business financial analysis

8/14/2019 Business Financial Analysis

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Business Financial Analysis

Page 1

Business Financing and Planning

Financial Ratio Analysis

Enter the cells with a yellow highlight

1) The year & year name for the left and right column years.

2) The requested data for the Balance Sheet for both years.

3) The requested data for the Income Statement for both years.4) The other requested data.

Company Name: Company Name

Year Year NameRight column year: 2007 Current Year

Left column year: 2006 Previous Year

(Please note that the majority of the financial analysis is performed on the left column year.)

Company Name

Comparative Balance Sheets

Assets 2006 2007

Previous Year Current Year

Cash $95,000 $90,000Short-term securities $55,000 $62,000Accounts receivable $120,000 $150,000Inventory $90,000 $100,000Prepaid expenses $37,000 $35,000

Current Assets $397,000 $437,000Gross: Plant & Equipment $629,000 $650,000Less: Accum. depreciation $118,000 $135,000

Net plant & equipment $511,000 $515,000Other tangible assets $4,000 $5,000

Intangible assets $3,000 $3,000Total Assets $915,000 $960,000

Liabilities & Equity

Short-term notes payable $22,000 $25,000Curr. maturities, l.t. debt $25,000 $30,000Accounts payable $270,000 $285,000Accrued expenses $33,000 $33,000Taxes payable $1,200 $2,000Other curr. liabilities $35,000 $33,000

Current Liabilites $386,200 $408,000Long-term debt $187,000 $162,000Less: curr. maturities $25,000 $30,000

Net long-term debt $162,000 $132,000Preferred stock $100,000 $100,000

$50,000 $50,000Capital surplus $12,800 $20,000Retained earnings $204,000 $250,000

$915,000 $960,000

Comparative Income Statements

Net Sales $3,550,000 $3,700,000Cost of goods sold $3,050,000 $3,100,000

Common stock (@ par value)

Total Liabilities &Stockholders' Equity


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Gross profit $500,000 $600,000General, selling & admin. $277,000 $285,000Operating profit $223,000 $315,000Interest expense $5,500 $6,000Other income (expense) $400 $500Pretax income $217,900 $309,500Income taxes $65,000 $75,000Net income $152,900 $234,500

Other Requested Data:

Common stock valued at an earnings multiple of:(Price earnings multiple or P/E ratio) 12Common stock dividends paid per share in current yr: $2.00Par value per share of common stock: $1.00Percent return on preferred stock: 10.0%Par value per share of prefered stock: $10.00

Preferred stock is convertible into how manyshares of common stock: 10Intangible net worth: $10,000Depreciation in right column year was: $75,000Depreciation in left column year was: $100,000Purchases are what percent of cost of sales: 66.7%Credit sales are what percent of total sales: 100.0%

Company Name

Summary of Financial Ratio Analysis 2007

1. Liquidity Ratios

Net Working Capital: $29,000

Net Working Capital to Sales: 0.01Net Working Capital to Total Assets: 0.03Current Ratio: 1.07Quick Assets: $302,000

Net Quick Assets: -$106,000Net Quick Ratio: 0.74Cash Ratio: 0.37

Basic Defense Interval: 32.6

2. Leverage and Capital Structure Ratios

Tangible equity $410,000Long-term debt to tangible equity ratio: 0.40Total debt to equity ratio: 1.29Total debt to assets (debt to capital) ratio: 0.56

Fixed assets to equity ratio: 1.23

Current liabilities to equity ratio: 0.97Overtrading ratio 0.98

3. Profitability & Values Ratios

Net profit margin (return on sales): 6.3%Rate of return on investment (ROI): 42.5%Rate of return on assets (ROA): 24.4%

Rate of return on equity (ROE): 55.8%Rate of return on common stockholders equity: 70.2%

Gross profit margin: 16.2%Operating margin: 8.5%Operating ratio: 0.91Asset turnover: 3.9Earning power on assets: 33.1%Book value: $6.40


