analysis of financial statements - baroda branch of wirc ... · pdf file09-mar-13 1 - brijesh...
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09-Mar-13
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- Brijesh Pitroda
The analysis of a Business' Health starts with Financial Statement Analysis.
• Financial Statement Analysisinvolves careful selection of data from financial statements for the primary purpose of forecasting the financial health of the company This is accomplished byof the company. This is accomplished by examining trends in key financial data, comparing financial data across companies, and analyzing key financial ratios.
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Who analyzes financial statements?
–Internal users• Management• Owner• Employees
Focus on Planning, evaluating and
controlling company operations.
• Employees–External users• Investors• creditors• regulatory agencies• stock market analysts• auditors
Focus on Liqudity, long term cashflow, profitability
and long term health(i.e. Solvency) of the firm.
• Horizontal Analysis
• Vertical Analysis
Methods ofFinancial Statement Analysis
y
• Common-Size Statements
• Trend/ Index Analysis
• Ratio Analysis
Horizontal Analysis
Using comparative financialstatements to calculate amount
t h ior percentage changes in afinancial statement item fromone period to the next
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2012 2011Assets
Comparative Balance SheetsDecember 31, 2011 and 2012
SAYAJIRAO CORPORATION
Horizontal Analysis Example
AssetsNon-current asstes: Land 40,000 40,000 Buildings and equipment, net 120,000 85,000 Total Non-current assets 160,000 125,000 Current assets: Inventory 80,000 100,000 Accounts receivable, net 60,000 40,000 Prepaid expenses 3,000 1,200 Cash 12,000 23,500 Total current assets 155,000 164,700
315000 289700
AmountChange
Current YearFigure
Base YearFigure=
Calculating Change in Amounts
Horizontal Analysis Example
_
Since we are measuring the amount of the change between 2011 and 2012, the amounts for 2011 become the “base” year figures.
Change Figure Figure
PercentageChange
Amount ChangeBase Year Figure
100%= ×
Calculating Change in Amounts
Horizontal Analysis Example
Change Base Year Figure
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Increase (Decrease)2012 2011 Amount %
AssetsNon-current asstes:
SAYAJIRAO CORPORATIONComparative Balance SheetsDecember 31, 2011 and 2012
Horizontal Analysis Example
Land 40,000 40,000 - 0.0 Buildings and equipment, net 120,000 85,000 35,000 41.2 Total Non-current assets 160,000 125,000 35,000 28.0Current assets: Inventory 80,000 100,000 (20,000) (20.0) Accounts receivable, net 60,000 40,000 20,000 50.0 Prepaid expenses 3,000 1,200 1,800 150.0 Cash 12,000 23,500 (11,500) (48.9) Total current assets 155,000 164,700 (9,700) (5.9)
315,000 289,700 25,300 8.7
12,000 – 23,500 = (11,500)
(11,500 ÷ 23,500) × 100% = 48.9%
SAYAJIRAO CORPORATION Comparative Balance Sheets December 31, 2011 and 2012
Increase (Decrease)2012 2011 Amount %
Equity and liabilities
Stockholders' funds:
Horizontal Analysis Example
Stockholders funds: Share Capital 90,000 90,000 - 0.0 Reserves and surplus 80,000 69,700 10,300 14.8
170,000 159,700 10,300 6.4Non-Current liabilities: Bonds payable, 8% 75,000 80,000 (5,000) (6.3)Current liabilities: Accounts payable 67000 44000 23000 52.3 Notes payable 3,000 6,000 (3,000) (50.0)Total current liabilities 70,000 50,000 20,000 40.0
145,000 130,000 15,000 11.5 Total liabilities 315000 289700 25300 8.7
SAYAJIRAO CORPORATIONComparative Income Statements
For the Years Ended December 31, 2011 and 2012Increase (Decrease)
2012 2011 Amount %Net sales 520000 480000 40000 8.3
Horizontal Analysis ExampleThere were also increases in both cost ofgoods sold (14.3%) and operatingexpenses (2.1%). These increased costsmore than offset the increase in sales,yielding an overall decrease in netincome.
