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3-1 FIN 201- Project Analysis of Financial Statements ◼ The report should include two years of ratio calculations, statements as shown on the slides and the analyses part for those two years ◼ All the information can be gathered from yahoo.finance OR TADAWUL WEBSITE Copyright © 2002 by Harcourt, Inc. All rights reserved. 3-2 Balance Sheet: Assets Cash AR Inventories Total CA Gross FA Less: Deprec. Net FA Total assets Copyright © 2002 by Harcourt, Inc. 2002E 85,632 878,000 1,716,480 2,680,112 1,197,160 380,120 817,040 3,497,152 2001 7,282 632,160 1,287,360 1,926,802 1,202,950 263,160 939,790 2,866,592 All rights reserved. 3-3 Liabilities and Equity 2002E Accounts payable 436,800 Notes payable 300,000 Accruals 408,000 Total CL 1,144,800 Long-term debt 400,000 Common stock 1,721,176 Retained earnings 231,176 Total equity 1,952,352 Total L & E 3,497,152 Copyright © 2002 by Harcourt, Inc. 2001 524,160 636,808 489,600 1,650,568 723,432 460,000 32,592 492,592 2,866,592 All rights reserved. 3-4 Income Statement Sales COGS Other expenses EBITDA Depreciation EBIT Interest exp. EBT Taxes (40%) Net income Copyright © 2002 by Harcourt, Inc. 2002E 2001 7,035,600 6,034,000 5,875,992 5,528,000 550,000 519,988 609,608 (13,988) 116,960 116,960 492,648 (130,948) 70,008 136,012 422,640 (266,960) 169,056 (106,784) 253,584 (160,176) All rights reserved. 3-5 Other Data Shares out. EPS Stock price Copyright © 2002 by Harcourt, Inc. 2002E 2001 250,000 100,000 $1.014 ($1.602) $12.17 $2.25 All rights reserved. 3-6 Introduction Write and introduction for your report Why are ratios useful? ◼Standardize numbers; facilitate comparisons ◼Used to highlight weaknesses and strengths Copyright © 2002 by Harcourt, Inc. All rights reserved. 3-7 Introduction :About selected company Write and introduction for your report You must include the short introduction of the selected company in just a page Copyright © 2002 by Harcourt, Inc. All rights reserved. 3-8 Liquidity: Can we make required payments? $2,680 CA CR02 = CL = $1,145 = 2.34x. CA - Inv. QR02 = CL $2,680 – $1,716 = = 0.84x. $1,145 Copyright © 2002 by Harcourt, Inc. All rights reserved. 3-9 Comments on CR and QR 2002 2001 2000 Ind. CR 2.34x 1.2x 2.3x 2.7x QR 0.84x 0.4x 0.8x 1.0x ◼ Expected to improve but still below the industry average. ◼ Liquidity position is weak. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 10 Asset management: Right amount of assets vs. sales? Sales Inv. turnover = Inventories $7,036 = = 4.10x. $1,716 2002 2001 2000 Ind. Inv. T. 4.1x 4.7x 4.8x 6.1x Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 11 Comments on Inventory Turnover ◼Inventory turnover is below industry average. ◼D’Leon might have old inventory, or its control might be poor. ◼No improvement is currently forecasted. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 12 DSO is the average number of days after making a sale before receiving cash. Receivables DSO = Average sales per day Receivables $878 = Sales/365 = $7,036/365 = 45.6. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 13 Appraisal of DSO DSO 2002 45.6 2001 38.2 2000 37.4 Ind. 32.0 D’Leon collects too slowly, and is getting worse. D’Leon has a poor credit policy. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 14 F.A. and T.A. Turnover Fixed assets Sales = turnover Net fixed assets $7,036 = = 8.61x. $817 Total assets = turnover Sales Total assets $7,036 = = 2.01x. $3,497 Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 15 2002 FA TO 8.6x TA TO 2.0x 2001 6.4x 2.1x 2000 10.0x 2.3x Ind. 7.0x 2.6x ◼FA turnover projected to exceed industry average. Good. ◼TA turnover not up to industry average. Caused by excessive current assets (A/R and Inv.) Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 16 Debt management: Right mix of debt and equity? Total debt Debt ratio = Total assets = $1,145 + $400 = 44.2%. $3,497 EBIT TIE = Int. expense = $492.6 = 7.0x. $70 Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 17 How well is the debt management ratios compared over the years D/A TIE 2002 2001 2000 Ind. 44.2% 82.8% 54.8% 50.0% 7.0x -1.0x 4.3x 6.2x D/A and TIE are doing better in 2002 and even better than industry average Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 18 Profitability: Do sales prices exceed unit costs, and are sales high enough as reflected in PM, ROE, and ROA? NI $253.6 P.M. = Sales = $7,036 = 3.6%. P.M. 2002 3.6% 2001 -2.7% 2000 Ind. 2.6% 3.5% Very bad in 2001, but projected to exceed industry average in 2002. Looking good. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 19 BEP(basic earning power) vs. industry average? EBIT BEP = Total assets $492.6 = $3,497 = 14.1%. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 20 BEP 2002 14.1% 2001 -4.6% 2000 13.0% Ind. 19.1% ◼BEP removes effect of taxes and financial leverage. Useful for comparison. ◼Projected to be below average. ◼Room for improvement. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 21 Return on Assets Net income ROA = Total assets $253.6 = $3,497 = 7.3%. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 22 Net income ROE = Common equity = $253.6 = 13.0%. $1,952 ROA ROE 2002 7.3% 13.0% 2001 2000 Ind. -5.6% 6.0% 9.1% -32.5% 13.3% 18.2% Both below average but improving. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 23 Effects of Debt on ROA and ROE ◼ROA is lowered by debt--interest lowers NI, which also lowers ROA = NI/Assets. ◼But use of debt lowers equity, hence could raise ROE = NI/Equity. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 24 Market value: Do investors like what they see as reflected in P/E and M/B ratios? Price per share P/E = Earning per share $12.17 = $1.48 = 8.21x. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 25 Com. equity BVPS = Shares out. $1,952 = = $7.81. 250 Mkt. price per share M/B = Book value per share $12.17 = $7.81 = 1.56x. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 26 P/E 2002 12.0x 2001 -1.4x 2000 9.7x Ind. 14.2x M/B 1.56x 0.5x 1.3x 2.4x ◼ P/E: How much investors will pay for $1 of earnings. High is good. ◼ M/B: How much paid for $1 of BV. Higher is better. ◼ P/E and M/B are high if ROE is high, risk is low. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 27 ( Profit margin )( TA turnover )( Equity multiplier ) = ROE NI Sales TA Sales x TA x CE = ROE. 2000 2.6% x 2.3 2001 -2.7% x 2.1 2002 3.6% x 2.0 Ind. 3.5% x 2.6 Copyright © 2002 by Harcourt, Inc. x x x x 2.2 5.8 1.8 2.0 = 13.3% = -32.5% = 13.0% = 18.2% All rights reserved. 3 - 28 The Du Pont system focuses on: ◼Expense control (P.M.) ◼Asset utilization (TATO) ◼Debt utilization (Eq. Mult.) It shows how these factors combine to determine the ROE. Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 29 Conclusion Write a conclusion about the company 1. you must give a precise, meaningful conclusion. 2. If you are investor, will you invest in the selected company? Yes/no? why? Copyright © 2002 by Harcourt, Inc. All rights reserved. 3 - 30 SOME GUIDELINES 1. Prepare your ratios with detailed formulae, numbers and compare current year information with previous year information. The important point to consider is: Your goal is to know the current performance, not the previous year. Make comparison of 2 year data of the company. 2. Mention whether the ratio is in times/%/ SAR or $, with out that you will loose your marks. 3. Just compare Liquidity, Asset management, Debt management, Profitability and Market Value (you align the ratios accordingly) of the selected company and make the decision, to invest in it or not. All the best !!!!! Copyright © 2002 by Harcourt, Inc. All rights reserved. ...
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