Fundamentals of Financial Management, 13e Chapter 6: Financial Statement Analysis

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Fundamentals of Financial Management, 13e Chapter 6: Financial Statement Analysis

Formulas
Financial Statement Analysis
6.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Liquidity Ratios
Balance Sheet Ratios Liquidity Ratios

Current
Current Assets Current Liabilities

Shows a firm’s ability to cover its current liabilities with its current assets. 6.2 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Liquidity Ratios
Balance Sheet Ratios Liquidity Ratios

Financial Leverage Ratios
Balance Sheet Ratios Financial Leverage Ratios

AcidAcid-Test (Quick)
Current Assets - Inv Current Liabilities

Debt-toDebt-to-Equity
Total Debt Shareholders’ Equity

Shows a firm’s ability to meet current liabilities with its most liquid assets. 6.3 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Shows the extent to which the firm is financed by debt.
6.4 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Financial Leverage Ratios
Balance Sheet Ratios Financial Leverage Ratios

Financial Leverage Ratios
Balance Sheet Ratios Financial Leverage Ratios Shows the relative importance of long-term debt to the long-term financing of the firm. 6.6 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Debt-to-TotalDebt-to-Total-Assets
Total Debt Total Assets

Total Capitalization
(i.e., LT-Debt + Equity)

Total Debt Total Capitalization

Shows the percentage of the firm’s assets that are supported by debt financing. 6.5 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Van Horne & Wachowicz, © Pearson Education Limited 2009

VI - 1

by Gregory A. Kuhlemeyer, Ph.D., Carroll University

Fundamentals of Financial Management, 13e Chapter 6: Financial Statement Analysis

Coverage Ratios
Income Statement Ratios Coverage Ratios

Activity Ratios
Income Statement/ Balance Sheet Ratios Activity Ratios

Interest Coverage
EBIT Interest Charges

Receivable Turnover
(Assume all sales are credit sales.)

Annual Net Credit Sales Receivables

Indicates a firm’s ability to cover interest charges.
6.7 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Indicates quality of receivables and how successful the firm is in its collections. 6.8 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Activity Ratios
Income Statement/ Balance Sheet Ratios Activity Ratios Average number of days that receivables are outstanding. (or RT in days) 6.9 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Activity Ratios
Income Statement/ Balance Sheet Ratios Activity Ratios Indicates the promptness of payment to suppliers by the firm. 6.10 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Avg Collection Period
Days in the Year Receivable Turnover

Payable Turnover (PT)
(Assume annual credit purchases = $1,551.)

Annual Credit Purchases Accounts Payable

Activity Ratios
Income Statement/ Balance Sheet Ratios Activity Ratios Average number of days that payables are outstanding. 6.11 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009....
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