Cost of goods sold 360,000 315,000 45,000 14.3Gross margin 160,000 165,000 (5,000) (3.0)Operating expenses 128,600 126,000 2,600 2.1Net operating income 31,400 39,000 (7,600) (19.5)Interest expense 6,400 7,000 (600) (8.6)Net income before taxes 25,000 32,000 (7,000) (21.9)Less income taxes (30%) 7,500 9,600 (2,100) (21.9)Net income 17500 22400 -4900 (21.9)
Sales increased by 8.3% while net income decreased by 21.9%.
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Vertical Analysis
For a single financial statement,each item is expressed as apercentage of a significant total,e.g., all income statement itemsare expressed as a percentage ofsales
2011 2012 2011 2012Assets
Non current asstes:
Amount % of Total Assets
SAYAJIRAO CORPORATION
December 31, 2011 and 2012Balance Sheets
Vertical Analysis Example
Non-current asstes: Land 40,000 40,000 14 13 Buildings and equipment, net 85,000 120,000 29 38 Current assets: Inventory 100,000 80,000 35 25 Accounts receivable, net 40,000 60,000 14 19 Prepaid expenses 1,200 3,000 0 1 Cash 23,500 12,000 8 4
289,700 315,000 100 100
40,000 ÷ 2,89,700 = 14% rounded40,000 ÷ 3,15,000 = 13% rounded
2011 2012 2011 2012Equity and liabilities
Amount % of Total Liabilities
SAYAJIRAO CORPORATION
December 31, 2011 and 2012Balance Sheets
Vertical Analysis Example
Equity and liabilities Stockholders' funds: Share Capital 90,000 90,000 31 29 Reserves and surplus 69,700 80,000 24 25 Non-Current liabilities: Bonds payable, 8% 80,000 75,000 28 24 Current liabilities: Accounts payable 44,000 67,000 15 21 Notes payable 6,000 3,000 2 1 Total 289,700 315,000 100 100
90,000 ÷ 2,89,700 = 31% rounded
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Common-Size Analysis
An analysis of percentage financialstatements where all balance sheetitems are divided by total assets orli biliti d ll i t t tliabilities and all income statementitems are divided by net sales orrevenues.
2010 2011 2012 2010 2011 2012Assets
Non-current asstes: Land 40,000 40,000 40,000 13 14 13
Amount Common-Size (%)
SAYAJIRAO CORPORATIONCommon-Size Balance Sheets
Common-Size Analysis Example
, , , Buildings and equipment, net 80,000 85,000 120,000 27 29 38 Total Non-current assets 120,000 125,000 160,000 40 43 51 Current assets: Inventory 120,000 100,000 80,000 40 35 25 Accounts receivable, net 35,000 40,000 60,000 12 14 19 Prepaid expenses 1,000 1,200 3,000 0 0 1 Cash 24,000 23,500 12,000 8 8 4 Total current assets 180,000 164,700 155,000 60 57 49
300,000 289,700 315,000 100 100 100
2010 2011 2012 2010 2011 2012 Equity and liabilities
Stockholders' funds: Share Capital 90,000 90,000 90,000 30 31 29
Amount Common-Size(%)
SAYAJIRAO CORPORATIONCommon-Size Balance Sheets
Common-Size Analysis Example
Reserves and surplus 79,600 69,700 80,000 27 24 25 169,600 159,700 170,000 57 55 54
Non-Current liabilities: Bonds payable, 8% 77,700 80,000 75,000 26 28 24 Current liabilities: Accounts payable 45,700 44,000 67,000 15 15 21 Notes payable 7,000 6,000 3,000 2 2 1 Total current liabilities 52,700 50,000 70,000 18 17 22
130,400 130,000 145,000 43 45 46 Total 300,000 289,700 315,000 100 100 100
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2010 2011 2012 2010 2011 2012Net sales 450,000 480,000 520,000 100 100 100Cost of goods sold 300,000 315,000 360,000 67 66 69
Amount Common-Size (%)
SAYAJIRAO CORPORATIONCommon-Size Income Statements
Common-Size Analysis Example
