Business Financing and Planning - Financial Ratio Analysis

Business Financing and Planning
Financial Ratio Analysis


Enter the cells with a yellow highlight:

1) The year & year name for the left and right column years.
2) The requested data for the Balance Sheet for both years.
3) The requested data for the Income Statement for both years.
4) The other requested data.


Company Name:

		Year		Year Name
Left column year:
Right column year:

(Please note that the majority of the financial analysis is performed on the left column year.)




Comparative Balance Sheets

Assets


Cash
Short-term securities
Accounts receivable
Inventory
Prepaid expenses
Current Assets
Gross: Plant & Equipment
Less: Accum. depreciation
Net plant & equipment
Other tangible assets
Intangible assets
Total Assets

Liabilities & Equity

Short-term notes payable
Curr. maturities, l.t. debt
Accounts payable
Accrued expenses
Taxes payable
Other curr. liabilities
Current Liabilites
Long-term debt
Less: curr. maturities
Net long-term debt
Preferred stock
Common stock (@ par value)
Capital surplus
Retained earnings
Total Liabilities & Stockholders' Equity


Comparative Income Statements


Net Sales
Cost of goods sold
Gross profit
General, selling & admin.
Operating profit
Interest expense
Other income (expense)
Pretax income
Income taxes
Net income


Other Requested Data:

Common stock valued at an earnings multiple of:
(Price earnings multiple or P/E ratio)
Common stock dividends paid per share in current yr:
Par value per share of common stock:
Percent return on preferred stock:
Par value per share of prefered stock:
Preferred stock is convertible into how many
shares of common stock:
Intangible net worth:
Depreciation in right column year was:
Depreciation in left column year was:
Purchases are what percent of cost of sales:
Credit sales are what percent of total sales:






Summary of Financial Ratio Analysis

1. Liquidity Ratios

Net Working Capital:
Net Working Capital to Sales:
Net Working Capital to Total Assets:
Current Ratio:
Quick Assets:
Net Quick Assets:
Net Quick Ratio:
Cash Ratio:
Basic Defense Interval:

2. Leverage and Capital Structure Ratios

Tangible equity
Long-term debt to tangible equity ratio:
Total debt to equity ratio:
Total debt to assets (debt to capital) ratio:
Fixed assets to equity ratio:
Current liabilities to equity ratio:
Overtrading ratio

3. Profitability & Values Ratios

Net profit margin (return on sales):
Rate of return on investment (ROI):
Rate of return on assets (ROA):
Rate of return on equity (ROE):
Rate of return on common stockholders equity:
Gross profit margin:
Operating margin:
Operating ratio:
Asset turnover:
Earning power on assets:
Book value:
Earnings per share (common stock):
Cash flow per share (common stock):
Market value:
Capitalization rate:
Yield:
Payout ratio (common stock):
Dilution percent:
Diluted earnings per share:

4. Turnover & Activity Ratios

Accounts payable days purchases outstanding:
Accounts receivable aver. collection period:
Inventory turnover:
Average days for inventory to sell:
Asset turnover:
Gross margin return on inventory:

5. Coverage Ratios

Cash flow times interest earned ratio:
Times interest earned ratio:
Cash flow to current maturities ratio:


6. Source and Application of Funds

The source and application of funds schedule reconciles the balance sheet and income statement. It reflects where
capital came from (internal and external sources) and how it was used. The type of activity from the Statement
of Cash Flows is shown in parentheses.

Sources of Capital:
Net Income (operating)
Depreciation (operating)
Long-term debt (financing)

		Total Sources

Uses of Cash:
Capital expenditures (investing)
Cash dividends (financing):
Preferred stock
Common stock
Increase in working cap. (operating)

		Total Uses


Reconciliation of Net Income to Net Cash Provided (Used) by Operating Activities

Net Income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
Other
(Increase) decrease in assets and increase
(decrease) in liabilties:
Cash
Short-term securities
Accounts receivable
Inventory
Prepaid expenses
Notes payable
Accounts payable
Curr. maturities long-term debt
Accrued expenses
Taxes payable
Other curr. liab.
Net Cash Provided (Used) by
Operating Actvities


Changes in Working Capital:

Increase (decrease) in cash
Increase (decrease) in short-term securities
Increase (decrease) in accounts receivable
Increase (decrease) in inventory
Increase (decrease) in prepaid expenses
Decrease (increase) in notes payable
Decrease (increase) in accounts payable
Decrease (increase) in curr. maturities
long-term debt
Decrease (increase) in accrued expenses
Decrease (increase) in taxes payable
Decrease (increase) in other curr. liab.

