财务管理英文版课件

财务管理英文版Examples of Examples of InternalInternal Uses of Uses of Statement AnalysisStatement Analysisl llPlanPlanPlan -Focus on-Focus on assessing the current financial assessing the current financial positionposition and and evaluating potential firm evaluating potential firm opportunities.opportunities.l llControlControlControl -Focus on-Focus on return on investmentreturn on investment for for various assets and various assets and asset efficiencyasset efficiency.l llUnderstandUnderstandUnderstand-Focus on understanding -Focus on understanding how how suppliers of funds analyze the firmsuppliers of funds analyze the firm.Primary Types of Financial.Primary Types of Financial StatementsStatementsIncome StatementIncome StatementIncome StatementA summary of a firms revenues and expenses over a specified A summary of a firms revenues and expenses over a specified period,ending with net income or loss for the period.period,ending with net income or loss for the period.Balance SheetBalance SheetuuA summary of a firms financial position on A summary of a firms financial position on a given date that shows total assets=total a given date that shows total assets=total liabilities+owners equity.liabilities+owners equity.Basket Wonders Balance Basket Wonders Balance Sheet(Asset Side)Sheet(Asset Side)a.How the firm stands on a.How the firm stands on a specific date.a specific date.b.What BW b.What BW ownedowned.c.Amounts owed by c.Amounts owed by customers.customers.d.Future expense items d.Future expense items already paid.already paid.e.Cash/likely convertible e.Cash/likely convertible to cash within 1 year.to cash within 1 year.f.Original amount paid.f.Original amount paid.g.Acc.deductions for g.Acc.deductions for wear and tearwear and tear.Cash and C.E.$90 Acct.Rec.c c 394 Inventories 696 Prepaid Exp d d 5 Accum Tax Prepay 10 Current AssetsCurrent Assetse e$1,195$1,195 Fixed Assets(Cost)f f 1030 Less:Acc.Depr.g g (329)Net Fix.AssetsNet Fix.Assets$701$701 Investment,LT 50 Other Assets,LT 223 Total AssetsTotal Assetsb b$2,169$2,169Basket Wonders Balance Sheet(thousands)Dec.31,2007Basket Wonders Balance Sheet(thousands)Dec.31,2007aBasket Wonders Balance Basket Wonders Balance Sheet(Liability Side)Sheet(Liability Side)a.Note,Assets=Liabilities a.Note,Assets=Liabilities+Equity.+Equity.b.What BW b.What BW owedowed and and ownership position.ownership position.c.Owed to suppliers for c.Owed to suppliers for goods and services.goods and services.d.Unpaid wages,salaries,d.Unpaid wages,salaries,etc.etc.e.Debts payable 1 year.e.Debts payable 1 year.f.Debts payable 1 year.g.Original investment.g.Original investment.h.Earnings reinvested.h.Earnings reinvested.Notes Payable$290 Acct.Payablec c 94 Accrued Taxes d d 16 Other Accrued Liab.d d 100 Current Liab.Current Liab.e e$500$500 Long-Term Debt f f530 Shareholders Equity Com.Stock($1 par)g g200 Add Pd in Capital g g729 Retained Earnings h h 210 Total EquityTotal Equity$1,1391,139 Total Liab/EquityTotal Liab/Equitya,ba,b$2,169$2,169Basket Wonders Balance Sheet(thousands)Dec.31,2007Basket Wonders Balance Sheet(thousands)Dec.31,2007Basket Wonders Income Basket Wonders Income StatementStatementa.Measures profitability over a.Measures profitability over a time period.a time period.b.Received,or receivable,b.Received,or receivable,from customers.from customers.c.Sales comm.,adv.,c.Sales comm.,adv.,officers salaries,etc.officers salaries,etc.d.Operating income.d.Operating income.e.Cost of borrowed funds.e.Cost of borrowed funds.f.Taxable income.f.Taxable income.g.Amount earned for g.Amount earned for shareholders.shareholders.Net Sales$2,211 Cost of Goods Sold b b 1,599Gross Profit$612 SG&A Expenses c c 402 EBITd$210 Interest Expensee 59 EBT f f$151 Income Taxes 60 EATg$91 Cash Dividends 38 Increase in REIncrease in RE$53$53Basket Wonders Statement of Earnings(in thousands)Basket Wonders Statement of Earnings(in thousands)for Year Ending December 31,2007for Year Ending December 31,2007a.Framework for Financial.Framework for Financial AnalysisAnalysisNegotiationsNegotiationswithwithsuppliers