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Earnings per share (common stock): $4.49Cash flow per share (common stock): $6.69Market value per share (common stock): $53.88Capitalization rate: 8.3%Yield: 3.71%Payout ratio (common stock): 44.5%Dilution percent: 66.7%Diluted earnings per share: $1.56

4. Turnover & Activity Ratios

Accounts payable days purchases outstanding: 50.3Accounts receivable aver. collection period: 13.3Inventory turnover: 32.6Average days for inventory to sell: 11.2Asset turnover: 3.9Gross margin return on inventory: 3.26

5. Coverage Ratios

Cash flow times interest earned ratio: 50.9Times interest earned ratio: 52.6Cash flow to current maturities ratio: 10.0

6. Source and Application of Funds

The source and application of funds schedule reconciles the balance sheet and income statement. It reflects wherecapital came from (internal and external sources) and how it was used. The type of activity from the Statementof Cash Flows is shown in parentheses.

Sources of Capital:Net Income (operating) $234,500Depreciation (operating) $100,000Long-term debt (financing) $132,000

Total Sources $466,500

Uses of Cash:Capital expenditures (investing) $21,000

Cash dividends (financing):Preferred stock $10,000Common stock $100,000

Increase in working cap. (operating) $18,200

Total Uses $149,200

Reconciliation of Net Income to Net Cash Provided (Used) by Operating Activities

Net Income $234,500Adjustments to reconcile net income to netcash provided by operating activities:

Depreciation $100,000Other $0

(Increase) decrease in assets and increase(decrease) in liabilties:

Cash $5,000Short-term securities ($7,000)Accounts receivable ($30,000)Inventory ($10,000)Prepaid expenses $2,000Notes payable $3,000Accounts payable $15,000Curr. maturities long-term debt $5,000Accrued expenses $0Taxes payable $800Other curr. liab. ($2,000)


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Net Cash Provided (Used) byOperating Actvities $316,300

Changes in Working Capital:

Increase (decrease) in cash ($5,000)Increase (decrease) in short-term securities $7,000Increase (decrease) in accounts receivable $30,000

Increase (decrease) in inventory $10,000Increase (decrease) in prepaid expenses ($2,000)Decrease (increase) in notes payable ($3,000)Decrease (increase) in accounts payable ($15,000)Decrease (increase) in curr. maturities

long-term debt ($5,000)Decrease (increase) in accrued expenses $0Decrease (increase) in taxes payable ($800)Decrease (increase) in other curr. liab. $2,000

Net change in working capital $18,200

7. Z-Score Analysis to Predict Bankrupcy

Ratio Answer Coeff. Z-Score

2007

Working capital = 0.030 x 1.20 0.036/ Total assets

Retained earnings = 0.260 x 1.40 0.365/ Total assets

Earnings before interest = 0.329 x 3.30 1.085& tax / Total assets

Net worth = 0.778 x 0.60 0.467/ Total liabilities

Net Sales = 3.854 x 1.00 3.854/ Total assets

Total Z-Score = 5.806

2006



Earnings before int. = 0.244 x 3.30 1.641& tax / Total assets




Key: >= 3.00 Safe from Bankruptcy


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1.81 to 2.99 Danger area

Company Name

Detailed Financial Ratio Analysis 2007

1. Liquidity Ratios

Net Working Capital = Current Assets - Current liabilities$29,000 = $437,000 - $408,000

Net Working Capital to Sales = Net working capital / Net Sales0.01 = $29,000 / $3,700,000

Net Working Capital to Total Assets:= Net working capital / Total assets

0.03 = $29,000 / $960,000

Current Ratio = Current Assets / Current liabilities1.07 = $437,000 / $408,000

Quick Assets = Cash + Short-term securities + Accounts Receivable$302,000 = $152,000 + $150,000

Net Quick Assets = Quick assets - Current liabilities-$106,000 = $302,000 - $408,000

