Financial Performance Analysis

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Financial Performance Analysis

• Sanjib Chowdhury

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Financial Analysis

• Sources of Financial Information
• Data from financial statements of the company and
  Benchmark company.
• I.S, B.S, C.F.S.
• Data from Industry reports
• Trend Analysis
• Sales, Market share, Gross profit, Expense, Net
  profit, etc.
• Ratio Analysis

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Ratio Analysis

• Examples of financial ratios
• Liquidity ratios
• Profitability ratios
• Activity ratios
• Leverage ratios

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Liquidity Ratios

• Liquidity Ratios are used to examine the firms
  ability to meet short-term cash outflow needs.
• Current Ratio expressed as decimal.
• current assets/current liabilities
• indicator of companys ability to pay its short
  term liabilities
• Quick (acid test) Ratio expressed as decimal
• (current assets-inventory)/current liabilities
• Measures ability to pay off short term
  obligations without using its inventory

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Liquidity Ratios

• Inventory to net working capital expressed as
  decimal
• Inventory/(current assets-current liabilities)
• Measure of inventory balance, shows if balance
  can be threatened by unfavorable changes in
  inventory.
• Cash Ratio expressed as decimal
• (cashcash equivalents)/current liabilities
• Shows how much of the current obligations can be
  paid from cash or near-cash assets.

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Profitability Ratios

• Profitability Ratios are ratios used to measure
  the profitability of the firm.
• Gross Profit Margin express as percentage
• (sales-cost of goods sold)/net sales
• Indicates the total margin available to cover
  other expenses beyond cost of goods sold, and
  still yield a profit.
• Net Profit Margin express as percentage
• Net profit after taxes/net sales
• shows how much after tax profits are generated by
  each dollar of sales.
• Return on Investment (ROI) express as percentage
• Net profit after taxes/total assets
• a measure of a companys efficiency, it shows the
  return on all assets under its control.

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Profitability Ratios Formulas

• Return on Equity (ROE) express as percentage
• Net profit after taxes/shareholders equity
• measures rate of return on the book value of
  shareholders total investment in the company.
• Earnings Per Share (EPS) express as dollars per
  share
• (Net profit after taxes-preferred stock
  dividends) / (Average number of common shares)
• Shows the after-tax earnings generated for each
  share of common stock.

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Activity Ratios

• Activity Ratios- used to measure the efficiency
  with which the firm conducts its business.
• Inventory Turnover COGS/Average Inventory
  (inventory of finished goods)
• measures number of times that average inventory
  turned over during a period of time.
• Accounts Receivable Turnover Sales/Average
  Accounts Receivable (Sales/Accounts receivable)
• the average length of time it takes to collect
  the sales made on credit.

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Activity Ratios Formulas

• Days (Inventory/Receivable) Outstanding
• 365/Inventory Turnover 365/Accounts Receivable
  Turnover
• measures number of days each is outstanding.
• Total Asset Turnover
• Sales/total assets during period
• a measure of the utilization of all the firms
  assets.

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Leverage Ratios

• Leverage Ratios- are used to measure firms
  ability to meet its long-run debt service
  obligation.
• Debt-to-assets ratio Total debt/total assets
• measures extent to which borrowed funds have been
  used to finance the firms operations. Includes
  long term, short term debt.
• Debt-to-equity ratio Total debt/total
  stockholders equity
• Provides another measure of the funds provided by
  creditors vs. funds provided by owners.

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Valuation Ratios

• Valuation Ratios
• used to describe the way the market values the
  firm and the way that certain characteristics are
  related to the value of the firm.
• Price per Earnings Ratio
• Current market price per share/after tax earning
  per share