finantial ratio analysis for non financial managers extraordinario world bank 122 slides

8/13/2019 Finantial Ratio Analysis for Non Financial Managers Extraordinario World Bank 122 Slides

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FINANCIAL RATIO ANALYSIS FORFINANCIAL RATIO ANALYSIS FOR

NON-FINANCIAL MANAGERSNON-FINANCIAL MANAGERS

DR. KHALED FOUAD SHERIFDR. KHALED FOUAD SHERIF

SECTOR MANAGERSECTOR MANAGER

EASTERN EUROPE & CENTRALEASTERN EUROPE & CENTRAL ASIA DEPARTMENT ASIA DEPARTMENT

THE WORLD BANKTHE WORLD BANK

WASHINGTON DCWASHINGTON DC Web: http:\\www.!he"#$.%'Web: http:\\www.!he"#$.%'


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Introduction to Balance Sheets and Income Statements:Introduction to Balance Sheets and Income Statements:

The balance sheet summarizes the financial position ofan organization at a given moment, it is a snapshot of

the firm. The balance sheet reflects the status of the

organizations assets, (the economic resources owned

b the organization!, liabilities (debts owned tocreditors!, and e"uit (the owners investment in the

organization!.


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NON-FINANCIAL MANAGERSNON-FINANCIAL MANAGERS #s its name implies the balance sheet should

indicate that these elements are in balance.

Assets = Liabilities + Equity

This fundamental relationship must alwas e$ist,

because the assets represent the things owned b

the organization and the liabilities and e"uitindicate how much was supplied b both creditors

and owners.


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In contrast to the balance sheet, the income

statement shows the organization%s financial

progress over a given period of time. The incomestatement is also based on e"uation:

Revenues - Expenses = Proit !or Loss"


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&evenues are the resources, primaril cash, coming into the organization

as a result of goods sold or services rendered. '$penses are the

resources used b the organization to provide goods or services. If

revenues are greater than e$penses, the business has realized a profit.If e$penses e$ceed revenue the business has realized a loss from

operations. #s ou read the following detailed descriptions of balance

sheets and income statements, eep in mind that there is a direct and

important relationship between the two. The profit (or loss! realized b a

business over a period of time affects the amount of e"uit. '"uit in abusiness comes from two sources: )irect investment b the owners and

profits from business operations. Therefore, the bridge between the

income statement and the balance sheet is in the relationship between

e"uit and profit or loss.


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Income Statements:

'$hibit * shows a sample income statement (see ne$t page!

for a period covering +anuar * to )ecember *, *--. The

compan in "uestion earned revenues from two sources: /et sales: #ll sources earned b the compan from the

sale of its products and services.

0ther income: 1enerall resources from sources asinterest on ban accounts, cash dividends from

investments in other companies, and interest on bonds.


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The following e$penses are subtracted from

revenues:

2ost of goods sold: all the e$penses

incurred in maing the products sold

during the period, including the cost of

materials, labor, and factor overhead(rent, utilities and maintenance!.


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#o$pany %&or year en'in( De)e$ber *, .

!/n LE"

Revenues

/et Sales ,33,45

0ther Income 54,63-0otal Revenues *,.1,.12

Expenses

2ost of 1oods Sold 4,3-7,56-

#dministrative 8 Selling '$penses 73,69-

Interest '$penses 53,6*7

0otal Expenses *,34*,353

'arnings Before Income Ta$es 47,44

Income Ta$es *64,9-

Net Earnin(s 25,15*

EXHIBIT 1EXHIBIT 1

SAMPLE INCOME STATEMENTSAMPLE INCOME STATEMENT


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#dministrative and selling e$penses: The

costs of running and promoting the business,

including items lie the presidents salar, thesalaries of all management personnel,

advertising costs and sales commissions.

Interest e$penses: The interest that the

compan paid during the ear on mone that

it borrowed.


