Example:Common-Size Balance Sheet(cont'd) Current liabilities Accounts payable $260 14.1% Notes payable $175 9.5% Total $435 23.6% Long-term debt $225 12.2% Stockholders'equity Common stock and paid-in surplus $290 15.7% Retained earnings $895 48.5% Total $1185 64.2% Total liabilities and equity $1845 100% 5
5 Example: Common-Size Balance Sheet (cont’d) Current liabilities Accounts payable $260 14.1% Notes payable $175 9.5% Total $435 23.6% Long-term debt $225 12.2% Stockholders’ equity Common stock and paid-in surplus $290 15.7% Retained earnings $895 48.5% Total $1185 64.2% Total liabilities and equity $1845 100%
Example:Common-Size Income Statement Net sales $710.00 100.0% Cost of goods sold $480.00 67.6% Depreciation $30.00 4.2% Earnings before interest and $200.00 28.2% taxes(EBIT) Interest $20.00 2.8% Taxable income $180.00 25.4% Taxes $53.45 7.5% Net income $126.55 17.8% 6
6 Example: Common-Size Income Statement Net sales $710.00 100.0 % Cost of goods sold $480.00 67.6% Depreciation $30.00 4.2% Earnings before interest and taxes (EBIT) $200.00 28.2% Interest $20.00 2.8% Taxable income $180.00 25.4% Taxes $53.45 7.5% Net income $126.55 17.8 %
Example:Common-Size Income Statement Last Year This Year Net sales $650.00 100% $710.00 100.0% Cost of goods sold $390.00 60.0% $480.00 67.6% Depreciation $30.00 4.62% $30.00 4.2% EBIT $230.00 35.38% $200.00 28.2% Interest $20.00 3.08% $20.00 2.8% Taxable income $210.00 32.31% $180.00 25.4% Taxes $63.00 9.69% $53.45 7.5% Net income $147.00 22.62% $126.55 17.8% 7
7 Example: Common-Size Income Statement Last Year This Year Net sales $650.00 100% $710.00 100.0 % Cost of goods sold $390.00 60.0% $480.00 67.6% Depreciation $30.00 4.62% $30.00 4.2% EBIT $230.00 35.38% $200.00 28.2% Interest $20.00 3.08% $20.00 2.8% Taxable income $210.00 32.31% $180.00 25.4% Taxes $63.00 9.69% $53.45 7.5% Net income $147.00 22.62% $126.55 17.8 %
Ratio Analysis Ratios also allow for better comparison through time or between companies As we look at each ratio,ask yourself what the ratio is trying to measure and why that information is important Ratios are used both internally and externally 8
8 Ratio Analysis n Ratios also allow for better comparison through time or between companies n As we look at each ratio, ask yourself what the ratio is trying to measure and why that information is important n Ratios are used both internally and externally
Categories of Financial Ratios o Short-term solvency or liquidity ratios Long-term solvency or financial leverage ratios Asset management or turnover ratios Profitability ratios Market value ratios 9
9 Categories of Financial Ratios n Short-term solvency or liquidity ratios n Long-term solvency or financial leverage ratios n Asset management or turnover ratios n Profitability ratios n Market value ratios