Financial Analysis

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					Financial Analysis
        Quantitative Analysis
• Systematic analysis of key elements
  based on analysis context
• Quantitative techniques to standardize
  financial information for relevant
  comparisons
• In-depth analysis for key factors,
  including “red flags”
   Useful Financial Comparisons
• Benchmarks: rules of thumb or
  averages
• Trend Analysis (analysis over time)
• Industry Averages
• Market Averages
        Common-size Analysis
• Overview vs. detail
• Balance sheet: total assets = 100%
• Income Statement: sales (or total revenues) =
  100%
• Comparisons over time & across firms (or
  industry averages)
• Useful starting point for financial overview
              Ratio Analysis
• A ratio converts financial information to a
  percentage, one approach to standardization
• Each ratios provides a somewhat different
  analysis
• Ratios overlap—a problem in one area should
  show up as problems in other areas
• The importance of specific ratios differs,
  based on the purpose of the financial analysis
• Ratios for the most recent period are usually
  the most important
             Ratio Categories
• Liquidity—cash, working capital & cash flow
  related
• Leverage—debt & solvency analysis
• Activity—turnover ratios as possible efficiency
  measures
• Performance (or profitability)—bottom line or
  earnings related
• Market ratios—measuring stock performance
  relative to financial information
           Liquidity Ratios
• Current ratio: current assets/current
  liabilities
• Cash ratio: (cash + marketable
  securities)/current liabilities
              Leverage Ratios
• Debt to equity ratio: total liabilities/total
  stockholders’ equity
• Debt to market equity: total liabilities at book
  value/total equity at market value
          Activity Ratios
• Inventory turnover: cost of
  sales/average inventory
• Receivables turnover:
  sales/average accounts
  receivable
       Activity Ratios in Days
• Average days inventory in stock:
  365/inventory turnover
• Average days receivables
  outstanding: 365/receivables
  turnover
• Length of operating cycle: average
  days inventory + average days
  receivables
           Profitability
• Return on sales: net
  income/sales
• Return on total equity: net
  income/average stockholders’
  equity
         Market-based Ratios
• Price earnings ratio (PE): Stock price / EPS
• Dividend Yield: Dividend per share / Stock
  price
• Price Earnings to Growth (PEG) = PE based on
  forecast EPS / 5-year earnings forecast

				
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posted:7/16/2013
language:English
pages:12