AUGUST 19, 2022
FUNDAMENTAL ANALYSIS
CHAPTER TWO
IZEL BARNARD
BUSINESS MANAGEMENT 142
,Fundamental Analysis
Table of Contents
2.1. Introduction......................................................................................................................... 3
2.2. Stakeholders in Financial Analysis ....................................................................................... 3
2.3. Financial Statements ........................................................................................................... 4
2.3.1. Statement of Profit or Loss ........................................................................................... 4
2.3.2. Statement of Financial Position .................................................................................... 5
2.3.2.1. Assets .................................................................................................................... 7
2.3.2.2. Equity and Liabilities .............................................................................................. 8
2.4. Prerequisites for Financial Statements .............................................................................. 10
2.5. Ratios ................................................................................................................................. 11
2.5.1. Profitability ................................................................................................................. 11
1. Return on Total Assets ................................................................................................. 11
2. Return on Equity........................................................................................................... 11
3. Cost of Debt (return on debt capital) ........................................................................... 12
4. Return on Financial Assets ........................................................................................... 12
2.5.2. Profit Margins ............................................................................................................. 12
1. Gross Profit Margin ...................................................................................................... 12
2. Operating Profit Margin ............................................................................................... 12
3. EBIT-margin .................................................................................................................. 13
4. Net Profit Margin.......................................................................................................... 13
2.5.3. Liquidity ...................................................................................................................... 13
1. Current Ratio ................................................................................................................ 13
2. Acid Test Ratio .............................................................................................................. 14
2.5.4. Turnover Ratios and Times ......................................................................................... 14
1. Turnover Ratio and Time of Current Assets ................................................................. 15
2. Turnover Ratio and Time of PPE ................................................................................... 15
3. Turnover Ratio and Time of Trade Receivables ............................................................ 15
4. Turnover Ratio and Time of Inventory ......................................................................... 16
2.5.5. Solvency...................................................................................................................... 16
Debt-to-assets Ratio (Debt Ratio)..................................................................................... 16
2.5.6. Coverage Ratios .......................................................................................................... 16
1. Finance Cost Coverage ................................................................................................. 16
2. Ordinary Dividend Coverage......................................................................................... 17
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, Fundamental Analysis
2.5.7. Investment Ratios ....................................................................................................... 17
1. Earnings Per Share........................................................................................................ 17
2. Earnings Yield ............................................................................................................... 17
3. Dividend Per Share ....................................................................................................... 17
4. Dividend Yield ............................................................................................................... 17
5. Price-earnings Ratio...................................................................................................... 18
6. Book Value Per Share ................................................................................................... 18
Page 2 of 18
FUNDAMENTAL ANALYSIS
CHAPTER TWO
IZEL BARNARD
BUSINESS MANAGEMENT 142
,Fundamental Analysis
Table of Contents
2.1. Introduction......................................................................................................................... 3
2.2. Stakeholders in Financial Analysis ....................................................................................... 3
2.3. Financial Statements ........................................................................................................... 4
2.3.1. Statement of Profit or Loss ........................................................................................... 4
2.3.2. Statement of Financial Position .................................................................................... 5
2.3.2.1. Assets .................................................................................................................... 7
2.3.2.2. Equity and Liabilities .............................................................................................. 8
2.4. Prerequisites for Financial Statements .............................................................................. 10
2.5. Ratios ................................................................................................................................. 11
2.5.1. Profitability ................................................................................................................. 11
1. Return on Total Assets ................................................................................................. 11
2. Return on Equity........................................................................................................... 11
3. Cost of Debt (return on debt capital) ........................................................................... 12
4. Return on Financial Assets ........................................................................................... 12
2.5.2. Profit Margins ............................................................................................................. 12
1. Gross Profit Margin ...................................................................................................... 12
2. Operating Profit Margin ............................................................................................... 12
3. EBIT-margin .................................................................................................................. 13
4. Net Profit Margin.......................................................................................................... 13
2.5.3. Liquidity ...................................................................................................................... 13
1. Current Ratio ................................................................................................................ 13
2. Acid Test Ratio .............................................................................................................. 14
2.5.4. Turnover Ratios and Times ......................................................................................... 14
1. Turnover Ratio and Time of Current Assets ................................................................. 15
2. Turnover Ratio and Time of PPE ................................................................................... 15
3. Turnover Ratio and Time of Trade Receivables ............................................................ 15
4. Turnover Ratio and Time of Inventory ......................................................................... 16
2.5.5. Solvency...................................................................................................................... 16
Debt-to-assets Ratio (Debt Ratio)..................................................................................... 16
2.5.6. Coverage Ratios .......................................................................................................... 16
1. Finance Cost Coverage ................................................................................................. 16
2. Ordinary Dividend Coverage......................................................................................... 17
Page 1 of 18
, Fundamental Analysis
2.5.7. Investment Ratios ....................................................................................................... 17
1. Earnings Per Share........................................................................................................ 17
2. Earnings Yield ............................................................................................................... 17
3. Dividend Per Share ....................................................................................................... 17
4. Dividend Yield ............................................................................................................... 17
5. Price-earnings Ratio...................................................................................................... 18
6. Book Value Per Share ................................................................................................... 18
Page 2 of 18