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0ther '$penses: This would include an

other unusual e$penses incurred b the

compan to run the business not otherwiseaccounted for above (e.g. research and

development e$penses, and organizational

costs!.


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'$penses are subtracted from revenues to ield a

figure that indicates the compans earnings, but

this figure still does not reflect the compansprofit. )uring *-- the compan paid over 57

percent of its earnings to the ta$ department in

the form of ta$es. Thus, its net earnings, or the

amount of profit the compan earned in *--, is' *35, 45.


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Balance sheets

'$hibit 4 is the balance sheet for 2ompan ; as of

)ecember *, *--. The first component is assets,current and fi$ed. 2urrent assets, are those the

business e$pects to turn into cash during the ne$t

ear. The cash generated from current assets is

used to pa e$penses and repa liabilities. 2urrent

assets include:


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2ash.


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?i$ed assets are things of value that will provide benefits to

the compan for one or more ears. ?i$ed assets are

reported in three categories: land, buildings, machiner and

e"uipment. ?i$ed assets are reported on the balance sheet atthe cost to purchase or ac"uire the asset minus the

depreciation accumulated on the assets since the time of

purchase. )epreciation is the estimated decline in the useful

value of an asset due to gradual wear and tear. Since thisdecline in value cannot be estimated with certainl,

accountants use various standards methods to appro$imate it.


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SAMPLESAMPLEBALAN#E 67EE0BALAN#E 67EE0#o$pany %

De)e$ber *, .

Assets Liabilities82urrent #ssets: 2urrent iabilities2ash 6-,339 /otes >aable 5,67arolls 8 other accurables 5**,74

Inventor 7*,*49 Income ta$es *45,75>repaid '$penses 5-,-7 Total 2urrent iabilities 3-4,5-7Total 2urrent #ssets *,35,57 ong@Term iabilities 5*,69?i$ed #ssets: 0otal Liabilties ,11*,.59and 46,93Buildings 3*7,937 6:are:ol'ers; Equity ,4*,4


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The second maAor section in a balance sheet is

devoted to liabilities. 2urrent liabilities are the

debts that a compan must pa off within thecoming ear:

/otes paable:


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ong@term liabilities are obligations, usuall

loans, that are due to be paid not in the current

ear but in some future period. The amountspecified in the balance sheet is e"ual to the

total amount borrowed.


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The final maAor section, the e"uit section

summarizes the owners investment in the

business. Individuals and institutions becomeowners of a compan b purchasing shares of

the compans stoc. '"uit increases as more

people purchase stoc and the compan retains

increased profit.


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ANALYSIS OF BALANCE SHEETSANALYSIS OF BALANCE SHEETS

AND INCOME STATEMENTSAND INCOME STATEMENTS

'ach tpe of analsis of financial data has a

purpose or use that determines the different

relationships emphasized. Therefore, it is

useful to classif ratios into four fundamental

tpes:

i"uidit ratios, measure the firms abilit to

meet its maturing short@term obligations.


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everage ratios, measure the e$tent to which

the firm has been financed b debt.

#ctivit ratios, measure how effectivel thefirm is using its resources.

>rofitabilit ratios, measure managements

overall effectiveness as shown b the returnsgenerated on sales and investment.


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i"uidit &atios

1enerall, the first concern of the financial analst is

li"uidit. the measures the short@run solvenc of acompan its abilit to meet current debts.

2urrent &atio

The current ratio indicates whether there are

enough current assets to meet current liabilities.

#urrent ratio = #urrent assets

#urrent liabilities


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2urrent assets normall include: 2ash, maretable

securities, accounts receivable, and inventories.

2urrent liabilities consist of: accounts paable, short@

term notes, paable, current maturities of long@term

debt, accrued income ta$es, and other accrued

e$penses (principall wages!.


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Chen is the compan solventD Chen the current ratio

is *.9 or greater= that is, the compan should have

more current assets than current liabilities.


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#dd notes paable, trade accounts paable,

parolls and other accurables and income

ta$es to get current liabilities.

