Cost of goods sold Average inventory = Liquidity analysis Accounts receivable turnover Sales Average accounts receivable = Accounts payable turnover. Cost of goods sold Average accoun[r]
(1)Copyright © 2009 by The McGraw-Hill Companies, Inc All rights reserved. McGraw-Hill/Irwin
Statement Analysis
(2)10
CHAPTER
(3)Credit analysis
Liquidity
• A company’s ability to meet short-term
obligations.
– Are the company’s current assets adequate to its
current liabilities?
– How long is the company’s operating cycle?
– How much of cash does the company generate from operations?
Solvency
• A company’s ability to meet long-term
obligations.
– What is the company’s capital structure?
(4)Liquidity analysis
Current ratio
Current assets Current liabilities =
Working capital = Current assets – Current liabilities
Quick ratio
Cash & Cash equivalents + Marketable securities + Accounts receivable
Current liabilities =
Cash-to-current liabilities ratio
Cash & cash equivalents + marketable securities Current liabilities
=
Cash-to-current assets ratio
Cash & cash equivalents + marketable securities Current assets
(5)As at 31/12/2011 VCS DAC HPS
1 Current ratio 0,91 1,19 4,06
2 Quick ratio 0,19 0,60 3,04
(6)Liquidity analysis
Cash flow ratio
Operating cash flow Current liabilities =
Cash-to-maturing debt ratio
Operating cash flow Maturing debts =
(7)For the year ended Dec 31, 2011 VCS DAC HPS
(in VND mil.)
1 Current liabilities at year end 1,047,892 18,523 4,102
2 Maturing debts at year end 755,232 8,694
-3 Net cash flows form operating activities
(163,851) (7,546) 1,711
4 Cash flow ratio -0.16 -0.41 0.42
(8)Liquidity analysis
Purchasing Payments for purchasing Selling Collecting money from selling
Payment period
Days to sell inventory Collection period
(9)Operating
cycle =
Days to sell
inventory + Collection period - Payment period
(10)Days to sell
inventory 360
Cost of goods sold
=
Liquidity analysis
Average inventory ÷
Collection period
360
Sales
= Average account receivables ÷
Payment period
360
Cost of goods sold
= Average account
(11)Days to sell
inventory 360
Cost of goods sold
=
Liquidity analysis
Average inventory ÷
Collection period
360
Sales
= Average account receivables ÷
Payment period
360
Cost of goods sold
(12)Inventory turnover
Cost of goods sold Average inventory = Liquidity analysis Accounts receivable turnover Sales Average accounts receivable = Accounts payable turnover
Cost of goods sold Average accounts
(13)(14)(15)Total debt-to-equity capital ratio
Total liabilities Shareholders’ equity =
Total debt ratio (total debt-to-total capital ratio)
Total liabilities Total capital =
Debt-to-equity ratio (Long-term debt to equity capital ratio)
Long-term debt Shareholders’ equity =
(16)(17)Time interest earned ratio EBIT Interest expense = Solvency analysis
Earnings to fixed charges ratio
Earnings available for fixed charges Fixed charges
=
Earnings available for fixed charges:
• Pretax income from continuing operations • Interest incurred (both expensed and
capitalized)