Cost of goods sold 300,000 315,000 360,000 67 66 69Gross margin 150,000 165,000 160,000 33 34 31Operating expenses 120,000 126,000 128,600 27 26 25Net operating income 30,000 39,000 31,400 7 8 6Interest expense 5,200 7,000 6,400 1 1 1Net income before taxes 24,800 32,000 25,000 6 7 5Less income taxes (30%) 6,700 9,600 7,500 1 2 1Net income 18,100 22,400 17,500 4 5 3
Indexed Analysis
Show changes over time in givenfinancial statement items (can helpevaluate financial information of
l )several years)
2010 2011 2012 2010 2011 2012Assets
Non-current asstes:Land 40,000 40,000 40,000 100 100 100
Amount Indexed (%)
SAYAJIRAO CORPORATIONIndexed Balance Sheets
Indexed Analysis Example
Land 40,000 40,000 40,000 100 100 100 Buildings and equipment, net 80,000 85,000 120,000 100 106 150 Total Non-current assets 120,000 125,000 160,000 100 104 133Current assets: Inventory 120,000 100,000 80,000 100 83 67 Accounts receivable, net 35,000 40,000 60,000 100 114 171 Prepaid expenses 1,000 1,200 3,000 100 120 300 Cash 24,000 23,500 12,000 100 98 50 Total current assets 180,000 164,700 155,000 100 92 86
300,000 289,700 315,000 100 97 105
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2010 2011 2012 2010 2011 2012 Equity and liabilities
Stockholders' funds: Share Capital 90,000 90,000 90,000 100 100 100
Amount Indexed (%)
SAYAJIRAO CORPORATIONIndexed Balance Sheets
Indexed Analysis Example
p Reserves and surplus 79,600 69,700 80,000 100 88 101
169,600 159,700 170,000 100 94 100 Non-Current liabilities: Bonds payable, 8% 77,700 80,000 75,000 100 103 97 Current liabilities: Accounts payable 45,700 44,000 67,000 100 96 147 Notes payable 7,000 6,000 3,000 100 86 43 Total current liabilities 52,700 50,000 70,000 100 95 133
130,400 130,000 145,000 100 100 111 Total 300,000 289,700 315,000 100 97 105
2010 2011 2012 2010 2011 2012Net sales 450,000 480,000 520,000 100 107 116C t f d ld 300 000 315 000 360 000 100 105 120
Amount Indexed (%)
SAYAJIRAO CORPORATIONIndexed Income Statements
Indexed Analysis Example
Cost of goods sold 300,000 315,000 360,000 100 105 120Gross margin 150,000 165,000 160,000 100 110 107Operating expenses 120,000 126,000 128,600 100 105 107Net operating income 30,000 39,000 31,400 100 130 105Interest expense 5,200 7,000 6,400 100 135 123Net income before taxes 24,800 32,000 25,000 100 129 101Less income taxes (30%) 6,700 9,600 7,500 100 143 112Net income 18,100 22,400 17,500 100 124 97
500
520
540
Bas
e
Trend/Indexed line for Sales
Indexed Analysis Example
400
420
440
460
480
2010 2011 2012
% o
f 100
YearsSales
Expenses
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Ratio Analysis
Expression of logical relationships between items in a financial statement of a single period (e g percentage relationship(e.g., percentage relationship between revenue and net income)
Current Ratio
Current AssetsCurrent AssetsC t Li bilitiC t Li biliti
Current Ratio
Current AssetsCurrent AssetsC t Li bilitiC t Li biliti
Balance Sheet Ratios
Liquidity Ratios
Liquidity Ratio
Current LiabilitiesCurrent Liabilities
For SAYAJIRAO December 31, 2012
Current LiabilitiesCurrent Liabilities
For SAYAJIRAO December 31, 2012
Shows a firm’s ability to cover its current liabilities with its current assets.
Liquidity Ratios
1550001550007000070000
= 2.212.21
Sayajirao IndustrySayajirao IndustryYear
CurrentCurrent RatioRatio
Liquidity Ratio Comparisons
2.21 2.153.29 3.103.41 3.41
2.21 2.153.29 3.103.41 3.41
201220112010
Ratio is stronger than the industry average.
