis
Kinds of Growth Ratios:
- Price Earnings Ratio (P/E) or Earnings Multiple = Market Price per share / Earnings per Share
- Dividend Yield Ratio = Dividend per Share / Market Price Per Share
- Dividend Payout Ratio = Dividend Per Share / Earnings Per Share
- Book Value Per Share:
BV per Ordinary Share = Ordinary Shareholders Equity/ OS Outstanding
BV per Preference Share = Preference Shareholders Equity/PS Outsanding
___ ratio indicates the organization’s ability ro recover investments from earnings. The higher, the better!
Price earnings Ratio!
The Growth Ratios are? Definition
Indicative of the organization’e potential and attractiveness as an investment option
FS Analysis
Provide Liquidity Ratios:
Also, state the secondary liquidity ratios:
- Inventory Turnover = Cost of Sales / Average Inventories
- Days to Sell Inventories = 365days / Inventory Turnover
- Receivable Turnover = Net Credit Sales / Average Trade Reveivables
- Collection Period = 365 days / Receivable Turnover
- Payable Turnover = Net credit purchses / Average Trade Payables
- Payment Period = 365days / Payable turnover
Notes:
*Can also use 360 days
*the higher the turnover, the shorter the conversion period. The shorter the operating cycle, and the more liquid the business will be
SECONDARY LIQUIDITY AND ACTIVITY RATIO
- Current Ratio = Current Asset / Current Liabilities
- Quick Asset Ratio = Quick Asset / Current Liabilities
Quick Assets = Cash+Marketable Securities+ Trade Receivables
- Defensive Interval Ratio = Total Defensive Assets / Average Daily Expenditures
Defensive Assets is same with Quick Assets
Refers to the ability of the business to pay its obligations in cash as they mature. Therefore the focal point of this analysis is Cash.
Liquidity Analysis
Quick Assets are?
Cash
Marketable Securities
Trade Receivables
Acid Test Ratio is also known as?
Quick Assets Ratio
FS Analysis
Leverage Ratios is measure of?
And it is also known as?
Risks
Solvency / Stability Ratios
FS Analysis
Leverage Ratios:
- Debt Ratio = Total Debt / Total Equity (Total Assets)
- Debt to Equity Ratio = Total Debt / Total Shareholders Equity
- Equity Multiplier = Total Equity / Shareholders Equity
- Times Interest Earned = EBIT / Interest Expense
- Financial Leverage Ratio = EBIT/ (Ebit - Interest Exp - Preference Dibidends Before Tax)
FS Analysis
Total Equity Means Total Asset
Yed
FS Analysis
Two Types of Gearing Rations and its formulas
- Operating Gearing Ratio or DOL = CM/EBIT
- Financial Gearing Ratio = Prior Capital Charge / Equity Capital or Total Capital Employed
