ADMN 2021H Lecture Notes - Lecture 11: Weighted Arithmetic Mean, Free Cash Flow, Accounting
28 Jun 2018
School
Department
Course
Professor
ADMN2021H: Financial Accounting II
Tuesday, March 27th, 2018
Lecture Week 11 – Performance Measurement
Study Objectives:
1. Explain and apply comparative analysis
2. Calculate and interpret ratios that are used to analyze liquidity
3. Calculate and interpret ratios that are used to analyze solvency
4. Calculate and interpret ratios that are used to analyze profitability
5. Understand the limitations of financial analysis
Comparative Analysis: Two Tools
-Horizontal analysis(rent analysis)
oCan be expressed as an amount or percentage
Percentage of base-period
Percentage change for the period
Horizontal Percentage of Base-Period Amount
Horizontal percentage of base-period amount = analysis-period amount = base period amount
Horizontal Percentage Change for the Period
Horizontal percentage change for period = analysis period amount – prior period amount / prior period amount (x100)
Vertical Analysis
-Expresses each item in a financial statement as a percent of a base amount (total assets or net sales)
Vertical percentage of base amount = analysis amount / base amount
Comparative Analysis
-Three types of comparisons:
oIntracompany basis – comparisons within a company
oIntercompany basis – comparisons between one or more competitor companies
oIndustry averages
Ratio Analysis
-Liquidity ratios
-Solvency ratios
-Profitability ratios
Liquidity Ratios
-Working capital
-Current ratio
-Receivables turnover
-Average collection period
-Inventory turnover
-Days in inventory
Working Capital
Working capital = current assets – current liabilities
-Higher is better
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Horizontal analysis(rent analysis: can be expressed as an amount or percentage. Horizontal percentage of base-period amount = analysis-period amount = base period amount. Horizontal percentage change for period = analysis period amount prior period amount / prior period amount (x100) Expresses each item in a financial statement as a percent of a base amount (total assets or net sales) Vertical percentage of base amount = analysis amount / base amount. Three types of comparisons: intracompany basis comparisons within a company, intercompany basis comparisons between one or more competitor companies, industry averages. Working capital = current assets current liabilities. Current ratio = current assets / current liabilities. Average collection period = 365 days / receivables turnover. Inventory turnover = cost of goods sold / average inventory. Days in inventory = 365 days / inventory turnover. Debt to total assets = total liabilities / total assets. Times interest earned = net income +interest expense + income tax expense (ebit) / interest expense.