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Acid-Test (Quick)
CurrentCurrent Assets Assets -- InvInvC t Li bilitiC t Li biliti
Acid-Test (Quick)
CurrentCurrent Assets Assets -- InvInvC t Li bilitiC t Li biliti
Balance Sheet Ratios
Liquidity Ratios
Liquidity Ratio
Current LiabilitiesCurrent Liabilities
For SAYAJIRAO December 31, 2012
Current LiabilitiesCurrent Liabilities
For SAYAJIRAO December 31, 2012
Shows a firm’s ability to meet current
liabilities with its most liquid assets.
Liquidity Ratios
155000 155000 -- 80000 80000 7000070000
= 1.071.07
Sayajirao IndustrySayajirao IndustryYear
AcidAcid--Test RatioTest Ratio
Acid-Test Ratio Comparisons
1.07 1.251.29 1.231.00 1.25
1.07 1.251.29 1.231.00 1.25
201220112010
Ratio is weaker than the industry average.
RatioRatio SayajiraoSayajirao IndustryIndustryCurrent 2.21 2.15Acid-Test 1.07 1.25
Summary of the Liquidity Ratio Comparisons
• Strong current ratio and weak acid-test ratio indicates a potential problem in the inventories account.
• Note that this industry has a relatively high level of inventories.
• Strong current ratio and weak acid-test ratio indicates a potential problem in the inventories account.
• Note that this industry has a relatively high level of inventories.
Acid Test 1.07 1.25
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Debt-to-Equity
Total DebtTotal DebtSh h ld ’ E itSh h ld ’ E it
Debt-to-Equity
Total DebtTotal DebtSh h ld ’ E itSh h ld ’ E it
Balance Sheet Ratios
Financial Leverage
Financial Leverage Ratio
Shareholders’ EquityShareholders’ Equity
For SAYAJIRAO December 31, 2012
Shareholders’ EquityShareholders’ Equity
For SAYAJIRAO December 31, 2012
Shows the extent to which the firm is financed by debt.
Financial LeverageRatios
7500075000170000170000
= 0.440.44
Sayajirao IndustrySayajirao IndustryYear
DebtDebt--toto--Equity RatioEquity Ratio
Financial Leverage Ratio Comparisions
0.44 0.440.50 0.510.46 0.48
0.44 0.440.50 0.510.46 0.48
201220112010
Sayajirao has average debt utilization relative to the industry average.
Debt-to-Total-Assets
Total DebtTotal DebtTotal AssetsTotal Assets
Debt-to-Total-Assets
Total DebtTotal DebtTotal AssetsTotal Assets
Balance Sheet Ratios
Financial Leverage
Financial Leverage Ratio
Total AssetsTotal Assets
For SAYAJIRAO December 31, 2012
Total AssetsTotal Assets
For SAYAJIRAO December 31, 2012
Shows the percentage of the firm’s assets that are supported by debt
financing.
Financial LeverageRatios
7500075000315000315000
= 0.240.24
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Sayajirao IndustrySayajirao IndustryYear
DebtDebt--toto--Total Assets RatioTotal Assets Ratio
Financial Leverage Ratio Comparisions
0.24 0.260.28 0.270.26 0.27
0.24 0.260.28 0.270.26 0.27
201220112010
Sayajirao has average debt utilization relative to the industry average.
Total Capitalization(i.e., LT-Debt + Equity)
Long term DebtLong term Debt
Total Capitalization(i.e., LT-Debt + Equity)
Long term DebtLong term Debt
Balance Sheet Ratios
Financial Leverage
Financial Leverage Ratio
ggTotal CapitalizationTotal Capitalization
For SAYAJIRAO December 31, 2012
ggTotal CapitalizationTotal Capitalization
For SAYAJIRAO December 31, 2012
Shows the relative importance of long-term
debt to the long-term financing of the firm.
