Analysis and interpretation maf.pptx FINN

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1. SU 4: Financial statements Analysis and Intepretation .

2. Admin Assignment analysis & interpretation

3. Analysis and interpretation After the completion of the chapter you should be able to : Calculate and interpret a full range of accounting ratios; Analyse Financial statements (in the context of the information provided in the statements and reports) in order to report on the performance and position; To prepare a brief report about the results of an analysis of financial statements; Discuss the limitations of ratio analysis.

4. Analysis and interpretation Introduction Financial statements and the analysis and interpretation thereof is important to provide users of financial statements information to make good economic decisions . The most common source is the company's annual report

5. Analysis and interpretation Equity investors (provide capital)carry most risk credit providers management employees p ossible acquirer auditors other parties: Customers SARS Who are the users of financial statements?

6. Analysis and interpretation Approaches to financial statements Techniques include: Comparison between years and trend analysis I ndex analysis Common size analysis Ratio analysis

7. Analysis and interpretation Comparison between years and trend analysis This is an overview of the changes from year to year Trends can be calculated which may indicate expectations of change. A Minimum of 5 years are needed to do trend analysis . Ideal period is 10 years

8. Analysis and interpretation Index analysis Table 5.4 and 5.5 Correia Compare to base year (100%)

9. Analysis and interpretation Common size analysis Sales and total assets as 100 % Correia table 5.6

10. Analysis and interpretation Ratio analysis Most commonly used Show a relationship between a quantity and another Can be shown as 0.8: 1, or 80% Value will depend on interpretation

11. Analysis and interpretation Return Risk

12. Analysis and interpretation 1. Profitability 1.1 Gross profit margin 1.2 Operating profit margin    

13. Analysis and interpretation     1.3 Net profit margin 1.4 Return on assets 1.5 Return on equity  

14. Analysis and interpretation       2. Asset management 2.1 Total asset turnover 2.2 Accounts receivable 2.3 Inventory turnover

15. Analysis and interpretation 3.1 Dividend cover 3.2 Dividend yield 3. Market     3.3 Earnings yield  

16. Analysis and interpretation 3.4 PE ratio 3.5 EVA   Wants to determine true economic profit EVA = Net profit after tax - (capital investment x WACC) First calculate NOPAT: Net profit before interest after tax

17. Analysis and interpretation 4. Liquidity   4 .1 Current ratio 4 .2 Quick ratio Norm 2:1   Norm 1:1

18. Analysis and interpretation 5. Debt management/Solvency 5.1 Debt/Assets 5.2 Debt/Equity   *Use total debt unless the question gives you the industry ratio as long term debt : equity  

19. Analysis and interpretation 5.3 Interest cover 5.4 Accounts payable period    

20. Analysis and interpretation Structured analysis: Du Pont

21. Analysis and interpretation How do I approach such a question? Make sure you know what is required If specified - just do it If not specified: Know the table NB Do first relationships View points/marks awards Plan your answer Format (report) introduction give formula replace figures Say what you see Say what it means Conclusion

22. Analysis and interpretation Format of my report?? See e-fundi for details

23. Analysis and interpretation Limitations on ratio analysis Several major businesses are diversified in various industries Where an entity is a market leader the entity must be compared with other market leaders Different accounting policies ( eg revaluation vs cost model) different year-ends Financial statements may be "window dressed" Evaluation is subjective(depend on perceptions) Is based on historical data and does not take the future into account.

24. Classwork Astrapak

25. Homework Vidbest Vigario Q 19-5 Correia 5.12 & 5.13