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FINANCIAL RATIOS INFINANCIAL RATIOS IN

AUDIT REPORTAUDIT REPORT

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CLIENT’S INDUSTRY ANDCLIENT’S INDUSTRY ANDPERFORMANCE MEASUREMENTPERFORMANCE MEASUREMENT

Financial statements – a reminer Financial rati! anal"sis

T#e i$erent t"%es !& rati!s

Time'series an cr!ss'secti!nal anal"sis

Inte(ratin( rati!s) t#e D*P!nt s"stem

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Industry and the externalIndustry and the external

environmentenvironment

T#ere are ris+s ass!ciate ,it# certainin*stries- t#ere are ris+s ass!ciate t! allclients in certain in*stries. Aiti!nall"/t#ere are 0ar"in( acc!*ntin( re*irements

t#at t#e a*it!r m*st ta+e int! acc!*nt inassessin( ,#et#er !r n!t t! ser0e a%artic*lar client. T#e a*it!r m*st als!

c!nsier t#e eternal en0ir!nment in ,#ic#a c!m%an" !%erates''t#e ec!n!micsit*ati!n/ re(*lat!r" re*irements/ an!t#er &act!rs.

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usiness o!erations andusiness o!erations and

!ro"esses!ro"esses

T#e a*it!r m*st stri0e t! *nerstan #!, t#e4*siness ,!r+s''#!, re0en*e is (enerate/ #!, t#ec!m%an" is 5nance/ ,#! t#e c*st!mers are/ etc. Ac!m%an" t!*r is a ste% t!,ar (ettin( s!me

&amiliarit"/ %artic*larl" i& *esti!ns can 4e irectet! s!me !& t#e em%l!"ees. Aiti!nall"/ ienti&"in(transacti!ns ,it# relate %arties is a necessar" ste%in *nerstanin( t#e 4*siness/ an ma" in0!l0eeaminati!n !& SEC 5lin(s/ c!n0ersati!ns ,it#mana(ement/ an reain( t#r!*(# st!c+#!lerlists. T#e Sar4anes'Ole" Act %r!#i4its relate %art"%ers!nal l!ans t! eec*ti0es- t#e a*it!r s#!*l 4e!n t#e l!!+!*t &!r s*c# ille(al l!ans.

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#ana$ement and#ana$ement and

$overnan"e$overnan"e

T#e a*it!r s#!*l 4ec!me &amiliar ,it# t#ec!m%an"7s !r(ani8ati!n c#art/ as ,ell as t#ec!r%!rate c#arter an 4"la,s. T#e SECre*ires %*4lic c!m%anies t! esta4lis# a c!e

!& et#ics- ass*min( s*c# a c!e eists/ its#!*l 4e re0ie,e 4" t#e a*it!r &!r an"c#an(es !r ,ai0ers ta+in( %lace%C!r%!ratemin*tes ta+en at 4!ar meetin(s !rst!c+#!lers7 meetin(s s#!*l 4e re0ie,e 4"t#e a*it!r/ t! etermine i& acti!ns re*ire!& mana(ement #a0e 4een eec*te.

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Client o&'e"tives and strate$ies%Client o&'e"tives and strate$ies%

#easurement and !er(orman"e#easurement and !er(orman"e

A*it!rs s#!*l 4e a,are !& client !4:ecti0esrelate t! relia4ilit" !& 5nancial re%!rtin(/e$ecti0eness an e;cienc" !& !%erati!ns/an c!m%liance ,it# la,s an re(*lati!ns.

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?artlett C!m%an" – ?alance?artlett C!m%an" – ?alance

S#eetS#eet As !& Decem4er 31 ' @ in t#!*sans2003 2002 Changes

Assets

Current assets

Cash 363 288 75

Marketable securities 68 51 17

Accounts receivable 503 365 138

Inventories 289 300 -11 Total current assets 1,223 1,004 219

Gross fixed assets (at cost)

Lan an builin!s 2"072 1"903 169

Machiner# an e$ui%&ent 1"866 1"693 173

'urniture an (i)tures 358 316 *2

+ehicles 275 31* -39

,ther inclues (inancial leases. 98 96 2

Total gross fixed assets (at cost) 4,669 4,322 34

Less/ Accu&ulate e%reciation 2"295 2"056 239

!et fixed assets 2,34 2,266 10"

T#TA$ A%%&T% 3,'9 3,20 32

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?artlett C!m%an" – ?alance?artlett C!m%an" – ?alance

S#eetS#eet2003 2002 Changes

$iailities and stocholders* e+uit

Current liailities

Accounts %a#able 382 270 112

otes %a#able 79 99 -20

Accruals 159 11* *5

Total current liailities 620 4"3 13 $ong-ter. det (includes financial leases) 1,023 96 '6

