Chapter 3 Working With Financial Statements 0
0 Chapter 3 Working With Financial Statements
Chapter Outline Standardized Financial Statements Ratio Analysis ■The Du Pont Identity Internal and Sustainable Growth Using Financial Statement Information
1 Chapter Outline n Standardized Financial Statements n Ratio Analysis n The Du Pont Identity n Internal and Sustainable Growth n Using Financial Statement Information
Key Concepts and Skills -Know how to standardize financial statements for comparison purposes Know how to compute and interpret important financial ratios Know the determinants of a firm's profitability and growth Understand the problems and pitfalls in financial statement analysis
2 Key Concepts and Skills n Know how to standardize financial statements for comparison purposes n Know how to compute and interpret important financial ratios n Know the determinants of a firm’s profitability and growth n Understand the problems and pitfalls in financial statement analysis
Standardized Financial Statements Common-Size Balance Sheets Compute all accounts as a percent of total assets Common-Size Income Statements Compute all line items as a percent of sales Standardized statements make it easier to compare financial information,particularly as the company grows They are also useful for comparing companies of different sizes,particularly within the same industry
3 Standardized Financial Statements n Common-Size Balance Sheets q Compute all accounts as a percent of total assets n Common-Size Income Statements q Compute all line items as a percent of sales n Standardized statements make it easier to compare financial information, particularly as the company grows n They are also useful for comparing companies of different sizes, particularly within the same industry
Example:Common-Size Balance Sheet Current Assets Cash $50 2.7% Accounts receivable $310 16.8% Inventory $385 20.9% Total $745 40.4% Fixed assets Net plant and equipment $1100 59.6% Total assets $1845 100% 4
4 Example: Common-Size Balance Sheet Current Assets Cash $50 2.7% Accounts receivable $310 16.8% Inventory $385 20.9% Total $745 40.4% Fixed assets Net plant and equipment $1100 59.6% Total assets $1845 100%