Net change in working capital


7. Z-Score Analysis to Predict Bankrupcy


Ratio		Answer	Coeff.	Z-Score



Working capital	=		x 1.20
/ Total assets

Retained earnings	=		x 1.40
/ Total assets

Earnings before interest	=		x 3.30
& tax / Total assets

Net worth	=		x 0.60
/ Total liabilities

Net Sales	=		x 1.00
/ Total assets

		Total Z-Score	=




Working capital	=		x 1.20
/ Total assets

Retained earnings	=		x 1.40
/ Total assets

Earnings before int.	=		x 3.30
& tax / Total assets

Net worth	=		x 0.60
/ Total liabilities

Net Sales	=		x 1.00
/ Total assets

		Total Z-Score	=

		Key: >= 3.00 Safe from Bankruptcy
		<= 1.80 Destined for Bankruptcy
		1.81 to 2.99 Danger area






Detailed Financial Ratio Analysis

1. Liquidity Ratios

Net Working Capital	=	Current Assets - Current liabilities
	=		-

Net Working Capital to Sales	=	Net working capital / Net Sales
	=		/

Net Working Capital to Total Assets	=	Net working capital / Total assets
	=		/

Current Ratio	=	Current Assets / Current liabilities
	=		/

Quick Assets	=	Cash + Short-term securities + Accounts Receivable
	=		+

Net Quick Assets	=	Quick assets - Current liabilities
	=		-

Net Quick Ratio	=	Quick assets / Current liabilities
	=		/

Cash Ratio	=	Cash + Short-term securities / Current liabilities
	=		/

Basic Defense Interval	=	Cash + Short-term securities + Accounts Receivable / Daily Expenses
	=		/

Percentage composition of current assets:
Cash
Short-term securities
Accounts receivable
Inventory
Prepaid expenses
Current Assets


2. Leverage and Capital Structure Ratios

Tangible equity	=	Total equity - intangible net worth
	=		-

Long-term debt to tangible equity ratio	=	Long-term debt / Tangible equity
	=		/

Total debt to equity ratio	=	Current liabilities + Long-term debt / Total net worth

	=		/

Total debt to assets ratio (or debt to capital ratio)	=	Current liabilities + Long-term debt / Total assets
	=	Current liabilities + Long-term debt / cur. liab. + l.t. debt + Net worth
	=		/

Fixed assets to equity ratio	=	Fixed assets / Total net worth
	=		/

Current liabilities to equity ratio	=	Current liabilities / Total net worth

	=		/

Overtrading ratio	=	Current Liabilities / Net worth - Intangible assets
	=		/
			-

Capitalization - all long-term capital

Net long-term debt
Preferred stock
Capital surplus
Common stock
Retained earnings
Common stockholders'
equity
Long-term Capital


3. Profitability & Values Ratios

Net profit margin (return on sales)	=	Net income / Net Sales
	=		/

Rate of return on capitalization (return on investment, ROI):
	=	Net income / Total capitalization
	=		/

Rate of return on assets (ROA)	=	Net income / Total assets

	=		/

Rate of return on equity (ROE)	=	Net income / Total net worth

	=		/

Rate of return on common stockholders' equity	=	Net income - Preferred dividend / Common stockholders' equity
	=		/

Gross profit margin	=	Gross profit / Net Sales
	=		/

Operating margin	=	Operating profit / Net Sales
	=		/

Operating ratio	=	Cost of goods sold + General, selling & admin. / Net Sales
	=		+		/

Asset turnover	=	Net Sales / Operating Assets
	=		/

Earning power on assets		= Operating margin x Asset turnover
	=		x

Book value	=	Common stockholders' equity / number of shares outstanding
	=		/

Note: Compute shares outstanding by dividing common stock (@ par value) on balance sheet
by par value per share. Par value is simply a stated value of common stock
for accounting and legal purposes.

Earnings per share (common stock)	=	Net income - Preferred dividend /
		Number of shares outstanding
	=		-		/


Cash flow per share (common stock)	=	Net income + Depreciation / Number of shares outstanding
	=		+		/

Market value	=	Earnings per share (EPS) x Price earnings multiple (P/E)
	=		x

Capitalization rate	=	1 / Price earnings multiple (P/E)
	=	1	/

Yield	=	Dividends per share / price per share
	=		/

Common Stock Payout ratio	=	Common stock dividends paid / Net income - Preferred dividend
	=		/

Dilution percent	=	Com. stock converted from pref. stock /
		Total shares outstanding after conversion
	=		/

Diluted earnings per share	=	Total net income / Total shares outstanding after conversion
	=		/


4. Turnover & Activity Ratios

Accounts payable days purchases outstanding	=	Accounts payable x 365 / Annual purchases
	=		x	365	/

Accounts receivable average collection period	=	Average accounts recievable x 365 / Annual credit sales
	=		x	365	/

Inventory turnover	=	Cost of goods sold / Average ending inventory
	=		/

Average days for inventory to sell	=	Average ending inventory x 365 / Cost of goods sold
	=		x	365	/

Assset turnover	=	Net Sales / Average Assets
	=		/

Gross margin return on inventory	=	(Pretax Income / Net Sales) x
		(Net sales / Aver. ending inventory)
	=		/
	x		/


5. Coverage Ratios

Cash flow times interest earned ratio	=	Earnings before interest and taxes + Depreciation - Dividends
		/ Total debt interest expense
	=		+		-
	/

Times interest earned ratio	=	Earnings before interest and taxes / Total debt interest expense
	=		/

Cash flow to current maturities ratio	=	Pretax income + Depreciation - Dividends
		/ Current Maturities of long-term debt
	=		/

Automatic recalculation

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