Net Quick Ratio = Quick assets / Current liabilities0.74 = $302,000 / $408,000

Cash Ratio = Cash + Short-term securities / Current liabilities0.37 = $152,000 / $408,000

Basic Defense Interval = Cash + Short-term securities + Accounts Receivable / Daily Expenses32.6 = $302,000 / $9,274

Percentage composition of current assets:

Cash $90,000 21%Short-term securities $62,000 14%Accounts receivable $150,000 34%Inventory $100,000 23%Prepaid expenses $35,000 8%

Current Assets $437,000 100%


Tangible equity = Total equity - intangible net worth$410,000 = $420,000 - $10,000

Long-term debt to tangible equity ratio:= Long-term debt / Tangible equity

0.40 = $132,000 / $410,000

Total debt to equity ratio = Current liabilities + Long-term debt / Total net worth1.29 = $540,000 / $420,000

Total debt to assets ratio (or debt to capital ratio):= Current liabilities + Long-term debt / Total assets= Current liabilities + Long-term debt / cur. liab. + l.t. debt + Net worth

0.56 = $540,000 / $960,000

Fixed assets to equity ratio = Fixed assets / Total net worth1.23 = $515,000 / $420,000


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Current liabilities to equity ratio:= Current liabilities / Total net worth

0.97 = $408,000 / $420,000

Overtrading ratio = Current Liabilities / Net worth - Intangible assets

0.98 = $408,000 /$420,000 - $3,000

Capitalization - all long-term capital

Net long-term debt $132,000 24%Preferred stock $100,000 18%Capital surplus $20,000 4%Common stock $50,000 9%Retained earnings $250,000 45%Common stockholders'

equity $320,000 58%Long-term Capital $552,000 100%


Net profit margin (return on sales):= Net income / Net Sales

6.3% = $234,500 / $3,700,000

Rate of return on capitalization (return on investment, ROI):= Net income / Total capitalization

42.5% = $234,500 / $552,000

Rate of return on assets (ROA):

= Net income / Total assets24.4% = $234,500 / $960,000

Rate of return on equity (ROE):= Net income / Total net worth

55.8% = $234,500 / $420,000

Rate of return on common stockholders' equity:= Net income - Preferred dividend / Common stockholders' equity

70.2% = $224,500 / $320,000

Gross profit margin = Gross profit / Net Sales

16.2% = $600,000 / $3,700,000

Operating margin = Operating profit / Net Sales8.5% = $315,000 / $3,700,000

Operating ratio = Cost of goods sold + General, selling & admin. / Net Sales0.91 = $3,100,000 + $285,000 / $3,700,000

Asset turnover = Net Sales / Operating Assets3.9 = $3,700,000 / $952,000

Earning power on assets = Operating margin x Asset turnover

33.1% = 8.5% x 3.89

Book value = Common stockholders' equity / number of shares outstanding$6.40 = $320,000 / 50,000

Note: Compute shares outstanding by dividing common stock (@ par value) on balance sheetby par value per share. Par value is simply a stated value of common stockfor accounting and legal purposes.

Earnings per share = Net income - Preferred dividend /(common stock) Number of shares outstanding

$4.49 = $234,500 - $10,000 / 50,000


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Business Financial Analysis SCR

Page 1

Business Financing and Planning

Financial Ratio Analysis

Enter the cells with a yellow highlight

1) The year & year name for the left and right column years.

2) The requested data for the Balance Sheet for both years.

3) The requested data for the Income Statement for both years.4) The other requested data.

Company Name: Company Name

Year Year NameRight column year: 2007 Current Year

Left column year: 2006 Previous Year

(Please note that the majority of the financial analysis is performed on the left column year.)

