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Formula Financial Management Horizontal Analysis (Or Trend Analysis)

The document outlines various financial metrics used for analyzing the financial performance and health of a company. It discusses horizontal analysis (trend analysis) which calculates changes in dollar amounts and percentages over time. It also covers vertical analysis (common-size statements) which expresses items as a percentage of totals. Additionally, it defines numerous ratios that measure profitability, liquidity, asset use efficiency, debt levels, returns and valuations. These ratios include earnings per share, price-earnings ratio, return on assets, current ratio, debt-to-equity ratio, times interest earned and more.

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Janine Igdalino
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78 views4 pages

Formula Financial Management Horizontal Analysis (Or Trend Analysis)

The document outlines various financial metrics used for analyzing the financial performance and health of a company. It discusses horizontal analysis (trend analysis) which calculates changes in dollar amounts and percentages over time. It also covers vertical analysis (common-size statements) which expresses items as a percentage of totals. Additionally, it defines numerous ratios that measure profitability, liquidity, asset use efficiency, debt levels, returns and valuations. These ratios include earnings per share, price-earnings ratio, return on assets, current ratio, debt-to-equity ratio, times interest earned and more.

Uploaded by

Janine Igdalino
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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FORMULA FINANCIAL MANAGEMENT

HORIZONTAL ANALYSIS (OR TREND ANALYSIS)


 CALCULATING CHANGE IN DOLLAR AMOUNTS
Dollar Change=Current Year Figure−Base Year Figure

 CALCULATING CHANGE AS A PERCENTAGE


Dollar Change
Percentage Change= × 100 %
Base Year Figure

 TREND PERCENTAGES
Current Year Amount
Trend Percentage= ×100 %
Base Year Amount

VERTICAL ANALYSIS
 COMMON – SIZE STATEMENTS
- In income statements all items are usually expressed as
percentage of sales.
- In balance sheets all items are usually expressed as percentage
of total assets

 GROSS MARGIN PERCENTAGE


Gross Margin
Gross Margin Percentage=
Sales

RATIO ANALYSIS
 EARNINGS PER SHARE
Net Income−Preferred Dividends
Earnings per Share =
Average Number of Common Shares Outstanding

 PRICE – EARNING RATIOS


Market Price Per Share
Price−Earnings Ratio=
Earnings Per Share

 DIVIDEND PAYOUT RATIO


Dividends Per Share
Dividend Payout Ratio=
Earnings Per Share
 DIVIDEND YIELD RATIO
Dividends Per Share
Dividend Yield Ratio=
Market Price Per Share

RETURN ON TOTAL ASSETS


Net Income[ Interest Expense × ( 1−Tax Rate ) ]
Return on Total Assets=
Average Total Assets

RETURN ON COMMON STOCKHOLDER’S EQUITY


' Net Income−Preferred Dividends
Return on Common Stockholde r s Equity= '
Average Stockholde r s Equity

BOOK VALUE PER SHARE


Common Stockholde r ' s Equity
Book Value per Share=
Number of CommonShares Outstanding

WORKING CAPITAL
WorkingCapital=Current Assets−Current Liabilities

CURRENT RATIO
Current Assets
Current Ratio=
Current Liabilities

ACID – TEST (QUICK) RATIO


Quick Assets
Acid−Test Ratio=
Current Liabilities

ACCOUNTS RECEIVABLE TURNOVER


Sales on Account (¿ Credit Sales)
Accounts Receivable Turnover=
Average Accounts Receivable

AVERAGE COLLECTION PERIOD (OR AVERAGE AGE OF


RECEIVABLES)
365 days
Average Collection Period =
Accounts Receivable Turnover

NOTE: KAPAG WALANG SINABING DAYS USE THE 360 DAYS AS


STATED IN THE BOOK (SIR MAX)

INVENTORY TURNOVER
Cost of Goods Sold
Inventory Turnover=
Average Inventory

AVERAGE SALE PERIOD (OR AVERAGE AGE OF INVENTORY)


365 days
Average Sale Period=
Inventory Turnover

TIMES INTEREST EARNED RATIO


Earnings before Interest Expense∧Income Taxes
¿ Interest Earned=
Interest Expense

DEBT RATIO
Total Liabilites
Debt Ratio=
Total Assets

EQUITY RATIO
Total Shareholde r ' s Equity
Equity Ratio=
Total Assets

Complementary Ratio (Debt Ratio + Equity Ratio = 100%)


 1 – Equity Ratio = Debt Ratio
 1 – Debt Ratio = Equity Ratio

DEBT – TO – EQUITY RATIO


Total Liabilities
Debt−¿−Equity Ratio= '
Stockholde r s Equity

PAYABLE TURNOVER RATIO


Net Credits Purchases(¿ COGS)
Payable Turnover Ratio=
Average Accounts Payable
AVERAGE AGE OF PAYABLE (OR DEFERRAL PAYMENT)
365
Average Age of Payable=
Payable Turnover

RETURN ON EQUITY FORMULAS


Net Income after interest ∧taxes
 BASED ON THE BOOK: Return on Equity=
Average Shareholde r ' s Equity
Net Income
 BASED ON THE INTERNET: Return on Equity= Shareholde r ' s Equity
 Return on Equity=Return on Assets × Equity Multiplier
Return on assets ×1
 Return on Equity=
Equity Ratio
Total Assets
NOTE: Equity Multiplier=
Total Shareholde r ' s Equity

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