Financial Statement Analysis - Accounting

Topics: Balance sheet, Generally Accepted Accounting Principles, Asset Pages: 3 (879 words) Published: November 17, 2010
Financial Statement Analysis

Financial Statement Analysis

The financial health of an organization can be evaluated using ratio analysis. A comprehensive review of Landry’s Restaurants, Inc using their 2003 Annual Report will use seven different ratios calculated from Landry's financial statements. The ratio analysis will test the profitability, liquidity, and solvency of the company. Liquidity ratios measures the "short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash" (KIMMEL, WEYGANDT & KIESO, 2007, p. 668). A solvency ratio measures the "ability of the enterprise to survive over a long period of time" (KIMMEL, et al., p. 668). A profitability ratio measures the "income or operating success of an enterprise for a given period of time" (KIMMEL, et al., p. 668). Ratio analysis are tools used to provide information about the organization, however, a single ratio from one of three areas categories cannot be used as an indicated of financial health of the company. Earnings per share are calculated by dividing the net income by the average number of shares of common stock outstanding (KIMMEL, WEYGANDT & KIESO, 2007, p. 678). For Landry's Restaurant the earnings per share for 2002 was $1.60 and for 2003 $1.66 with an average for the two years of $1.63. Return on assets is computed "by dividing net income by average total assets" (KIMMEL, WEYGANDT & KIESO, 2007, p. 676). For 2003, the return on assets was 2.92% for 2002 it was 2.88%. Current ratio is calculated "as current assets divided by current liabilities" (KIMMEL, WEYGANDT & KIESO, 2007, p. 670). For 2003, the current ratio was .76:1 and for 2002, it was .62:1. Times interest earned calculated "as income before interest expense and income taxes divided by interest expense" (KIMMEL, WEYGANDT & KIESO, 2007, p. 673). Times interest earned for 2003 was 7.0 and for 2002, it was 13.04. Asset turnover is computed "as...
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