Financial LeverageRatios
7500075000(75000+170000)(75000+170000) = 0.310.31
Sayajirao IndustrySayajirao IndustryYear
Total Capitalization RatioTotal Capitalization Ratio
Financial Leverage Ratio Comparisions
0.31 0.300.33 0.310.31 0.32
0.31 0.300.33 0.310.31 0.32
201220112010
Sayajirao has average long-term debt utilization relative to the industry average.
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Interest Coverage
EBITEBITInterestInterest ChargedCharged
Interest Coverage
EBITEBITInterestInterest ChargedCharged
Coverage Ratio
Income StatementRatios
InterestInterest ChargedCharged
For SAYAJIRAO December 31, 2012
InterestInterest ChargedCharged
For SAYAJIRAO December 31, 2012
Indicates a firm’s ability to cover interest
charges. 314003140064006400 = 4.914.91
Coverage Ratios
Sayajirao IndustrySayajirao IndustryYear
Interest Coverage RatioInterest Coverage Ratio
Coverage Ratio Comparisions
4.91 5.205.57 6.565.76 7.20
4.91 5.205.57 6.565.76 7.20
201220112010
Sayajirao has below average interest coverage relative to the industry average.
7.0
8.0
e
Trend Analysis of Interest Coverage Ratio
Coverage Ratio- Trend Analysis Comparisions
3.0
4.0
5.0
6.0
2010 2011 2012
Rat
io V
alue
Analysis Year
SayajiraoIndustry
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The interest coverage ratio for BWBW has been falling since 2010. It has been below industryindustry averages for the past two years.
The interest coverage ratio for BWBW has been falling since 2010. It has been below industryindustry averages for the past two years.
Summary of the CoverageTrend Analysis
This indicates that low earningslow earnings (EBIT) may be a potential problem for BWBW.
Note, we know that debt levelsdebt levels are in line with the industryindustry averages.
This indicates that low earningslow earnings (EBIT) may be a potential problem for BWBW.
Note, we know that debt levelsdebt levels are in line with the industryindustry averages.
Receivable Turnover
Annual Net Credit SalesAnnual Net Credit SalesR i blR i bl
Receivable Turnover
Annual Net Credit SalesAnnual Net Credit SalesR i blR i bl
Income Statement /Balance Sheet
Ratios
(Assume all sales are credit sales.)
Actiivity Ratio
ReceivablesReceivables
• For SAYAJIRAO December 31, 2012
ReceivablesReceivables
• For SAYAJIRAO December 31, 2012Indicates quality of
receivables and how successful the firm is in its
collections.
Activity Ratios
4500004500003500035000
= 8.66
Avg. Collection Period
Days in the YearDays in the YearR i bl TR i bl T
Avg. Collection Period
Days in the YearDays in the YearR i bl TR i bl T
Income Statement /Balance Sheet
Ratios
Actiivity Ratio
Receivable TurnoverReceivable Turnover
• For SAYAJIRAO December 31, 2012
Receivable TurnoverReceivable Turnover
• For SAYAJIRAO December 31, 2012Average number of days
that receivables are outstanding.
(or RT in days)
Activity Ratios
3653658.668.66
= 43 Days
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Sayajirao IndustrySayajirao IndustryYear
Average Collection PeriodAverage Collection Period
Activity Ratio Comparisions
29 29.231 2943 35
29 29.231 2943 35
201220112010
Sayajirao has improved the average collection period to that of the industry average.
Payable Turnover
Annual Credit PurchasesAnnual Credit PurchasesAccounts PayablesAccounts Payables
Payable Turnover
Annual Credit PurchasesAnnual Credit PurchasesAccounts PayablesAccounts Payables
Income Statement /Balance Sheet
Ratios
Actiivity Ratio(Assume all annual credit
purchases)
Accounts PayablesAccounts Payables
• For SAYAJIRAO December 31, 2012
Accounts PayablesAccounts Payables
• For SAYAJIRAO December 31, 2012
Indicates the promptness of payment to suppliers by
the firm.
