Академический Документы
Профессиональный Документы
Культура Документы
Analysis
6-12
Example: In 2006 PDACL = 0.40 Dr. Mazharul Islam
3-1
Liquidity Ratios
Cash balance to total liabilities (CBTL):
Refers to the company’s cash balance in
relation to its total liabilities.
Cash Balance
CBTL
Total Liabilitie s
Example: In 2006 CBTL = 0.40
Example: ICR = 3
Example: EM = 1.11
Dr. Mazharul Islam
6-19
3-1
Profitability Ratios
Earnings per share (EPS )
Gross profit margin
Net profit margin
Return on assets (ROA )
Return on equity (ROE )
Example:
6-25 ROE = 22.22% Dr. Mazharul Islam
3-1
Valuation Ratios
Price to earnings ratio (PE)
Price/earnings to growth ratio (PEG)
Dividend yield
Example: PE = 10
External uses:
evaluation by outside parties
evaluation of main competitors
identifying potential takeover targets
Dr. Mazharul Islam
6-39
3-1
Benchmarks for Comparison
Ratios are most useful when compared
to a benchmark.
Time-trend analysis—examine how a
particular ratio(s) has performed
historically.
Peer group analysis—using similar
firms (competitors) for comparison of
results. Dr. Mazharul Islam
6-40
3-1
Problems with Financial
Statement Analysis
No underlying theory to identify correct
ratios to use or appropriate benchmarks.
Benchmarking is difficult for diversified
firms.
Firms
may use different accounting
procedures.
Firms may have different recording periods.
One-off
events can severely affect financial
performance.
Dr. Mazharul Islam
6-41
3-1
Summary and Conclusions
Activities that bring in cash are called ‘sources of cash’, and
activities that involve spending cash are called ‘uses of cash’.
A Cash Flow Statement summarises sources and uses of
cash over a specified period.
Financial ratios are grouped together into five main
categories: Liquidity, Capital Structure, Valuation,
Profitability, and Turnover.
Ratios are most useful when compared to a benchmark (e.g.
time-trend and peer group analysis).
Problems can arise in using financial statements.