chapter 13. never answers questions by themselves they do however ◦ raise questions to answer...
TRANSCRIPT
CHAPTER 13
Never answers questions by themselves They do however
◦ Raise questions to answer◦ Point to opportunities for further analysis
Also include:◦ Industry trends◦ Technological changes◦ Changes in consumer tastes◦ Changes in broad economic factors◦ Changes within company
Examines changes in accounts over time Select a year as the “BASE YEAR” = 100% Every year is a % of that year. New #/Base Year Usually over 5 or 10 years Can compare any account to see how it has
changed over the years Page 586 McDonalds(#s), Graph When“Super size Me”? Change over two years in $ and % page 606 13-1 Exercise 13-10 Trend % pg 610
Relationship between accounts Balance Sheet - % of Total Assets pg 585
Income Statement - % of Sales pg 586 Change over two years in $ and % page 606
13-1
Accounting 101 - ◦ Liquidity, Profitability, Long Term Solvency,
Market Strength
Accounting 102 – Users◦ Common Stockholders, Short-Term Creditors,
Long Term Creditors◦ Summary of Ratios Exhibit 13-6 page 600
Numerator Denomiator
Num goes up ratio goes up Dem goes up ratio goes down Num goes down ratio goes down Dem goes down ratio goes up
Gross Margin % Gross Margin/Sales
Earnings Per share (EPS) Net Income-Preferred Div/Avg Common Stock O/S
Price Earning Ratio Market Price/ EPS
Dividend Payout Dividends per share/ EPS
Dividend Yield Dividend per share/Market Price per share
Return on Assets (simple version) Net Income / Average Total Assets
Return On Equity (simple version) Net Income/ Average Total SE
Book Value Per Share Stockholder’s Equity/ Shares Outstanding
EXERCISE 13-2 Page 608
Basically--- ability to borrow money at a lower rate 7% (pay your creditors)than your net income percentage 10% (rate of return)
Working Capital Current Assets – Current Liabilities
Current Ratio Current Assets/Current Liabilities
Acid-Test (Quick) Ratio Cash+Market Sec+A/R+ Short Term Invest/CL
A/R Turnover Credit Sales/Avg A/R
Avg Collection Period 365/ A/R Turnover
Inventory Turnover Cost of Goods Sold (COGS)/ Avg Inventory
Average Sales Period 365/ inventory Turnover
Payables Turnover COGS + or – Change in Inventory/Average A/P
Average days Payables 365/Payables Turnover
Operating Cycle in days Average collection period(Days uncollectible) + Average
Sales Period (Inventory on hand) Financing Requirement
◦ Operating Cycle – Average Days Payable◦ EXERCISE 13-3 PG 608
Times Interest Earned EBIT/ Interest Expense
Debt to Equity Total Liabilities/ Stockholder’s Equity
EXERCISE 13-4 PG 608
SUMMARY OF RATIOS Pg 600