)ivide the derived current assets figure b the

calculated current liabilities figure.


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Eou have now derived the current ratio. /ow,

compare the value derived to *.9. If the

current ratio is *.9 or greater, the companshould have more current assets than current

liabilities and is financiall viable or solvent. If

the current ratio is less than *.9, the compan

will have more current liabilities than currentassets and is financiall unviable or insolvent.


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?or significance this ratio should be

compared to previous ears (e.g. the current

ratio for five previous ears should bederived!. This is necessar in order to derive

a trend. If the current ratio is rising n an

upward fashion, the compan is becoming

more financiall viable. If the current ratio isfalling and assuming a downward trend, the

compan is becoming less financiall viable.


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0ne helpful activit is to also compare the

current ratio of the compan in "uestion to

the current ratio of similar competing

companies. If the compan in "uestion has a

higher current ratio on a regular basis over a

number of ears than this compan is more

financiall viable. 0n the other hand, if thecompan in "uestion has a lower current ratio

on a regular basis over a number of ears

than this compan is less financiall viable.


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b @ Fuic &atio, or #cid Test

The "uic ratio is calculated b deducting inventor

from current assets, and dividing the remainder b

current liabilities. Inventories are deducted since the

are tpicall the least li"uid of a firms current assets.

ui)> ratio = #urrent assets - /nventory

#urrent Liabilities


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Chen is the compan solventD Chen the Fuic

ratio is *.9 or greater.

Chich li"uidit ratio is more accurate, the

current ratio or the "uic ratioD The "uic ratio,

since it e$cludes inventor, the least li"uid

asset, and the asset on which losses are mostliel to occur in the event of li"uidation.


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#dd notes paable, trade accounts paable,

parolls and other accurables and income

ta$es (items *, 4, 8 5 on the samplebalance sheet on page 7! to get current

liabilities.

)ivide the derived "uic assets figure b thecalculated current liabilities figure.


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Eou have now derived the "uic ratio. /ow,

compare the value derived to *.9. If the "uic

ratio is *.9 or greater, the compan shouldhave more "uic assets than current liabilities

and is financiall viable or solvent. If the

"uic ratio is less than *.9, the compan will

have more current liabilities than "uic assetsand is financiall unviable or insolvent.


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?or significance this ratio should be

compared to previous ears (e.g. the "uic

ratio for five previous ears should bederived!. This is necessar in order to derive

a trend. If the "uic ratios is rising in an

upward fashion, the compan is becoming

more financiall viable. If the "uic ratio isfalling and assuming a downward trend, the

compan is becoming less financiall viable.


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0ne helpful activit is to also compare the

"uic ratio of the compan in "uestion to the

"uic ratio of similar competing companies. Ifthe compan in "uestion has a higher "uic

ratio on a regular basis over a number of

ears then this compan is more financiall

viable.


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everage &atios

everage ratios measure the funds supplied

b owners as compared with the financingprovided b the firms creditors.


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Implications of leverage ratios:

'"uit, or owner@supplied funds, provide a

margin of safet for creditors. Thus, the lesse"uit, the more the riss of the enterprise to

the creditors.


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)ebt funding enables the owners to maintain

control of the firm with a limited investment.

If the firm earns more on the borrowed fundsthan it pas in interest, the return to the

owners is magnified.

If the firm earns more on the borrowed fundsthan it pas in interest, the return to the

owners is magnified.


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ow leverage ratios: Indicate less ris of loss

when the econom is in a downturn, but lower

e$pected returns when the econom booms.

Gigh leverage ratios: indicate the ris of large

losses, but also have a chance of gaining high

profits.


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Therefore, decisions about the use of leverage

must balance higher e$pected returns against

increased ris.


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#pproaches to e$amining leverage ratios:

)ebt ratio:

The debt ratio is the ratio of total debt to total

assets and measures the percentage of total

funds provided b creditors.