Company Name

Comparative Balance Sheets

Assets 2006 2007

Previous Year Current Year

Cash $95,000 $90,000Short-term securities $55,000 $62,000Accounts receivable $120,000 $150,000Inventory $90,000 $100,000Prepaid expenses $37,000 $35,000

Current Assets $397,000 $437,000Gross: Plant & Equipment $629,000 $650,000Less: Accum. depreciation $118,000 $135,000

Net plant & equipment $511,000 $515,000Other tangible assets $4,000 $5,000

Intangible assets $3,000 $3,000Total Assets $915,000 $960,000

Liabilities & Equity

Short-term notes payable $22,000 $25,000Curr. maturities, l.t. debt $25,000 $30,000Accounts payable $270,000 $285,000Accrued expenses $33,000 $33,000Taxes payable $1,200 $2,000Other curr. liabilities $35,000 $33,000

Current Liabilites $386,200 $408,000Long-term debt $187,000 $162,000Less: curr. maturities $25,000 $30,000

Net long-term debt $162,000 $132,000Preferred stock $100,000 $100,000

$50,000 $50,000Capital surplus $12,800 $20,000Retained earnings $204,000 $250,000

$915,000 $960,000

Comparative Income Statements

Net Sales $3,550,000 $3,700,000Cost of goods sold $3,050,000 $3,100,000

Common stock (@ par value)

Total Liabilities &Stockholders' Equity


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Gross profit $500,000 $600,000General, selling & admin. $277,000 $285,000Operating profit $223,000 $315,000Interest expense $5,500 $6,000Other income (expense) $400 $500Pretax income $217,900 $309,500Income taxes $65,000 $75,000Net income $152,900 $234,500

Other Requested Data:

Common stock valued at an earnings multiple of:(Price earnings multiple or P/E ratio) 12Common stock dividends paid per share in current yr: $2.00Par value per share of common stock: $1.00Percent return on preferred stock: 10.0%Par value per share of prefered stock: $10.00

Preferred stock is convertible into how manyshares of common stock: 10Intangible net worth: $10,000Depreciation in right column year was: $75,000Depreciation in left column year was: $100,000Purchases are what percent of cost of sales: 66.7%Credit sales are what percent of total sales: 100.0%

Company Name

Summary of Financial Ratio Analysis 2007

1. Liquidity Ratios

Net Working Capital: $29,000

Net Working Capital to Sales: 0.01Net Working Capital to Total Assets: 0.03Current Ratio: 1.07Quick Assets: $302,000

Net Quick Assets: -$106,000Net Quick Ratio: 0.74Cash Ratio: 0.37

Basic Defense Interval: 32.6


Tangible equity $410,000Long-term debt to tangible equity ratio: 0.40Total debt to equity ratio: 1.29Total debt to assets (debt to capital) ratio: 0.56

Fixed assets to equity ratio: 1.23

Current liabilities to equity ratio: 0.97Overtrading ratio 0.98


Net profit margin (return on sales): 6.3%Rate of return on investment (ROI): 42.5%Rate of return on assets (ROA): 24.4%

Rate of return on equity (ROE): 55.8%Rate of return on common stockholders equity: 70.2%

Gross profit margin: 16.2%Operating margin: 8.5%Operating ratio: 0.91Asset turnover: 3.9Earning power on assets: 33.1%Book value: $6.40


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Earnings per share (common stock): $4.49Cash flow per share (common stock): $6.69Market value per share (common stock): $53.88Capitalization rate: 8.3%Yield: 3.71%Payout ratio (common stock): 44.5%Dilution percent: 66.7%Diluted earnings per share: $1.56


Accounts payable days purchases outstanding: 50.3Accounts receivable aver. collection period: 13.3Inventory turnover: 32.6Average days for inventory to sell: 11.2Asset turnover: 3.9Gross margin return on inventory: 3.26

5. Coverage Ratios

Cash flow times interest earned ratio: 50.9Times interest earned ratio: 52.6Cash flow to current maturities ratio: 10.0

6. Source and Application of Funds

The source and application of funds schedule reconciles the balance sheet and income statement. It reflects wherecapital came from (internal and external sources) and how it was used. The type of activity from the Statementof Cash Flows is shown in parentheses.

