Financial Analysis Techniques by Edu Pristine

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Edu Pristine

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... used in financial analysis, including their uses and limitations ...

... to those earnings and cash flows, the analyst draws comparisons to other companies ...

... relationships from one point in time to another. Ratios can aid an analyst in judging: Microeconomic relationships within a company that help analysts project earnings and free cash flow. A company's financial flexibility ...

... accounting methods used limitations of ratios. The heterogeneity of a company's operating activities. Results of ratio analysis ...

... are total assets or revenue. Cross sectional analysis or relative analysis: Compares a specific metric for one company with the same metric for another company or group of companies or a benchmark. Trend Analysis: Analyst can check whether absolute or relative trends in data ...

... relationships between different variables. Graphs: They facilitate comparison of performance and financial structure overtime, provide a visual overview of risk trends in a business, are used in ...

... A. Net sales, B. Depreciation expense in a previous year, C. Fixed assets. ...

... A. Use of estimates, B. Use of ratio ...

... used inactivity and liquidity ratios. Categories of Financial Ratios: Category description: Profitability: Profitability Ratios measures the company 's ability to generate profitable sales from its resources(assets). Valuation: Valuation ratios measure ...

... Financial ratios can only be interpreted in the context of other information like benchmarks or competitors or the company s prior periods. Financial ratios should be based on the ...

... several lines of business may have its aggregate financial ratios distorted. Differences in accounting methods: Economic conditions: Ratios should be examined in light of the current phase of the business ...

... Definitions of commonly used activity ratios: activity ratios, numerator, denominator, inventory, turnover cost of goods sold, average Inventory ...

... 1. Inventory Turnover and DOH: It indicates the funds tied up in inventory. Used to indicate inventory management effectiveness. High Inventory Turnover can ...

... cash from customers it offers credit. High Receivables Turnover can indicate: Highly efficient credit and collection. Company 's credit and/or collection policies are too stringent and there is a possibility of sales being loss to a competitor with ...

... 3. Payables turnover and the number of days of payables. Number of days of payables reflect the average number of days the company takes to pay its ...

... Company taking advantage of early payment discounts. Payables turnovers that are low may indicate: Company has trouble making payments on time. Company exploits ...

... 4. Working Capital Turnover. Working Capital Turnover indicates how efficiently a company ...

... Higher Fixed Asset Turnovers may indicate: Efficient use of fixed assets in generating revenue. Lower Fixed Asset Turnovers may indicate: Inefficiency, Capital Intensive Business, New Business Operating ...

... 6. Total Asset Turnover: It measures the company 's overall ability to generate revenues with ...

... Larger companies can usually control levels and composition of liabilities than smaller firms. Contingent Liabilities, such as letters of credit, or finance guarantees, can also be relevant when ...

... The three ratios have assets of different liquidity ...

... Defensive Interval Ratio: This measures how long the company can continue to pay its expenses from its existing ...

... Cycle (Net Operating Cycle): This indicates the amount of ...

... Solvency refers to a company's ability to fulfill its long term liabilities. Its important in assessing a company's risk and return characteristics. Two types of leverage ...

... This ratio gives us an indication of the quality of the preferred ...

... 1. Gross Profit Margin: Higher ratio indicates a competitive advantage. 2. Operating Profit Margin: A declining ...

... pretax margin rising can indicate possibly indicate increasing non-operating income. That may or may not ...

... 4. Return on Assets: The higher the ratio, the more income is generated by a given level of assets. Some analysts prefer to add back the interest income to the ...

... 6. Return on Equity: Measures the return earned by a company on its equity capital, including minority equity, preferred equity, ...

... A. Current ratio, B. Fixed asset turnover ...

... sale revenue is $ 180,000 and a net profit of 15,000. It did not raise/repay any debt during the year and did not issue/repurchase any stock. Assuming there was no dividend payment either. What will be the year end total assets turnover of the company ...

... What is the receivables turnover for the year ended december ...

... Yearly sale for Goliath Corporation is $120,000, cost of goods sold is $80,000, year-end inventory of $12,000 and average receivables at the end of year are $20,000. ...

... XYZ is capitalizing interest costs on its long lived assets, to complete his analysis; Pawan adjusts XYZ financial to reverse the capitalized interest. After adjustment interest coverage ratio would be: A. Higher, B. Lower, ...

... and increase in interest expense, and hence decrease ...

... declining to straight line in the earlier year of asset purchase to be ...

... results in a lower depreciation expense and higher net asset. ...

... of which $200 million are convertible bonds. What would Capitol 's long- term debt to total capital ratio be if the bonds were converted? A. 0.2857, B. 0.4000 ...

... When a company sells its own stocks under from treasury account it show as a reduction in:  A. Asset turnover ratio, B. Interest coverage ...

... its own stock from treasury accounts, it will increase ...

... Which of the following is a solvency ratio? A. Fixed charge ...

... measure of firm s liquidity? A. Inventory turnover ratio, B. Quick ratio, C. Interest coverage ...

... A firm has reported appraisal of its assets and hence revaluation of its assets in financial statements. Which of the following subsequent result is not true? A. The leverage ratio will ...

... among ratios and evaluate a company using ...

... from the below given data with regards to both efficiency and liquidity of XYZ company. A. Inventory management has contributed to worsening of liquidity. ...

... 23 days in 2003 to 25 days in 2004 to 28 days in 2005, so negative factor for liquidity for XYZ s liquidity. By contrast, other two statements are wrong. ...

... Which of the following is not a limitations of financial ratios. A. Financial ratios are not useful when viewed in isolation. B. Financial ratios does not helps to understand ...

... ROE measures the return a company generates on its equity capital. Du Ponts analysis decomposes ROE into parts. Decomposing ROE is useful in determining: ...

... Select the most appropriate conclusion over a period of 2006 to 2008. A. Net profit margin has decreased but its financial leverage has increased. ...

... ROA has been decreasing over 2003 to 2005 while total asset turnover has been increasing, it must be the case that the net profit margin has been declining. Also, ROE has increased despite the drop in ...

... A company has reported sales and net profit as $2,500,000 and $300,000 respectively, D/E ratio of the company is 1.5 and total asset of the firm were ...

... leverage & tax burden even though the profit margin as fallen. C. ROE has decreased slightly because the fall in profit margin is compensated to some extent by increase in asset turnover, leverage & tax ...

... ROE has decreased slightly because the fall in profit marg in is compensated to some extent by increase in asset turnover, leverage & tax burden. ROE of 2010 = 0.18 x 1.2 x 1.4 x 0.75 x 0.70 = 15.88%. ROE of 2011 = 0.14 x 1.3 x 1.5 x 0.80 x 0.70 ...

... It is viewed as a function of its probability (ROE) and its ability to finance itself from internally generated funds (retention rate). ...