T#TA$ $/A/$/T/&% 1,643 1,4'0 193

%tocholders* e+uit

re(erre stock - cu&ulative 5" 100 at %ar" 2"000 shares

authori4e an issue 200 200 0

Co&&on stock - 250 %ar" 100"000 shares authori4e" shares issue an outstanin! in 2003/ 76"262 in 2002/ 76"2** 191 190 1

ai-in ca%ital in e)cess o( %ar on co&&on stock *28 *18 10

etaine earnin!s 1"135 1"012 123

Total stocholders* e+uit 1,9'4 1,"20 134

T#TA$ $/A/$/T/&% A! %T#C#$&%* &5/T7 3,'9 3,20 32

As !& Decem4er 31 ' @ in t#!*sans

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?artlett C!m%an" – Inc!me?artlett C!m%an" – Inc!me

StatementStatement

2003 2002 Change

%ales re8enue 3,04 2,'4 '00

Less/ Cost o( !oos sol 2"088 1"711 377

Gross rofit 9"6 "63 123

Less/ ,%eratin! e)%enses 0

ellin! e)%enss 100 108 -8 eneral an a&inistrative e)%enses 19* 187 7

Lease e)%ense 35 35 0

:e%reciation e)%ense 239 223 16

Total oerating exenses '6" ''3 1'

#erating rofits (&/T) 41" 310 10"

Less/ Interest e)%ense 93 91 2

!et rofits efore taxes (&T) 32' 219 106

Less/ ;a)es 9* 6* 31

!et rofits after taxes (&AT) 231 1'' '

Less/ re(erre stock iviens 10 10 0

&arnings a8ailale to co..on stocholders 221 14' '

As of December 31 - $ in thousands

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?artlett C!. – Statement !& retaine?artlett C!. – Statement !& retaine

earnin(s/ 23earnin(s/ 23

etained earnings alance (:an 1, 2003) 1,012

lus/ et %ro(its a(ter ta)es (or 2003. 231

Less/ Cash iviens %ai in 2003.

:iviens (or %re(erre stock 10

:iviens (or co&&on stock 98

Total di8idends aid 10"

etained earnings alance (ec 2003) 1,13'

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?artlett C!. – Statement !& cas# !,s/?artlett C!. – Statement !& cas# !,s/

2323Cash ;lo< fro. #erating Acti8ities et %ro(its a(ter ta)es 231

:e%reciation e)%ense 239 Chan!e in accounts receivable -138

Chan!e in inventories 11

Chan!e in accounts %a#able 112

Chan!e in accruals *5

Cash ro8ided (, oerating acti8ities '00

Cash ;lo< fro. /n8est.ent Acti8ities Chan!e in !ross (i)e assets -3*7

Chan!e in business interests 0

Cash ro8ided (, in8est.ent acti8ities -34

Cash ;lo< fro. ;inancing Acti8ities Chan!es in notes %a#able -20

Chan!es in lon!-ter& ebt 56

Chan!es in stockholers< e$uit# 11

:iviens %ai -108

Cash ro8ided (, financing acti8ities -61

!et increase in cash and .ar)eta(le securities 92

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Financial anal"sisrati!sFinancial anal"sisrati!s

!4:ecti0es!4:ecti0es

Rati! anal"sis in0!l0es met#!s !& calc*latin(an inter%retin( 5nancial rati!s t! anal"8e anm!nit!r t#e 5rm’s %er&!rmance

?asic in%*ts) inc!me statement an 4alance

s#eet Intereste %arties)

S#are#!lersS#are#!lers ris+ an ret*rn c#aracteristics !&t#e 5rm

Creit!rsCreit!rs s#!rt'term li*iit" c!m%an"a4ilit" t! ma+e interest an %rinci%al %a"ments

Mana(ementMana(ement all as%ects !& 5rm’s 5nancialsit*ati!n

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Financial rati!s c!m%aris!nsFinancial rati!s c!m%aris!ns

Cross)se"tional analysis

in0!l0esc!m%aris!n !& i$erent 5rms’ 5nancial rati!s att#e same %!int in time

It is im%!rtant t! *nerstan #!, t#e 5rm #as

%er&!rme in relati!n t! !t#er 5rms in its in*str" Fre*entl"/ a 5rm ,ill 4e c!m%are t! a +e"

c!m%etit!r in in*str" benchmarkingbenchmarking

Time)series analysis e0al*ates %er&!rmance

!0er time an ena4les assessin( t#e 5rm’s%r!(ress

Com&ined analysis t#e m!st in&!rmati0e

a%%r!ac# t! rati! anal"sis

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Financial rati!sFinancial rati!s Liquidity ratiosLiquidity ratios – meas*re t#e 5rm’s a4ilit" t!

