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1、CHAPTER 3Analysis of Financial Statements,Ratio Analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative factors,Why are ratios useful?,Financial ratios are designed to help one evaluate a financial statement. Ratios standardize numbers and facilitate comparisons
2、. Ratios are used to highlight weaknesses and strengths.,What are the five major categories of ratios, and what questions do they answer?,Liquidity: Can we make required payments? Asset management: right amount of assets vs. sales? Debt management: Right mix of debt and equity? Profitability: Do sal
3、es prices exceed unit costs, and are sales high enough as reflected in PM, ROE, and ROA? Market value: Do investors like what they see as reflected in P/E and M/B ratios?,Comments on current ratio,Expected to improve but still below the industry average. Liquidity position is weak.,Asset Management
4、Ratios,Inventory turnover ratio (存貨週轉率) DSO=Days Sales Outstanding (銷售流通天數) FA turnover (固定資產周轉率) TA turnover (總資產週轉率),Asset Management Ratios,Inventory turnover ratio = Sales / Inventories = $3,000 / $615 = 4.9x Industry average=9.0 x,Comments on Inventory Turnover,Inventory turnover is below indus
5、try average. This firm might have old inventory, or its control might be poor. It holds too much inventory Excess inventory means unproductive, and it presents an investment with a low or zero rate of return No improvement is currently forecasted.,DSO is the average number of days after making a sal
6、e before receiving cash.,DSO=Days Sales Outstanding (銷售流通天數) =Average Collection Period (平均收現期間) = Receivables / Average sales per day = 應收帳款/平均每日銷售額 = Receivables / Sales/365 = 用來評估應收帳款的催收速度 = $375 / ($3,000/365) = 45.62546 days Industry average=36 days,Appraisal of DSO,This firm collects on sales
7、too slowly, and is getting worse. It has a poor credit policy.,Fixed asset and total asset turnover ratios vs. the industry average,FA turnover= 固定資產週轉率 = 衡量公司如何有效使用其固定資產 = Sales / Net fixed assets = $3,000 / $1,000 = 3.0 x,Fixed asset and total asset turnover ratios vs. the industry average,TA turn
8、over = 總資產週轉率 = 衡量公司所有資產的週轉情況 = Sales / Total assets = $3,000 / $2,000 = 1.5x Industry average=1.8x,Evaluating the FA turnover and TA turnover ratios,FA turnover projected to exceed the industry average. TA turnover below the industry average. Caused by excessive currents assets (A/R and Inv).,Debt
9、Management Ratios,Debt ratio (負債比率) TIE (利息賺得倍數) EBITDA coverage ratios (固定費用涵蓋比率),Debt Management Ratios,Debt ratio= Total debt / Total assets = ($ 310 + $ 754) / $2,000 = 53.2% Industry average=40.0%,Debt Management Ratios,TIE= Times-interest-earned = 利息賺得倍數 =衡量營業所得支付每年利息成本的能力 = EBIT / Interest ex
10、pense = 息前稅前盈餘/利息費用 = $ 283.8/ $ 88 = 3.2 x Industry average=6.0 x,Calculate the debt ratio, TIE, and EBITDA coverage ratios.,TIE ratio has two shortcomings: Interest is not the only fixed financial charge; Many firms lease assts and thus must make lease payments EBIT does not represent all the cash
11、 flow available to service debt, especially if a firm has high depreciation and/or amortization charges,Calculate the debt ratio, TIE, and EBITDA coverage ratios.,EBITDA coverage ratio (固定費用涵蓋比率) EBITDA= (EBITDA+Lease pmts) coverage Int exp + Lease pmts + Principal pmts = $ 411.8 $ 136 = 3.0 x Indus
12、try average=4.3x,How do the debt management ratios compare with industry averages?,D/A and TIE are better than the industry average, but EBITDA coverage still trails the industry.,Profitability ratios: Profit margin and Basic earning power,Profit Margin on Sales (銷售利潤邊際) Basic Earning Power (BEP;基本獲
13、利率) Return on Total Assets (ROA;總資產報酬率) Return on Common Equity (ROE;普通股權益報酬率),Profitability ratios: Profit margin and Basic earning power,Profit margin= Net income / Sales = $113.5 / $3,000 = 3.8% Industry average=5.0% BEP= EBIT / Total assets = $283.8 / $2,000 = 14.2% Industry average=17.2%,Apprai
14、sing profitability with the profit margin and basic earning power,Profit margin was very bad in 2002, but is projected to exceed the industry average in 2003. Looking good. BEP removes the effects of taxes and financial leverage, and is useful for comparison. BEP projected to improve, yet still belo
15、w the industry average. There is definitely room for improvement.,Profitability ratios: Return on assets and Return on equity,ROA= Net income / Total assets = $113.5 / $2,000 = 5.7 % Industry average=9.0% ROE= Net income / Total common equity = $113.5 / $896 = 12.7% Industry average=15.0%,Appraising
16、 profitability with the return on assets and return on equity,Both ratios rebounded from the previous year, but are still below the industry average. More improvement is needed. How? Wide variations in ROE illustrate the effect that leverage can have on profitability.,Effects of debt on ROA and ROE,ROA is lowered by debt interest lowers NI, which also lowers ROA = NI/Assets. But use of debt also lowers equity, hence debt could raise ROE = N