The debt ratio is: 0otal 'ebts

0otal assets


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#dd cash, maretable securities, accounts

receivable, inventories, prepaid e$penses,

land, buildings, machiner and e"uipment

and subtract depreciation to derive the totalassets figure.

)ivide the total debts figure b the calculated

total assets figure.


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?or significance this ratio should be compared to

previous ear (e.g. the debt ratio for five previous

ears should be derived!. This is necessar in orderto derive a trend. If the debt ratio is rising in an

upward fashion, the compan is developing a

leverage problem. If the debt ratio is falling and

assuming a downward trend, the compan isinvesting more of its own resources to generate

assets and is becoming less dependent on debts.


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0ne helpful activit is to also compare the debt ratio

of the compan in "uestion to the debt ratio of similar

competing companies. If the compan in "uestion

has a higher debt ratio on a regular basis over a

number of ears, then this compan is over leveraged

in comparison to its competitors. 0n the other hand,

if the compan in "uestion has a lower debt ratio on aregular basis over a number of ears, then this is less

dependent on debt as a source of financing in

comparison to its competitors.


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B @ )ebt@to@'"uit@ &atio:

This ratio is a variation of the debt ratio that is

commonl used. It compares the amount of moneborrowed from creditors to the amount of shareholders

investment made within a firm.

Debt-to-Equity ratio = 0otal Debts6:are:ol'er;s invest$ent !equity"


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oo up the shareholders investment or

e"uit line item in the blance sheet.

)ivide the total debts figure b the calculated

shareholders investment figure.


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previous ears (e.g. the debt to e"uit ratio for five

previous ears should be derived!. This is necessarin order to derive a trend. If the debt to e"uit ratio is

rising in an upward fashion, the compan is

developing a leverage problem. If the debt ito e"uit

ratio is falling and assuming a doward trend, thecompan is investing more of its owners resources to

generate assets and is becoming less dependent on

creditors.


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0ne other helpful activit is to also compare the debt to

e"uit ratio of the compan in "uestion to the debt e"uit

ratio of similar competing companies. If the compan in

"uestion has a higher debt to e"uit ratio on a regularbasis over a number of ears, then this compan is over

leveraged in comparison to its competitors. 0n the other

hand, if the compan in "uestion has lower debt to e"uit

ratio on a regular basis over a number of ears, then thiscompan is less dependent on debt as a source of

financing in comparison to its competitors.


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>rofitabilit ratios

>rofitabilit ratios indicate how successful a

compan reall is and how effectivemanagement is in operating the business.


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# @ &eturn on assets

This ratio shows how much mone the compan

earned on each dollar it invested in assets. It is ameasure of overall compan earning power or

profitabilit.

Return on Assets !ROA" = Net Earnin(s

0otal Assets


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#dd cash, maretable securities, accounts

receivable, inventories, prepaid e$penses,

land, buildings, machiner and e"uipmentand subtract depreciation to derive the total

assets figure.

)ivide the net earnings figure b the derivedtotal assets figure to get return on assets.


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previous ears (e.g. the return on assets ratio for five

previous ears should be derived!. This is necessarin order to derive a trend. If the return on assets ratio

is rising in an upward fashion, the compan is maing

a larger return on funds invested in assets. If the

return on assets ratio is falling and assuming adownward trend, the compan is maing a lower

return on funds invested in assets.


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0ne other helpful activit is to also compare the return

on assets ratio of the compan in "uestion to the

return on assets of similar competing companies. If

the compan in "uestion has a higher &0# on a

regular basis over a number of ears, then this

compan is financiall better off in comparison to its

competitors. 0n the other hand, if the compan in"uestion has a lower &0# on a regular basis over a

number of ears, then this compan is financiall

worse off in comparison to its competitors.


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B @ >rofit


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previous ears (e.g. the profit margin ratio for five

previous ears should be derived!. This isnecessar in order to derive a trend. If the profit

margin ratio is rising in an upward fashion, the

compan is maing a larger return on sales. If the

profit margin is falling and assuming a downwardtrend, the compan is maing a lower return on

sales.


