Financial Statement Analysis

Post by **answerhappygod** » Sun Jul 03, 2022 1:15 pm

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Financial Statement Analysis Instructions: 1. Pick a publicly traded company (NIKE, Starbucks, Hershey, Disney). Any company will do. You can find their annual financial statements on their website under investor relations. You will want to find their Annual 10K and then scroll down through it to find the Balance Sheet and Income Statement. 2. Create a Horizontal Analysis for the Balance Sheet and Income Statement. See Exhibit 15-1 and 15-2 for an example. 3. Create a Vertical Analysis for the Balance Sheet and Income Statement. See Exhibit 15-3 and 15-4 for an example. 4. Calculate the following ratios (see Page 15-27 and specifically Exhibit 15-8): 1. Working Capital 2. Current Ratio 3. Inventory Turnover 4. Gross Profit Percentage 5. Debt to Equity Ratio 6. Profit Margin Ratio 7. Asset Turnover Ratio 5. When your Horizontal, Vertical and Ratio analysis is complete review them and identify 5 red flags. Red Flags are area's of concern or items that don't seem quite right. They might be just fine but need some explanation. For example if inventory is about the same for two years and then drops significantly in the third year that would be a red flag, something you would want to ask the CFO about. For each red flag, write a brief (one to two paragraph) explanation of why you identified it as a red flag and any possible explanation for the significant change.
Exhibit F:15-1 Comparative Income Statement-Horizontal Analysis Net Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses: Selling Expenses SMART TOUCH LEARNING Income Statement Years Ended December 31, 2026 and 2025 Administrative Expenses Total Operating Expenses Operating Income Other Income and (Expenses): Interest Revenue Interest Expense Total Other Income and (Expenses) Income Before Income Taxes Income Tax Expense Net Income 2026 $ 858,000 513,000 345,000 126,000 118,000 244,000 101,000 4,000 (24,000) (20,000) 81,000 17,000 $ 64,000 2025 $ 803,000 509,000 294,000 114,000 123,000 237,000 57,000 0 (14,000) (14,000) 43,000 9,000 $ 34,000 Increase (Decrease) Amount $ 55,000 4,000 51,000 12,000 (5,000) 7,000 44,000 4,000 10,000 6,000 38,000 8,000 $ 30,000 Percentage 6.8% 0.8 17.3 10.5 (4.1) 3.0 77.2 71.4 42.9 88.4 88.9 88.2%
Exhibit F:15-2 Comparative Balance Sheet-Horizontal... Current Assets: Assets Cash and Cash Equivalents Accounts Receivable, Net Merchandise Inventory Prepaid Expenses Total Current Assets Property, Plant, and Equipment, Net Long-term Investments Total Assets Liabilities Current Liabilities: Accounts Payable Accrued Liabilities Notes Payable Total Current Liabilities Long-term Liabilities Total Liabilities Stockholders' Equity Common Stock, no par Retained Earnings ✪ SMART TOUCH LEARNING Balance Sheet December 31, 2026 and 2025 Total Stockholders' Equity Total Liabilities and Stockholders' Equity 早 2026 $ 29,000 114,000 $ 32,000 85,000 113,000 111,000 8,000 6,000 262,000 236,000 399,000 507,000 18,000 9,000 $ 787,000 $ 644,000 $ 73,000 27,000 42,000 2025 186,000 170,000 356,000 $ 787,000 $ 68,000 $ 5,000 31,000 (4,000) 27,000 15,000 142,000 126,000 16,000 289,000 198,000 91,000 431,000 324,000 107,000 Increase (Decrease) Percentage 186,000 134,000 320,000 $ 644,000 Amount $ (3,000) 29,000 2,000 (2,000) 26,000 108,000 9,000 $ 143,000 0 36,000 36,000 $ 143,000 (9.4)% 34.1 1.8 (25.0) 11.0 27.1 100.0 22.2% 7.4% (12.9) 55.6 12.7 46.0 33.0 0.0 26.9 11.3 22.2%
Exhibit F:15-3 Comparative Income Statement-Vertical Analysis Net Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses: Selling Expenses SMART TOUCH LEARNING Income Statement Years Ended December 31, 2026 and 2025 Percent of Total 100.0% 59.8 40.2 Administrative Expenses Total Operating Expenses Operating Income Other Income and (Expenses): Interest Revenue Interest Expense Total Other Income and (Expenses) Income Before Income Taxes Income Tax Expense Net Income 2026 $ 858,000 513,000 345,000 126,000 118,000 244,000 101,000 4,000 (24,000) (20,000) 81,000 17,000 $ 64,000 14.7 13.8 28.4 11.8 0.5 (2.8) (2.3) 9.4 2.0 7.5% 2025 $ 803,000 509,000 294,000 114,000 123,000 237,000 57,000 0 (14,000) (14,000) 43,000 9,000 $ 34,000 Exhibit F:15-3 Percent of Total 100.0% 63.4 36.6 14.2 15.3 29.5 7.1 0.0 (1.7) (1.7) 5.4 1.1 4.2%
