chapter04analysis of financial statements(国际投资,英文版) PPT.ppt

Francis Ibbotson Chapter 4: Analysis of Financial Statements Financial Leverage Ratios Long-term Debt to Equity Formula Long-term debt ? Equity Values 1997: 0.31 1998: 0.25 1999: 0.24 Long-term Debt to Capitalization Formula Long-term debt ? Capitalization Values 1997: 0.24 1998: 0.20 1999: 0.19 Sum of permanent current liabilities, long-term debt, preferred stock and stockholders’ equity. Financial Leverage Ratios Total Asset to Equity Ratio Formula Total assets ? Equity Values 1997: 231.7% 1998: 227.8% 1999: 227.3% Financial ratios are sometimes calculated with market values rather than book values Often more realistic and relevant Profitability Ratios Net Profit Margin Formula Net income ? Sales Values 1997: 0.22 or 22% 1998: 0.19 or 19% 1999: 0.12 or 12% An appropriate standard is needed to interpret a profit margin. A dollar’s worth of assets yielded about 11￠ of after-tax earnings in 1999. Return on Asset Formula Net income ? Total assets Values 1997: 0.24 or 24% 1998: 0.18 or 18% 1999: 0.11 or 11% Profitability Ratios Return on Equity (ROE) Formula Net income ? Equity Values 1997: 0.57 or 57% 1998: 0.42 or 42% 1999: 0.26 or 26% If a firm has zero debt, its ROA and ROE are equal. If the rate does not exceed current interest rates, the firm is not earning enough to pay its debts. Long-Term Capital’s Pretax Rate of Return Formula (Interest + Pretax earnings) ? Capitalization Values 1997: 0.75 or 75% 1998: 0.58 or 58% 1999: 0.37 or 37% * * Slides by: Pamela L. Hall, Western Washington University Analysis of Financial Statements Chapter 4 Background Financial statements aid in the process of fundamental analysis Fundamental analysts evaluate financial ratios as an aid to determine if a security is over- or under-priced The efficient market theory suggests that publicly available financial statements offer nothing of value Professional security analysts have already discovered pertinent information and traded based on that informa