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0ne other helpful activit is to also compare the profit

margin of the compan in "uestion to the profit margin

of similar competing companies. If the compan in

"uestion has a higher profit margin on a regular basis

over a number of ears, then this compan is maing

a larger return on sales in comparison to its

competitors. 0n the other hand, if the compan in"uestion has a lower profit margin on a regular basis

over a number of ears, then this compan is maing

a lower return on sales in comparison to its

competitors.


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2 @ &eturn on e"uit (or return on net worth!

This ratio indicates the amount of net earnings resulting

from investments in e"uit. Shareholders areparticularl interested in this ratio, because it shows

them how much the are earning on their investments.

Return on equity = Net Earnin(s 6:are:ol'ers; invest$ent !Equity"


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ooup the shareholders investment or

e"uit line item in the balance sheet.

)ivide the net earnings figure b the derived

shareholders investment figure to get return

on e"uit.


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previous ears (e.g. the return on e"uit ratio for five

previous ears should be derived!. This is necessarin order to derive a trend. If the return on e"uit ratio

is rising in an upward fashion, the compan is maing

a larger return on funds invested b shareholders. If

the return on e"uit is falling and assuming adownward trend, the compan is maing a lower

return on funds invested b shareholders.


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#ctivit ratios

#ctivit ratios measures how effectivel the

firm emplos its resources. These ratios

involve comparisons between the level of

sales and the investment in various asset

accounts, lie inventories and accountsreceivable.


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# @ Inventor turnover

Inventor turnover tells us how man times

during the ear the entire stoc of inventorwas sold.

Inventor turnover is calculated as follows:

/nventory turnover = 6ales

/nventory


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>roblems in arising in calculating and analzing this ratio:

Sales are at maret prices. If inventories are carried at

cost, as the generall are, it is more appropriate to use

cost of goods sold in place of sales in the numerator of

the formula.

Sales occur over the entire ear, whereas the inventorfigure is for one point in time. This maes it better to

use an average inventor, computed b adding

beginning and ending inventories and dividing b 4.


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B @ #verage collection period:

The average collection period indicates how

"uicl the compan collects its accountsreceivable.


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It is computed in the following wa:

#nnual sales (derived from the income

statement! are divided b 76 to get average

dail sales.

#ccounts receivable (derived from the

balance sheet! are divided over dail sales tofind the number of das sales is tied up in

receivables.


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The average collection period represents the average

length of time the firm must wait to receive cash after

maing a sale and is mathematicall defined asfollows:

Avera(e )olle)tion perio' = A))ounts re)eivables

6ales@*93 'ays


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'valuation of this ratio is based upon the

terms on which the firm sells its goods. ?or

e$ample, if the collection period over the pastfew ears for a given compan is length

while its credit polic did not change, this

would be evidence that steps should be taen

to e$pedite the collection of accountsreceivable.


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SUMMARY OF FINANCIAL RATIOSSUMMARY OF FINANCIAL RATIOS

Ratio &or$ula Exa$ple or

#al)ulation

/n'ustry

Avera(e

Evaluation

:i"uidit2urrent 2urrent #ssets

2urrent :iabilities399,999 H 4.99,999

4.6 Satisfactor

Fuic( Fuic( #ssets2urrent :iabilities

599,999 H *.99,999

* time 1ood

:everage

)ebt Total )ebtTotal #ssets

*99,999 H 69499,999

>oor

)ebt@'"uit Total '"uitTotal #ssets *,999,999 H 694,999,999 >oor

>rofitabilit

&eturn on#ssets

/et 'arningsTotal #ssets

*49,999 H 74,999,999

*9 >oor


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SUMMARY OF FINANCIAL RATIOSSUMMARY OF FINANCIAL RATIOS

(CONTD)(CONTD)

Ratio &or$ula Exa$ple or #al)ulation

/n'ustryAvera(e

Evaluation

>rofit@


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FINANCIAL RATIOSFINANCIAL RATIOS

I. &atios Indicating 2urrent position or &elating to #nalsis of Short@Term Solvenc

&atio ?ormula Significance

#. Tests of overall solvenc

*. 2urrent ratio or woringcapital ratio

2urrent #ssets (/et!2urrent :iabilities

>rimar tests of li"uiditindicating abilit to meetcurrent obligations fromcurrent assets as a goingconcern.