Sources of Capital:Net Income (operating) $234,500Depreciation (operating) $100,000Long-term debt (financing) $132,000

Total Sources $466,500

Uses of Cash:Capital expenditures (investing) $21,000

Cash dividends (financing):Preferred stock $10,000Common stock $100,000

Increase in working cap. (operating) $18,200

Total Uses $149,200

Reconciliation of Net Income to Net Cash Provided (Used) by Operating Activities

Net Income $234,500Adjustments to reconcile net income to netcash provided by operating activities:

Depreciation $100,000Other $0

(Increase) decrease in assets and increase(decrease) in liabilties:

Cash $5,000Short-term securities ($7,000)Accounts receivable ($30,000)Inventory ($10,000)Prepaid expenses $2,000Notes payable $3,000Accounts payable $15,000Curr. maturities long-term debt $5,000Accrued expenses $0Taxes payable $800Other curr. liab. ($2,000)


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Net Cash Provided (Used) byOperating Actvities $316,300

Changes in Working Capital:

Increase (decrease) in cash ($5,000)Increase (decrease) in short-term securities $7,000Increase (decrease) in accounts receivable $30,000

Increase (decrease) in inventory $10,000Increase (decrease) in prepaid expenses ($2,000)Decrease (increase) in notes payable ($3,000)Decrease (increase) in accounts payable ($15,000)Decrease (increase) in curr. maturities

long-term debt ($5,000)Decrease (increase) in accrued expenses $0Decrease (increase) in taxes payable ($800)Decrease (increase) in other curr. liab. $2,000

Net change in working capital $18,200

7. Z-Score Analysis to Predict Bankrupcy

Ratio Answer Coeff. Z-Score

2007



Earnings before interest = 0.329 x 3.30 1.085& tax / Total assets




2006



Earnings before int. = 0.244 x 3.30 1.641& tax / Total assets




Key: >= 3.00 Safe from Bankruptcy


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1.81 to 2.99 Danger area

Company Name

Detailed Financial Ratio Analysis 2007

1. Liquidity Ratios

Net Working Capital = Current Assets - Current liabilities$29,000 = $437,000 - $408,000

Net Working Capital to Sales = Net working capital / Net Sales0.01 = $29,000 / $3,700,000

Net Working Capital to Total Assets:= Net working capital / Total assets

0.03 = $29,000 / $960,000

Current Ratio = Current Assets / Current liabilities1.07 = $437,000 / $408,000

Quick Assets = Cash + Short-term securities + Accounts Receivable$302,000 = $152,000 + $150,000

Net Quick Assets = Quick assets - Current liabilities-$106,000 = $302,000 - $408,000

Net Quick Ratio = Quick assets / Current liabilities0.74 = $302,000 / $408,000

Cash Ratio = Cash + Short-term securities / Current liabilities0.37 = $152,000 / $408,000

Basic Defense Interval = Cash + Short-term securities + Accounts Receivable / Daily Expenses32.6 = $302,000 / $9,274

Percentage composition of current assets:

Cash $90,000 21%Short-term securities $62,000 14%Accounts receivable $150,000 34%Inventory $100,000 23%Prepaid expenses $35,000 8%

Current Assets $437,000 100%


Tangible equity = Total equity - intangible net worth$410,000 = $420,000 - $10,000

Long-term debt to tangible equity ratio:= Long-term debt / Tangible equity

0.40 = $132,000 / $410,000

Total debt to equity ratio = Current liabilities + Long-term debt / Total net worth1.29 = $540,000 / $420,000

Total debt to assets ratio (or debt to capital ratio):= Current liabilities + Long-term debt / Total assets= Current liabilities + Long-term debt / cur. liab. + l.t. debt + Net worth

0.56 = $540,000 / $960,000

Fixed assets to equity ratio = Fixed assets / Total net worth1.23 = $515,000 / $420,000


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Current liabilities to equity ratio:= Current liabilities / Total net worth

