会计英语unit12AnalyzingInterpretingFinancialStatements教学教材演示幻灯片.ppt

3. Profitability ratios Profitability is the ability of a business to earn profit over a period of time. Profitability ratios include: ROE, ROA, Profit margin, EPS,P/E, Dividend yield, etc. (1) Return on Stockholder’s Equity Example Cingular has net income of $42,000, and the beginning balance of total equity is $200,000 and ending balance is 250,000. So, ROE is 18.6%. This ratio shows how many dollars of net income were earned for each dollar invested by the owners. (2) Return on Assets Example Cingular has net income of $42,000, and the beginning balance of total assets is $400,000 and ending balance is 480,000. So, ROA is 9.5%. This ratio shows how many dollars of net income were earned for each dollar of asset. Unit 12 Analyzing Interpreting Financial Statements Why? The basic financial statements provide much information the users need, but what thy give is only an overall view. Comparison, analysis and study are needed to enable their users to understand the financial position and performance of a company. Analyzing and interpreting financial statements are critical in disclosing relationships among figures in the financial statements and predicting the future changes of the accounting elements. Financial analysis is a process of reclassification and summarization of the financial information through the establishment of ratios and trends in order to interpret the company’s activities and to understand the company’s financial situation. Horizontal Analysis Vertical Analysis Ratio Analysis Basic approaches of analysis Ⅰ. Horizontal Analysis Horizontal Analysis, also called trend analysis, compares a series of financial statement data over a period of time. Firstly, the base year that carry a weight of 100 for each item is selected. Then, the amount of same item in prior or subsequent years is expressed as the percentage of the base year amount. Current year amount – Base year amount Base year amount For example, when you hear someone sayi