Activity Ratios
3600003600006700067000
= 5.37
PT in days
Days in the YearDays in the YearP bl TP bl T
PT in days
Days in the YearDays in the YearP bl TP bl T
Income Statement /Balance Sheet
Ratios
Actiivity Ratio
Payable TurnoverPayable Turnover
• For SAYAJIRAO December 31, 2012
Payable TurnoverPayable Turnover
• For SAYAJIRAO December 31, 2012Average number of days
that payables are outstanding.
Activity Ratios
3653655.375.37
= 68 Days
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Sayajirao IndustrySayajirao IndustryYear
Payable Turnover in DaysPayable Turnover in Days
Activity Ratio Comparisions
68 5851 5156 48
68 5851 5156 48
201220112010
Sayajirao has improved the PT in Days.Is this good?Is this good?
Inventory Turnover
Cost of good soldCost of good soldI t iI t i
Inventory Turnover
Cost of good soldCost of good soldI t iI t i
Income Statement /Balance Sheet
Ratios
Actiivity Ratio
InventoriesInventories
• For SAYAJIRAO December 31, 2012
InventoriesInventories
• For SAYAJIRAO December 31, 2012Indicates the
effectiveness of the inventory management
practices of the firm.
Activity Ratios
3600003600008000080000
= 4.5
Sayajirao IndustrySayajirao IndustryYear
Inventory Turnover RatioInventory Turnover Ratio
Activity Ratio Comparisions
4.50 5.453.15 4.762.50 3.69
4.50 5.453.15 4.762.50 3.69
201220112010
Sayajirao has a very poor inventory turnover ratio.
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Inventory Turnover Ratio --Trend Analysis ComparisonInventory Turnover Ratio --Trend Analysis Comparison
5.05.56.0
e
Trend Analysis of Inventory Turnover Ratio
2.02.53.03.54.04.5
2010 2011 2012
Rat
io V
alue
Analysis Year
SayajiraoIndustry
Total Assets Turnover
Net SalesNet Sales
Total Assets Turnover
Net SalesNet Sales
Income Statement /Balance Sheet
Ratios
Actiivity Ratio
Total AssetsTotal Assets
• For SAYAJIRAO December 31, 2012
Total AssetsTotal Assets
• For SAYAJIRAO December 31, 2012Indicates the overall
effectiveness of the firm in utilizing its assets to
generate sales.
Activity Ratios
520000520000315000315000 = 1.65
Sayajirao IndustrySayajirao IndustryYear
Total Assets Turnover RatioTotal Assets Turnover Ratio
Activity Ratio Comparisions
1.65 1.751.66 1.791.50 1.80
1.65 1.751.66 1.791.50 1.80
201220112010
Sayajirao has a weak total asset turnover ratio.Why Why is this ratio considered weak?is this ratio considered weak?
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Gross profit Margin
Gross ProfitGross Profit
Gross profit Margin
Gross ProfitGross Profit
Income Statement /Balance Sheet
Ratios
Profitability Ratio
Net SalesNet Sales
• For SAYAJIRAO December 31, 2012
Net SalesNet Sales
• For SAYAJIRAO December 31, 2012Indicates the efficiency of
operations and firm pricing policies.
Profitability Ratios
160000160000520000520000 = 30.7%
Sayajirao IndustrySayajirao IndustryYear
Gross Profit MarginGross Profit Margin
Profitability Ratio Comparisions
30.7% 35.1%34.3% 36.8%33.3% 36.6%
30.7% 35.1%34.3% 36.8%33.3% 36.6%
201220112010
Sayajirao has a weak Gross Profit Margin.
Gross Profit Margin --Trend Analysis Comparison
Gross Profit Margin --Trend Analysis Comparison
35.036.037.0
(%)
Trend Analysis of Gross Profit Margin
30.031.032.033.034.035.0
2010 2011 2012
Rat
io V
alue
(
Analysis Year
Sayajirao
Industry
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Net profit Margin
Net Profit after taxNet Profit after tax
Net profit Margin
Net Profit after taxNet Profit after tax
Income Statement /Balance Sheet
Ratios
Profitability Ratio
Net SalesNet Sales
• For SAYAJIRAO December 31, 2012
Net SalesNet Sales
• For SAYAJIRAO December 31, 2012Indicates the firm’s
profitability after taking account of all expenses
and income taxes.