0.97 = $408,000 / $420,000

Overtrading ratio = Current Liabilities / Net worth - Intangible assets

0.98 = $408,000 /$420,000 - $3,000

Capitalization - all long-term capital

Net long-term debt $132,000 24%Preferred stock $100,000 18%Capital surplus $20,000 4%Common stock $50,000 9%Retained earnings $250,000 45%Common stockholders'

equity $320,000 58%Long-term Capital $552,000 100%


Net profit margin (return on sales):= Net income / Net Sales

6.3% = $234,500 / $3,700,000

Rate of return on capitalization (return on investment, ROI):= Net income / Total capitalization

42.5% = $234,500 / $552,000

Rate of return on assets (ROA):

= Net income / Total assets24.4% = $234,500 / $960,000

Rate of return on equity (ROE):= Net income / Total net worth

55.8% = $234,500 / $420,000

Rate of return on common stockholders' equity:= Net income - Preferred dividend / Common stockholders' equity

70.2% = $224,500 / $320,000

Gross profit margin = Gross profit / Net Sales

16.2% = $600,000 / $3,700,000

Operating margin = Operating profit / Net Sales8.5% = $315,000 / $3,700,000

Operating ratio = Cost of goods sold + General, selling & admin. / Net Sales0.91 = $3,100,000 + $285,000 / $3,700,000

Asset turnover = Net Sales / Operating Assets3.9 = $3,700,000 / $952,000

Earning power on assets = Operating margin x Asset turnover

33.1% = 8.5% x 3.89

Book value = Common stockholders' equity / number of shares outstanding$6.40 = $320,000 / 50,000

Note: Compute shares outstanding by dividing common stock (@ par value) on balance sheetby par value per share. Par value is simply a stated value of common stockfor accounting and legal purposes.

Earnings per share = Net income - Preferred dividend /(common stock) Number of shares outstanding

$4.49 = $234,500 - $10,000 / 50,000


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Cash flow per share = Net income + Depreciation / Number of shares outstanding(common stock)

$6.69 = $234,500 + $100,000 / 50,000

Market value = Earnings per share (EPS) x Price earnings multiple (P/E)

$53.88 = $4.49 x 12.00

Capitalization rate = 1 / Price earnings multiple (P/E)8.3% = 1 / 12.00

Yield = Dividends per share / price per share

3.71% = $2.00 / $53.88

Common Stock Payout ratio = Common stock dividends paid / Net income - Preferred dividend44.5% = $100,000 / $224,500

Dilution percent = Com. stock converted from pref. stock /Total shares outstanding after conversion

66.7% = 100,000 / 150,000

Diluted earnings per share = Total net income / Total shares outstanding after conversion$1.56 = $234,500 / 150,000


Accounts payable days purchases outstanding= Accounts payable x 365 / Annual purchases

50.3 = $285,000 x 365 / $2,067,700

Accounts receivable average collection period

= Average accounts recievable x 365 / Annual credit sales13.3 = $135,000 x 365 / $3,700,000

Inventory turnover = Cost of goods sold / Average ending inventory32.6 = $3,100,000 / $95,000

Average days for = Average ending inventory x 365 / Cost of goods soldinventory to sell

11.2 = $95,000 x 365 / $3,100,000

Assset turnover = Net Sales / Average Assets

3.9 = $3,700,000 / $937,500

Gross margin return = (Pretax Income / Net Sales) xon inventory (Net sales / Aver. ending inventory)

3.26 = $309,500 / $3,700,000x $3,700,000 / $95,000

5. Coverage Ratios

Cash flow times interest earned ratio:= Earnings before interest and taxes + Depreciation - Dividends

/ Total debt interest expense

50.9 = $315,500 + $100,000 - $110,000/ $6,000

Times interest earned ratio = Earnings before interest and taxes / Total debt interest expense

52.6 = $315,500 / $6,000

Cash flow to current maturities ratio:= Pretax income + Depreciation - Dividends

/ Current Maturities of long-term debt10.0 = $299,500 / $30,000

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