FS analysis 财务分析.pptVIP

2. EVALUATING FINANCIAL PERFORMANCE Tools that help us determine the financial health of a company. We can compare a company’s financial ratios with its ratios in previous years (trend analysis). We can compare a company’s financial ratios with industry or peers. Basis for ratio analysis is financial statements – Income stmt , B/S Financial ratios Types of ratios Liquidity Asset Turnover or efficiency Leverage Profitability Liquidity ratios Do we have enough liquid assets to meet current obligations? CURRENT RATIO = Current assets Current liabilities ACID TEST RATIO = Current assets – Inventory Current liabilities Liquidity ratios - implication Higher the ratio , higher the liquidity Quality of current assets also to be considered ( dead stocks / bad debts etc) Too high a ratio might not be a good sign as it represents idle current assets Too low might result in stock outs and lost sales 2. Turnover ratios Measure how efficiently the firm’s assets generate turnover or sales Higher the ratios higher the efficiency Turnover ratios ASSET TURNOVER = Sales / Assets FIXED ASSET TURNOVER = Sales / PPE (net) INVENTORY TURNOVER = COGS (or Sales) Inventory RECEIVABLES TURNOVER = Sales Receivables Holding or conversion periods Inventory holding period (I) = Inventory COGS per day Collection period (R) = Receivables Sales per day Days’ sales in cash = Cash securities Sales per day Payables period (P) = Payables Purchases per day( or COGS) Note: Lower the holding period, shorter the working capital cycle (I+R) and lesser the working capital requirement 3. Leverage Ratios Leverage measures the impact of using debt capital to finance assets. Firms use debt to lever (increas