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4. #cid@Test ratio or"uic ratio

Fuic #ssets (/et!2urrent :iabilities

# more severe test ofimmediate li"uidit thanthe current ratio. Test ofabilit to meet suddendemands from current

assets.



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. Coring captial tototal assets

2urrents#ssets@2urrent :iabilitesTotal #ssets (/et!

Indicates relativeli"uidit of total assetsand woring capitalposition= and distributesof resources emploed.


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B. &atios indicating movement of current assets (turnover!

5. @ &eceivable turnover /et 2redit Sale#verage &eceivable (/et!

Kelocit of collection oftrade accounts and notes.

Test of efficienc ofcollection


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@ /umber of dasreceivables

76 (das!&eceivable turnover(computed as above!

Kelocit of collection oftrade accounts and notes.Test of efficienc ofcollection.


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6. Inventor turnover Indicates li"uidit of inventor and will e$hibittendenc to over@stoc.

a. merchancise turnover 2ost of 1oods Sold

#verage


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&atio ?ormula Significnce

b. ?inished goods turnover(


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c. &aw


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7. #verage #ge of>aables

#verage #ccount >aable $ 76#nnual >urchase

Indicates the aging ofaccounts paable. thisfigures can be comparedto the credit termse$tended b the

suppliers of the companto see if an abusees ofthese terms are beingmade. Trends analsisof the ratios ma also besignificant.


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3. Coring capitalturnover

/et SalesCoring 2apital

Indicates ade"uac ofworing capital and cashccle of firm.


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II. &atios indicating asset relations and capital set@up or relating to analsis of long@term

solvenc

#. '"uities related to profits and sales

*. Sales to owners e"uit /et Sales

0wners '"uit

/umberof times net worth

is Mturned overN in sales

Indicative of the utilization

of owners capital ma

reflect over@capitalization

in relation to volume of

business done.



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. 'arning rate ofmaret value pershare

/et Income per share


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5. Times BondInterest 'arned

/et Income before Bond InterestBond Service re"uirements

Income Securit Bonds.


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6. /et 0peratingIncome to

/et Income before income ta$esand non@operating items

/et Sales

Summar of operationposition for ear.



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7. 0perating e$pense Total 0peraing '$penses/et Sales

Indicates effectivel ofmnagement in controllingoperating e$penses.



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IK. :everage and 2apital@Structure &atios

These ratios tell us the relative proportions of capital contributed b creditorsand b owners.

*. )ebt@'"uit &atio

2urrent :iabilities O :ong@term )ebtTotal 2ommon '"uit

Total amount of debtleverage per peso ofcommon e"uit


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4. Total )ebt to Total#ssets

2urrent :iabilities O :.T.).Total #ssets

>roportion of assetsprovided b creditors.'$tent of Mtrading on thee"uitN.


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. :ong@term )ebt to'"uit &atio

:ong@term )ebtTotal 2ommon '"uit

:ong@term debt leverageper peso of commone"uit.


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KI. #sset@relation &atios

*. >lant and e"uipment

to Total assets

/et >lant O /et '"uipment

Total #ssets

>roportion of operating

earning assets to total

assets.


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4. Inventor to Total#ssets

#verage InventorTotal #ssets

Size of inventor andtendenc to overstoc.