ofsuppliers ofcapital.capital.DeterminingDeterminingthe the financingfinancingneeds of needs of the firm.the firm.1.Analysis of the funds1.Analysis of the funds needs of the firm.needs of the firm.2.Analysis of the financial2.Analysis of the financial condition and profitability condition and profitability of the firm.of the firm.3.Analysis of the business3.Analysis of the business risk of the firm.risk of the firm.Use of Financial Ratios.Use of Financial RatiosTypes of Types of Types of ComparisonsComparisonsComparisonsInternal ComparisonsInternal ComparisonsInternal ComparisonsExternal External External ComparisonsComparisonsComparisonsA Financial Ratio is an index that relates two accounting numbers and is obtained by dividing one number by the other.External Comparisons and External Comparisons and Sources of Industry RatiosSources of Industry RatiosExamplesExamples:Risk Management Risk Management Risk Management AssociationAssociationAssociationDun&BradstreetDun&BradstreetDun&BradstreetAlmanac of Business Almanac of Business Almanac of Business and Industrial and Industrial and Industrial Financial RatiosFinancial RatiosFinancial RatiosThis involves comparing the ratios of one firm with those of similarsimilar firms or with industry averages.SimilaritySimilarity is important as one should compare“apples to apples.”1.Liquidity Ratios1.Liquidity Ratios(1)Current(1)Current(1)CurrentCurrent AssetsCurrent AssetsCurrent AssetsCurrent LiabilitiesCurrent LiabilitiesCurrent LiabilitiesFor For Basket Wonders Basket Wonders December 31,2007December 31,2007Shows a firms ability to cover its current liabilities with its current assets.Balance Sheet RatiosLiquidity Ratios$1,195$1,195$500$500=2.392.39Liquidity RatiosLiquidity Ratios(2)Acid-Test(Quick)(2)Acid-Test(Quick)(2)Acid-Test(Quick)Current Assets-InvCurrent Assets-InvCurrent Assets-InvCurrent LiabilitiesCurrent LiabilitiesCurrent LiabilitiesFor For Basket Wonders Basket Wonders December 31,2007December 31,2007Shows a firms ability to meet current liabilities with its most liquid assets.Balance Sheet RatiosLiquidity Ratios$1,195-$696$1,195-$696$500$500=1.001.00Summary of the Liquidity Ratio Summary of the Liquidity Ratio ComparisonsComparisonsl lStrong current ratio and weak acid-test ratio Strong current ratio and weak acid-test ratio indicates a potential problem in the inventories indicates a potential problem in the inventories account.account.l lNote that this industry has a relatively high level Note that this industry has a relatively high level of inventories.of inventories.RatioRatioBWBWIndustryIndustryCurrent2.39 2.15Acid-Test1.00 1.25Summary of the Liquidity Summary of the Liquidity Trend AnalysesTrend Analysesl lThe current ratio for the The current ratio for the industryindustryindustry has been has been rising rising slowlyslowly at the same time the acid-test ratio has at the same time the acid-test ratio has been been relatively stablerelatively stable.l lThis indicates that This indicates that inventoriesinventoriesinventories are a significant are a significant problem for problem for BWBWBW.uuThe current ratio for The current ratio for BWBW has been has been rising rising at the same time the acid-test ratio has at the same time the acid-test ratio has beenbeen declining declining.2.Financial Leverage Ratios2.Financial Leverage Ratios(1)Debt-to-Equity(1)Debt-to-Equity(1)Debt-to-EquityTotal DebtTotal DebtTotal DebtShareholders EquityShareholders EquityShareholders EquityFor For Basket Wonders Basket Wonders December 31,2007December 31,2007Shows the extent to which the firm is financed by debt.Balance Sheet RatiosFinancial LeverageRatios$1,030$1,030$1,139$1,139=.90.90Financial Leverage RatiosFinancial Leverage Ratios(2)Debt-to-Total-Assets(2)Debt-to-Total-Assets(2)Debt-to-Total-AssetsTotal DebtTotal DebtTotal DebtTotal AssetsTotal AssetsTotal AssetsFor For Basket Wonders Basket Wonders December December 31,200731,2007Shows the percentage of the firms assets that are supported by debt financing.Balance Sheet RatiosFinancial LeverageRatios$1,030$1,030$2,169$2,169=.47.473.Coverage