Ch 3 - Financial Analysis
What is financial analysis?
4 categories of Financial Ratios
A. Profitability Ratios
Show how profitable a company is
B. Asset Utilization Ratios
Show how effectively a company uses its assets
C. Liquidity Ratios
Show how liquid a company is or how much cash it has available to meet short-term
needs.
D. Debt Utilization Ratios
Show how well a company is managing or using debt
Techniques of Ratio Analysis
DuPont Analysis
Decomposes Return on Asset (ROA) into 2 factors:
Decomposes Return on Equity (ROE) into 3 Factors:
Asset Utilization Ratios - Assets
Liquidity Ratios
Distortion in Financial Reporting
Summary and Conclusion
Practice Questions
Exercises
What is financial analysis?
Evaluating a firm’s financial performance
Calculating ratios to reveal relationships between different accounts of financial
statements
Linking ratios to reveal the factors determining a firm’s profitability and value
Financial analysis may not answer questions, but leads to further inquiry
4 categories of Financial Ratios
Ch 3 - Financial Analysis 1
, A. Profitability Ratios
Show how profitable a company is
B. Asset Utilization Ratios
Show how effectively a company uses its assets
Ch 3 - Financial Analysis 2
, C. Liquidity Ratios
Show how liquid a company is or how much cash it has
available to meet short-term needs.
Ch 3 - Financial Analysis 3
What is financial analysis?
4 categories of Financial Ratios
A. Profitability Ratios
Show how profitable a company is
B. Asset Utilization Ratios
Show how effectively a company uses its assets
C. Liquidity Ratios
Show how liquid a company is or how much cash it has available to meet short-term
needs.
D. Debt Utilization Ratios
Show how well a company is managing or using debt
Techniques of Ratio Analysis
DuPont Analysis
Decomposes Return on Asset (ROA) into 2 factors:
Decomposes Return on Equity (ROE) into 3 Factors:
Asset Utilization Ratios - Assets
Liquidity Ratios
Distortion in Financial Reporting
Summary and Conclusion
Practice Questions
Exercises
What is financial analysis?
Evaluating a firm’s financial performance
Calculating ratios to reveal relationships between different accounts of financial
statements
Linking ratios to reveal the factors determining a firm’s profitability and value
Financial analysis may not answer questions, but leads to further inquiry
4 categories of Financial Ratios
Ch 3 - Financial Analysis 1
, A. Profitability Ratios
Show how profitable a company is
B. Asset Utilization Ratios
Show how effectively a company uses its assets
Ch 3 - Financial Analysis 2
, C. Liquidity Ratios
Show how liquid a company is or how much cash it has
available to meet short-term needs.
Ch 3 - Financial Analysis 3