satis&" s#!rt'term !4li(ati!ns as t#e" c!me*e

Leverage (fnancing) ratiosLeverage (fnancing) ratios – meas*re t#e

5rm’s a4ilit" t! %a" its l!n('term e4t Eciency (activity) ratiosEciency (activity) ratios – meas*re t#e

s%ee ,it# ,#ic# 0ari!*s acc!*nts arec!n0erte int! sales !r cas#

Proftability ratiosProftability ratios – s#!,s t#e 5rm’s a4ilit" t!(enerate inc!me &r!m its assets

Market ratiosMarket ratios – (i0e insi(#t int! #!, ,ell

in0est!rs in t#e mar+et 0al*e t#e 5rm

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Li*iit" rati!sLi*iit" rati!s

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Le0era(e rati!sLe0era(e rati!s

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E;cienc" rati!s an !%eratin(E;cienc" rati!s an !%eratin(

c"clec"cle E;cienc" !& t!tal assets

E;cienc" !& c*rrent assets – OPERATIN CYCLEOPERATIN CYCLE Finin( t#e inventory period

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c"clec"cle Finin( t#e accounts receivable (collection) period

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c"clec"cle

Finin( t#e payables period

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O%eratin( c"cleO%eratin( c"cle

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A &e, c!nsierati!ns !n !%eratin(A &e, c!nsierati!ns !n !%eratin(

c"clec"cle

T#e l!n(er t#e %r!*cti!n %r!cess/ t#e l!n(ert#e in0ent!r" %eri!

T#e l!n(er it ta+es c*st!mers t! %a" t#eir 4ills/t#e l!n(er t#e acc!*nts recei0a4le %eri!

T#e l!n(er t#e acc!*nts %a"a4le %eri!/ t#es#!rter t#e cas# c"cle

t#e cash conversion cycle is not given t! a

lar(e etent it is *ner mana(ement’s c!ntr!l

4alance 4et,een t#e c!sts an 4ene5ts !&4alance 4et,een t#e c!sts an 4ene5ts !&

maintainin( #i(# c*rrent assetsmaintainin( #i(# c*rrent assets

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Pr!5ta4ilit" rati!sPr!5ta4ilit" rati!s

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Mar+et rati!sMar+et rati!s

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2=

T#e D*P!nt s"stem T#e D*P!nt s"stem Assets t*rn!0er rati!Assets t*rn!0er rati! Net %r!5t mar(inNet %r!5t mar(in

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2>

T#e D*P!nt s"stem T#e D*P!nt s"stem

Le0era(e rati! Assets t*rn!0er rati!Net %r!5t mar(in...

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2

Time'series an cr!ss'secti!nal anal"sis &!r Time'series an cr!ss'secti!nal anal"sis &!r

?artlett?artlett 2003 2002 ndustr, a8erage2003

1= $i+uidit, 1 Current ratio 197 208 205

2 ?uick ratio 151 1*6 1*33 Cash ratio 070 070 071

2= &fficienc, 1 Inventor# turnover 722 570 660

2 :a#s in inventor# 5052 6*00 5530

3 Avera!e collection %erio 5973 5176 *275

* ;otal assets turnover 085 079 075

3= $e8erage 1 :ebt ratio 3*36 3*70 32*6

2 :ebt-to-e$uit# ratio 5235 5313 *806

3 ;i&es interest earne 706 586 625

4= >rofita(lit, 1 ross %ro(it &ar!in 3208 3353 3000

2 ,%eratin! %ro(it &ar!in 1360 120* 1100

3 et %ro(it &ar!in 718 565 620

* =arnin!s %er share 289 191 226

5 a#out ratio 0** 0*2 0*1

6 ,A 61* **5 *60

7 ,= 1259 898 850

'= ?ar)et 1 = 111* 9*6 1250

2 Market to book ratio 1*0 085 130

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Pr!4lems !& 5nancial statementsPr!4lems !& 5nancial statements

anal"sisanal"sis

T#e nee &!r t#e!r" T#ere is n! c!m%ellin( rati!nale &!r *se !&

5nancial statement t! ma+e :*(ment a4!*t0al*e an ris+

#ic# rati!s matter m!st #at is t#e ri(#tQ 0al*e &!r t#e rati!

C!n(l!merates N!t ienti5e in a sin(le in*str" !r sect!r

ar t! 5n c!m%ara4les

l!4al reac# C!m%ara4ilit" !& 5nancial statements 4et,een

c!*ntries is %r!4lematic

audit_11.04.2016.ppt

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