Profitability Ratios
1750017500520000520000 = 3.3%
Sayajirao IndustrySayajirao IndustryYear
Net Profit MarginNet Profit Margin
Profitability Ratio Comparisions
3.3% 5.2%4.6% 6.1%4.0% 6.1%
3.3% 5.2%4.6% 6.1%4.0% 6.1%
201220112010
Sayajirao has a poor Net Profit Margin.
Net Profit Margin --Trend Analysis Comparison
Net Profit Margin --Trend Analysis Comparison
6
7
(%)
Trend Analysis of Net Profit Margin
3
4
5
2010 2011 2012
Rat
io V
alue
Analysis Year
SayajiraoIndustry
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Return on Investment
Net Profit after taxNet Profit after tax
Return on Investment
Net Profit after taxNet Profit after tax
Income Statement /Balance Sheet
Ratios
Profitability Ratio
Total AssetsTotal Assets
• For SAYAJIRAO December 31, 2012
Total AssetsTotal Assets
• For SAYAJIRAO December 31, 2012Indicates the profitability
on the assets of the firm (after all expenses and
taxes).
Profitability Ratios
1750017500520000520000 = 5.5%
Sayajirao IndustrySayajirao IndustryYear
Return on InvestmentReturn on Investment
Profitability Ratio Comparisions
5.5% 8.1%7.7% 9.8%6.0% 9.3%
5.5% 8.1%7.7% 9.8%6.0% 9.3%
201220112010
Sayajirao has a poor Return on Investment.
Return on Investment –Trend Analysis Comparison
Return on Investment –Trend Analysis Comparison
10
12
(%)
Trend Analysis of Return on Investment
Sayajirao
Industry
4
6
8
2010 2011 2012
Rat
io V
alue
(
Analysis Year
y
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Return on Equity
Net Profit after taxNet Profit after tax
Return on Equity
Net Profit after taxNet Profit after tax
Income Statement /Balance Sheet
Ratios
Profitability Ratio
Shareholder’s EquityShareholder’s Equity
• For SAYAJIRAO December 31, 2012
Shareholder’s EquityShareholder’s Equity
• For SAYAJIRAO December 31, 2012Indicates the profitability
to the shareholders of the firm (after all expenses
and taxes).
Profitability Ratios
1750017500520000520000 = 10.2%
Sayajirao IndustrySayajirao IndustryYear
Return on EquityReturn on Equity
Profitability Ratio Comparisions
10.2% 17.9%14.0% 17.2%10.6% 18.4%
10.2% 17.9%14.0% 17.2%10.6% 18.4%
201220112010
Sayajirao has a poor Return on Equity.
Return on Equity --Trend Analysis Comparison
Return on Equity --Trend Analysis Comparison
17.5
21.0
(%)
Trend Analysis of Return on Equity
7.0
10.5
14.0
2010 2011 2012
Rat
io V
alue
(
Analysis Year
Sayajirao
Industry
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Summary of the Profitability Trend Analyses
Summary of the Profitability Trend Analyses
The profitability ratios for SayajiraoCorporation have ALL been falling since 2010. Each has been below the industryindustry
f th t th
The profitability ratios for SayajiraoCorporation have ALL been falling since 2010. Each has been below the industryindustry
f th t thaverages for the past three years.This indicates that COGSCOGS and administrative administrative costscosts may both be too high and a potential problem for Sayajirao Corporation.Note, this result is consistent with the low interest coverage ratio.
averages for the past three years.This indicates that COGSCOGS and administrative administrative costscosts may both be too high and a potential problem for Sayajirao Corporation.Note, this result is consistent with the low interest coverage ratio.
Summary of Ratio AnalysesSummary of Ratio Analyses
Inventories are too high.May be paying off creditors (accounts payable) too soon
Inventories are too high.May be paying off creditors (accounts payable) too soon(accounts payable) too soon.COGS may be too high.Selling, general, and administrative costs may be too high.
(accounts payable) too soon.COGS may be too high.Selling, general, and administrative costs may be too high.
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