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. ?i$ed #ssets to ?i$ed:iabilities

?i$ed assets (net!?i$ed :iabilities

&eflects e$tent of theutilization of resourcesfrom long@term debt.Indicative of source foradditional funds. If the

fi$ed assets are pledged @degree of securit. It isfre"uentl more useful touse present value ratherthan boo value.


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5. ?i$ed #ssets to Total'"uit

?i$ed #ssets (net!Total 0wners '"uit

>roportion of ownerse"uit to fi$ed assets.Indicative of over or under@investment b owners=also weaness in Mtrading

on the e"uitN.


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6. Sales to ?i$ed #ssets(>lant Turnover!

/et Sales?i$ed #ssets (net!

turnover inde$ which testsroughtl the efficienc ofmanagement ineepingplant properties emploed.


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7. #ppro$imate #verage#sset :ife

/et >lant and '"uipment/ormalized )epreciation

#verage life of plant ande"uipment.


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HOW TO ANALYZE FINANCIALHOW TO ANALYZE FINANCIAL


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POSITIONPOSITION

POTENTIAL FOR BUSINESS FAILUREPOTENTIAL FOR BUSINESS FAILURE

Banruptc occurs when the compan is unable

to meet maturing financial obligations. Ce are

thus particularl interested in predicted cashflow. ?inancial difficulties affect the price@

earnings ratio, and the effective interest rate.

HOW TO ANALYZE FINANCIALHOW TO ANALYZE FINANCIAL


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# comprehensive "uantitative indicator used to predict failure is#ltmans MP@score,N which e"uals

Wor>in( )apital Retaine' earnin(s

% 1 + % 5 0otal assets 0otal assets

Operatin( in)o$e ? o )o$$on < preerre' % ** + % 49

0otal assets 0otal liabilities

6ales+ % 4

0otal assetsNB Operatin( in)o$e = Net sales - )ost o (oo's sol'

POSITIONPOSITION

POTENTIAL FOR BUSINESS FAILUREPOTENTIAL FOR BUSINESS FAILURE

THE SCORES AND THE PROBABILITYTHE SCORES AND THE PROBABILITY


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THE SCORES AND THE PROBABILITYTHE SCORES AND THE PROBABILITY

OF SHORT-TERM ILLIQUIDITY FOLLOWOF SHORT-TERM ILLIQUIDITY FOLLOW..

6)ore Probability o illiqui'ity or ailure

.4 or less ery :i(: .- 1 Not sure

*4 or (reater Cnli>ely

EXAMPLEEXAMPLE


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EXAMPLEEXAMPLE

A )o$pany presents t:e olloin( inor$ation

Wor>in( )apital 1.4,444

0otal assets .23,444

0otal liabilities *14,444

Retaine' earnin(s 13,444

6ales 34,444 Operatin( in)o$e *4,444

#o$$on sto)>

Boo> alue 114,444

?ar>et alue *4,444 Preerre' sto)>

Boo> value 3,444

?ar>et value 24,444


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QUANTITATIVE FACTORS INQUANTITATIVE FACTORS IN


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Lo )as: lo to total liabilities 7i(: 'ebt-to-equity ratio an' :i(: 'ebt to total assets Lo return on invest$ent Lo proit $ar(in

Lo retaine' earnin(s to total assets Lo or>in( )apital to total assets an' lo or>in(

)apital to sales Lo ixe' assets to non)urrent liabilities

/na'equate interest-)overa(e ratio /nstability in earnin(s 6$all siFe )o$pany $easure' in sales an'@or total

assets


PREDICTING CORPORATE FAILUREPREDICTING CORPORATE FAILURE



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6:arp 'e)line in pri)e o sto)>, bon' pri)e, an'earnin(s A si(nii)ant in)rease in beta !Beta is t:e variability in

t:e pri)e o t:e )o$pany;s sto)> relative to a $ar>et

in'ex" ?ar>et pri)e per s:are is si(nii)antly less t:an boo>

value per s:are A si(nii)ant rise in t:e )o$pany;s ei(:te'-avera(e

)ost o )apital

7i(: ixe' )ost to total )ost stru)ture !:i(: operatin(levera(e"

