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Financial Statement Analysis: - Focus

Financial ratio analysis can help evaluate a company's financial performance and position over time. An analysis of Sugarpova Candy Company's 2016 and 2015 financial statements shows: 1) Liquidity ratios like the current ratio improved, indicating greater ability to meet short-term obligations. 2) Activity ratios like inventory and receivables turnover increased, showing more effective management of assets. 3) Profitability ratios such as return on assets rose, demonstrating higher profit generation from resources. 4) Leverage ratios such as debt-to-equity declined, meaning less reliance on debt versus owners' investments. In summary, Sugarpova Candy Company's financial position and performance strengthened from 2015 to 2016

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150 views

Financial Statement Analysis: - Focus

Financial ratio analysis can help evaluate a company's financial performance and position over time. An analysis of Sugarpova Candy Company's 2016 and 2015 financial statements shows: 1) Liquidity ratios like the current ratio improved, indicating greater ability to meet short-term obligations. 2) Activity ratios like inventory and receivables turnover increased, showing more effective management of assets. 3) Profitability ratios such as return on assets rose, demonstrating higher profit generation from resources. 4) Leverage ratios such as debt-to-equity declined, meaning less reliance on debt versus owners' investments. In summary, Sugarpova Candy Company's financial position and performance strengthened from 2015 to 2016

Uploaded by

pfe
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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M.B.

Financial Statement Analysis

• Financial Statement Analysis is a method which will help business


owners and other interested people to analyse the data in financial
statements in order to provide them with better information about
key factors for decision making and ultimate business survival.

• To use financial statements to evaluate an organisation’s


– Financial performance
– Financial position.

• Focus : Financial ratio analysis is the use of relationships among


financial statement accounts in the aim of gauging the financial
condition and performance of a company.
M.B.
Financial Ratio Analysis

• Use of ratios in order to analyse a firm’s financial health and then


recommend reasonable alternative courses of action to improve the
condition of the firm.

• We can classify ratios based on the type of information the ratio provides:
Financial
Activity Liquidity Profitability
leverage
Ratios Ratios Ratios
Ratios
Ability to
Effectiveness Ability to
manage
in putting its meet short- Ability to
expenses to
asset term, satisfy debt
produce
investments to immediate obligations.
profits from
use. obligations.
sales.
M.B.
Liquidity ratios

Balance Sheet Ratios Current ratio


Liquidity Ratios
Current Assets
Shows a firm’s ability Current Liabilities
to cover its current
liabilities with its
current assets.
M.B.
Liquidity ratios

Balance Sheet Ratios Acid-Test (Quick) ratio


Liquidity Ratios

Shows a firm’s ability Current Assets – Inv


to meet its current Current Liabilities
liabilities with its most
liquid assets.
M.B.
Financial leverage
ratios

Balance Sheet Ratios Debt-to-Equity ratio


Financial leverage
ratios
Total liabilities
Shows the extent to Shareholders’ Equity
which the firm is
financed by debt.
M.B.
Financial leverage
ratios

Income Sheet
Balance statement
Ratios Interest Coverage ratio
ratios

Coverage ratios
Operating income
Indicates a firm’s Interest Charges
ability to cover interest
charges.
M.B.
Activity ratios

Balance Sheet Ratios Inventory Turnover


Income statement R
ratio

Activity ratios Cost of Goods Sold


Inventory
Indicates the
effectiveness of the
inventory management
practices of the firm.
M.B.
Activity ratios

Balance Sheet Ratios Receivable Turnover


Income statement R
ratio

Activity ratios Net Credit Sales


Average accounts
Indicates quality of receivables
receivables and how
successful the firm is
in its collection.
M.B.
Profitability ratios

Balance Sheet Ratios Return on Investment


Income statement R

Profitability ratios Net income


Total Assets
Indicates the
profitability on the
assets of the firm (after
all expenses and taxes).
M.B.
Profitability ratios

Balance Sheet Ratios Gross Profit Margin


Income statement R

Profitability ratios Gross Profit


Sales
Indicates the efficiency
of operations and firm
pricing policies.
Homework assignment: SUGARPOVA candy company M.B.
M.B.

WTD:
Perform a finacial ratio analysis on sugarpova’s candy company balance sheets and
income statements and determine whether the financial position and performance of the
company have improved or gotten worse.
P.S. - Other expenses refer to interest charges
- Sales are on credit and are considered net of discounts
- The fraction of inventories is 215 350 and 209 000 for 2016 and 2015 respectively
- The average of receivables is 129 800 and 135 000 for 2016 and 2015 respectively

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