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Financial Statement Analysis Cheat Sheet by

Financial statement analysis Formulas

Liquidity Ratios

Current Ratio
Current Assets­:Cu­rrent Liabil­ities
Company's ability to meet its short term obliga­tions
Quick Ratio
Liquid Assets­:Cu­rrent Liabil­ities
Liquid assets not only excludes inventory
Is the level of operating capital management to aggres­sive? Could lead to a loss in business. Also take into account level of operating risk and costs associated with short-term finance.

Debt Management Ratios

Debt ratio
Total Debt / Total Assets
Indicates extent to which company uses external financing to finance assets
Interest Cover or Times interest earned
EBIT / Interest
Ability to meet interest obliga­tion. EBITDA also used.
Debt­/Equity ratio
Total Debt/Total Equity
Gearing ratio of the company
May need to restate balance sheet interest earning debt - Preference shares (redee­mab­le=­debt), deferred tax (do you have obligation to pay?), minority interest (equity), non-in­terest bearing debt (treat as debt or deduct)

Measures of Profit­ability

Profit Margin
Profit / Turnover
Calculated at different levels. Non-trade income should not be included
Orga­nis­ational profit­ability / Return on total assets
EBIAT / Total Assets
Return on enterprise as a whole
Return on Equity
Equity Earnings / Total Equity
Difference between ROA and ROE is financial leverage
Fina­ncial leverage
ROA vs ROE
 

Asset Management / effect­iveness

Inve­ntory turnover
Cost of sales / Average inventory (times)
Effect­ively manage and control inventory. Poor turnover may indicate obsolete stock. (if you don't have COS use SALES)
Inve­ntory turnover rate
Average inventory / COS x 365 (days)
Length of time that inventory is on average held before it is sold.
Days' sales in closing invent­ory
Closing Inventory / COS x 365 (days)
Days sales left from current closing inventory
Debtor's turnover
Credit Sales / Average Debtor (times)
Evaluate applic­ation of Co's credit policy. Too short (sales will be lost) & too long (bad debts) & opp cost
Debtors Collection period
Average debtors / Credit sales x 365 (days)
Reciprocal relati­onship with debtors turnover
Days Sales in closing debtors
Closing debtors / Credit sales x 365 (days)
Sales repres­ented by closing debtors
Cred­itors payment period
Average creditors / Credit purchases x 365 (days)
Use COS if credit purchases not available. Too short (not utilising free credit) & too long (Bad reputa­tion)
Asset Turnover
Net Sales / Assets
Management ability to utilise assets effect­ively to generate sales. Can use different categories of assets
 

Investor's ratios / Market value ratios

Earnings per share
Earnings / WANOS
Dividend per share
Dividend / No of shares in issue
Earnings Yield
EPS / Share price
Dividend Yield
DPS / Share Price
Dividend cover
EPS / DPS
Price - Earnings Ratio
Share Price / EPS
High PE ratio can indicate investor's confidence and growth prospects. Repayment period in years of share invest­ment. How much investors will pay per R1 of co's earnings.
PEG
PE / Expected sustai­nable growth
2 companies taht are in different growth stages (elimi­nating growth impact)
Nest Asset Value per Share
NAV / WANOS
Compare share price to NAV ps = trading at a discount?
Shareh­older return
(Share price(end) - Share price(beg) + Dividend) / Share price(beg)
Compare to ALSI return
Dividend Payout ratio
DPS / EPS
Use to calculate sustai­nable growth
Sustai­nable growth
1 - Dividend Payout Ratio

Cash Flow Statement

Cash flow to total debt
CF from Operations / Total Debt
Indicator of financial distress
Cash ability to cover finance charges
CF from Operations / Interest Paid
Ability to pay interest from cash available
Cash generating ability of co
CF from Operations / Turnover
Remember CASH IS KING! so any Cash Flow Ratio will be more reliable as to the true perfor­mance and going concern ability of the company

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