&ailure to $aintain )apital assets !e( 'e)line in t:e

ratio o repairs to ixe' assets

Q

PREDICTING CORPORATE FAILUREPREDICTING CORPORATE FAILURE



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Ne )o$pany De)linin( in'ustry /nability to obtain a'equate inan)in(, an' :en

obtaine' t:ere are si(nii)ant loan restri)tions A la)> in $ana(e$ent quality

PREDICTING FAILUREPREDICTING FAILURE

CONSOLIDATED BALANCE SHEETSCONSOLIDATED BALANCE SHEETS


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De)e$ber *, * 1

A!"

2ash -,*69,4*9 3,73-,99

#ccounts receivable less allowances 7,-64,399 7,5**,539

Inventories 6,366,959 6,4-,-*90ther current assets -3,739 -6,379

0otal )urrent assets 11,233,914 14,1.4,54

Investments 95,3*9 *35,759

>ropert, plant and e"uipment

and 7,39 4-4,59

Buildings 5,-59,359 5,433,959


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INCOMEINCOME

De)e$ber *, * 1

Net 6ales 52,55*,144 53,9.5,494

2ost of goods sold *,3*,*-9 *3,--6,39

Selling, #dmin. 8 1eneral '$pense *7,-6-,79 *6,-55,959

6,9,49 ,--,5*9

/n)o$e beore interest an' taxes 1,1,*.4 ,255,934

Interest *,*7,-39 *,45,39

/n)o$e beore taxes 4,23,54 4,344,.24

Ta$es ,95,9*9 ,-54,6-9

Net proit 2,2,544 9,33.,1.4


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C+**+' V. P!,!!/ S"+0C+**+' V. P!,!!/ S"+0

>referred Stoc @@@@ avoids the provision of

e"ual participation in earnings in comparison

to common stoc

2ommon Stoc @@@@ does not entail fi$ed

charges. There is no legal obligation to pa

common stoc dividends. #lso, commonstoc has no fi$ed maturit date


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C+*2$'3 X M$0!" P#! P! S4$!C+*2$'3 X M$0!" P#! P! S4$!5


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C+*2$'3 X M$0!" P#! P! S4$!5C+*2$'3 X M$0!" P#! P! S4$!5

C+**+' S"+0C+**+' S"+0

*- *-- *--9

Gigh -.9 6.9 7.9

ow 3.9 5.9 .9

#verage .9 5.6 5.6

P # E # R #


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P#! "+ E$'#' R$"#+P#! "+ E$'#' R$"#+

>rice to earnings ratio H >riceJ'arnings

*- *-- *--9

>J' .- 6.7 3.6

M 0 " " B 0 R "#


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M$0!" "+ B++0 R$"#+M$0!" "+ B++0 R$"#+


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BOO6 CASE ANALYSISBOO6 CASE ANALYSIS


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BOO6 CASE ANALYSISBOO6 CASE ANALYSIS

W4#4 U.S. C+*2$'3 # #"7 W4#4 U.S. C+*2$'3 # #"7

*--4 *--

&0# 4*.6 4*

&0' *.5 *.4

>< *5. *6

2& .5 .5

F& 4.6 4.7)& *4 *

*--4 *--

)J' * *-

IT 6.4 6.-

P Score 7.46 6.-5

D 64 & / F / S4 #,D 64 & / F / S4 #,


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D. 64$&!/ F+$/ S4!#,D. 64$&!/ F+$/ S4!#,

Cor Tel: 494 53 557*

Gome Tel: 494 3 5943

?a$: 494 644 9996 'mail: RSG'&I?C0&)B#/R.0&1

Ceb Site:http:www.sherif.com

#ddress The Corld Ban, ** G Street, /C Cashington )2 4995
mailto:[email protected]:[email protected]

finantial ratio analysis for non financial managers extraordinario world bank 122 slides

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