Gaap Financial Statement Analysis

Front 1

Vertical Analysis

Back 1

The use of common-size statements to highlight basic relationships among items within a single set of financial statements

Front 2

Trend Analysis

Back 2

An analysis that identifies patterns in past data and then projects these patterns in the future

Front 3

Ratio Analysis

Back 3

A financial analysis tool used to study the financial condition of an account; two or more data items from accounting records of a company are related to one another and the result is compared to results from prior accounting periods or for similar businesses.

Front 4

Common-size statement

Back 4

A financial statement in which amounts are reported as a percentage of a base figure

Front 5

Profitability

Back 5

Net profit margin
Return on assets (ROA)
Return on equity (ROE)
DuPont Identity

Front 6

Efficiency

Back 6

Accounts receivable turnover
Asset turnover
Inventory turnover

Front 7

Liquidity

Back 7

Current ratio
Acid-test or quick ratio

Front 8

Leverage

Back 8

Debt-to-equity ratio
Debt-to-assets ratio

Front 9

Acid Test Ratio
Quick Ratio

Back 9

(cash + marketable securities + accounts receivable)/current liabilities

(liquidity)

Front 10

Current Ratio

Back 10

Current assets/current liabilities

(liquidity)

Front 11

Debt-to-equity ratio

Back 11

Long-term debt/Shareholder's equity

(leverage)

Front 12

Inventory Turnover Ratio

Back 12

Cost of goods sold/inventory

(efficiency)

Front 13

Asset Turnover Ratio

Back 13

Sales/Total assets

(efficiency)

Front 14

Accounts Receivable Turnover Ratio

Back 14

Credit Sales/Accounts Receivable

(Efficiency)

Reflects how quickly a business collects amounts owed it

Front 15

DuPont Identity

Back 15

(net income/sales)x(sales/total assets)x(total assets/shareholder equity)

or

Net Profit Margin x Asset Turnover x Equity Multiplier

(profitability)

Front 16

Return on Equity (ROE)

Back 16

net income/shareholder's equity

(profitability)

Front 17

Debt-to-Assets Ratio

or

Debt Ratio

Back 17

total liabilities/total assets

(leverage)

Front 18

Net Profit Margin

Back 18

net income/sales

(profitability)

Front 19

Asset Turnover Ratio

Back 19

sales/total assets

(efficiency)

Front 20

Equity Multiplier

Back 20

total assets/shareholder's equity

(leverage)

Front 21

Net Profit Margin

Back 21

net income/sales

(profitability)

Front 22

Define: AR turnover

Back 22

Indicates how quickly a business collects the amounts owed it. This ratio relates credits sales over a period of time ot the balance sheet accounts receivable at the end of a period

Front 23

Days Sales Outstanding

Back 23

365 days/AR Turnover Ratio

A lower number is preferred - below 30

Front 24

Define: Asset Turnover

Back 24

Measures the use of assets. The more efficiently a company uses its assets to generate sales, the higher its asset turnover

Front 25

Define: Inventory Turnover

Back 25

Measures how quicly inventory is sold (low number may indicate inefficiency - inventory is not being sold)

Front 26

Liquidity

Back 26

A company's ability to convert assets to cash in order to satisfy its obligations. It is measured using working capital, current ratio and acid-test (quick) ratio.

Front 27

Working Capital

Back 27

current assets - current liabilities

An indicator of whether a company will be able to meet its current obligations

Front 28

Define: Current Ratio

Back 28

Indicates the adequacy of a company's working capital to meet its current financial obligations.

A 1:1 ratio indicates there is no working capital.

Front 29

Define: Acid Test Ratio

Back 29

This is a more conservative measure of liquidity because it includes only cash, marketable securities and accounts receivable

Front 30

Evaluating Leverage

Back 30

A measure of the extent to which a company has borrowed money.

A company relying extensively on borrowed funds is considered highly leverage.

Interest payments on debt must be paid before any profits can be returned to shareholders in the form of dividends.

Front 31

Define: Debt-to-Equity Ratio

Back 31

Measures the extent to which a company is financed using borrowings rather than its own funds.

A number below 100 is normal. Above 100 the company is mostly financed by debt

Front 32

Define: Debt-to-Assets Ratio

Back 32

A leverage ratio that shows the extent to which a company's assets are financed by debt.

Ratio below .5 indicates the company is financing most of its assets through the equity contributions of its shareholders.

Front 33

Evaluating Profitability

Back 33

A company can use a variety of techniques to increase its net profit margin, not all of which are based on sound business practices.

Ex: increasing unit prices will increase net profit margin but may reduce the number of units sold.

Front 34

Define: Return on Assets (ROA)

Back 34

Shows how well a company has used its resources. The higher the ROA, the more efficiently management has used those assets to generate earnings.

Front 35

Define: Return on Equity (ROE)

Back 35

A profitability ratio that shows the rate of return that shareholders are earning on their equity in the company's assets.

Front 36

Define: DuPont Identity

Back 36

An analysis of ROA and ROE by breaking them down into their component ratios.

If ROE is unsatisfactory, the DuPont identity helps locate the part of the business that is underperforming.