Exhibit F:15-4 Comparative Balance Sheet-Vertical... Current Assets: Assets Cash and Cash Equivalents Accounts Receivable, Net Merchandise Inventory Prepaid Expenses Total Current Assets Property, Plant, and Equipment, Net Long-term Investments Total Assets Liabilities Current Liabilities: Accounts Payable Accrued Liabilities Notes Payable Total Current Liabilities Long-term Liabilities Total Liabilities Stockholders' Equity SMART TOUCH LEARNING Balance Sheet December 31, 2026 and 2025 2026 Common Stock, no par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity $ 29,000 114,000 113,000 6,000 262,000 507,000 18,000 $ 787,000 $ 73,000 27,000 42,000 142,000 289,000 431,000 0 186,000 170,000 356,000 $ 787,000 Percent of Total 3.7% 14.5 14.4 0.8 33.3 64.4 2.3 100.0% 9.3% 3.4 5.3 18.0 36.7 54.8 23.6 45.2 100.0% 2025 $ 32,000 85,000 111,000 8,000 236,000 399,000 9,000 $ 644,000 $ 68,000 31,000 27,000 126,000 198,000 324,000 186,000 134,000 320,000 $ 644,000 Percent of Total 5.0% 13.2 17.2 1.2 36.6 62.0 1.4 100.0% 10.6% 4.8 4.2 19.6 30.7 50.3 28.9 20.8 49.7 100.0%
Exhibit F:15-8 Using Ratios in Financial Statement... Ratio Evaluating the ability to pay current liabilities: Working capital Cash ratio Acid-test ratio Computation Current ratio Current assets Current liabilities Cash Cash equivalents Total current liabilities 0 Total current assets Total current liabilities Information Provided A business's ability to meet its short-term obligations with its current assets. The company's ability to pay current liabilities from cash and cash equivalents. Cash including cash equivalents + Short-term investments + Net current receivables The company's ability to pay all its current Total current liabilities liabilities if they came due immediately. The company's ability to pay current liabilities from current assets.
Ratio Computation Evaluating the ability to sell merchandise inventory and collect receivables: Cost of goods sold Inventory turnover Average merchandise inventory Days' sales in inventory Gross profit percentage Accounts receivable turnover ratio Debt ratio Debt to equity ratio Times-interest-earned Days' sales in receivables Evaluating the ability to pay long-term debt: ratio Evaluating profitability: Profit margin ratio Rate of return on total assets Asset turnover ratio Dividend yield 365 days Inventory turnover Rate of return on common stockholders' equity Earnings per share Evaluating stock as an investment: Price/earnings ratio Dividend payout Gross profit Net sales revenue Net credit sales Average net accounts receivable 365 days Accounts receivable turnover ratio Total liabilities Total assets Total liabilities Total equity Net income + Income tax expense + Interest expense Interest expense Net income Net sales revenue Net income + Interest expense Average total assets Net sales revenue Average total assets Net income - Preferred dividends Average common stockholders' equity Net income - Preferred dividends Weighted average number of common shares outstanding Market price per share of common stock Earnings per share Annual dividend per share Market price per share Annual dividend per share Earnings per share Information Provided The number of times a company sells its average level of merchandise inventory during a period. The average number of days that inventory is held by a company. The profitability of each sales dollar above the cost of goods sold. The number of times the company collects the average receivables balance in a year. The number of days it takes to collect the average level of receivables. The proportion of assets financed with debt. The proportion of total liabilities relative to total equity. A business's ability to pay interest expense. How much net income is earned on every dollar of net sales revenue. The success a company has in using its assets to earn income. How efficiently a business uses its average total assets to generate sales. The relationship between net income available to common stockholders and their average common equity invested in the company. Amount of a company's net income (loss) for each share of its outstanding common stock. The value the stock market places on $1 of a company's earnings. The percentage of a stock's market value that is returned annually as dividends to stockholders. Ratio of dividends declared per common share relative to the earnings per share of the company.