Ratios3.Coverage RatiosInterest CoverageInterest CoverageInterest CoverageEBITEBITEBITInterest ChargesInterest ChargesInterest ChargesFor For Basket Wonders Basket Wonders December 31,2007December 31,2007Indicates a firms ability to cover interest charges.Income StatementRatiosCoverage Ratios$210$210$59$59=3.563.56Summary of the Coverage Summary of the Coverage Trend AnalysisTrend Analysisl lThis indicates that This indicates that low earnings low earnings low earnings(EBIT)may be a(EBIT)may be a potential problem for potential problem for BWBWBW.l lNote,we know that Note,we know that debt levels debt levels debt levels are in line with the are in line with the industryindustryindustry averages.averages.uuThe interest coverage ratio for The interest coverage ratio for BWBW has has been falling since 2005.It has been been falling since 2005.It has been below below industryindustry averages for the past averages for the past two years.two years.4.Activity Ratios4.Activity Ratios(1)Receivable Turnover(1)Receivable Turnover(1)Receivable TurnoverAnnual Net Credit SalesAnnual Net Credit SalesAnnual Net Credit SalesReceivablesReceivablesReceivablesFor For Basket Wonders Basket Wonders December December 31,200731,2007Indicates quality of receivables and how successful the firm is in its collections.Income Statement/Balance SheetRatiosActivity Ratios$2,211$2,211$394$394=5.615.61(Assume all sales are credit sales.)Activity RatiosActivity RatiosAvg Collection PeriodAvg Collection PeriodAvg Collection PeriodDays in the YearDays in the YearDays in the YearReceivable TurnoverReceivable TurnoverReceivable TurnoverFor For Basket Wonders Basket Wonders December December 31,200731,2007Average number of days that receivables are outstanding.(or RT in days)Income Statement/Balance SheetRatiosActivity Ratios3653655.615.61=65 days65 daysActivity RatiosActivity Ratios(2)Payable Turnover(PT)(2)Payable Turnover(PT)(2)Payable Turnover(PT)Annual Credit PurchasesAnnual Credit PurchasesAnnual Credit PurchasesAccounts PayableAccounts PayableAccounts PayableFor For Basket Wonders Basket Wonders December 31,December 31,20072007Indicates the promptness of payment to suppliers by the firm.Income Statement/Balance SheetRatiosActivity Ratios$1551$1551$94$94=16.516.5(Assume annual credit purchases=$1,551.)Activity RatiosActivity RatiosPT in DaysPT in DaysPT in DaysDays in the YearDays in the YearDays in the YearPayable TurnoverPayable TurnoverPayable TurnoverFor For Basket Wonders Basket Wonders December December 31,200731,2007Average number of days that payables are outstanding.Income Statement/Balance SheetRatiosActivity Ratios36536516.516.5=22.1 days22.1 daysActivityActivityRatio ComparisonsRatio ComparisonsBWBW IndustryIndustry22.122.146.746.725.425.451.151.143.543.548.548.5Year200720062005Payable Turnover in DaysBW has improved the PT in Days.Is this good?Activity RatiosActivity Ratios(3)Inventory Turnover(3)Inventory Turnover(3)Inventory TurnoverCost of Goods SoldCost of Goods SoldCost of Goods SoldInventoryInventoryInventoryFor For Basket Wonders Basket Wonders December December 31,200731,2007Indicates the effectiveness of the inventory management practices of the firm.Income Statement/Balance SheetRatiosActivity Ratios$1,599$1,599$696$696=2.302.30ActivityActivityRatio ComparisonsRatio ComparisonsBWBW IndustryIndustry2.302.303.453.452.442.443.763.762.642.643.693.69Year200720062005Inventory Turnover RatioBW has a very poor inventory turnover ratio.Activity RatiosActivity Ratios(4)Total Asset Turnover(4)Total Asset Turnover(4)Total Asset TurnoverNet SalesNet SalesNet SalesTotal AssetsTotal AssetsTotal AssetsFor For Basket Wonders Basket Wonders December December 31,200731,2007Indicates the overall effectiveness of the firm in utilizing its assets to generate sales.Income Statement/Balance SheetRatiosActivity Ratios$2,211$2,211$2,169$2,169=1.021.025.Profitability Ratios5.Profitability Ratios(1)Gross Profit Margin(1)Gross Profit Margin(1)Gross Profit MarginGross ProfitGross ProfitGross ProfitNet SalesNet SalesNet SalesFor For Basket Wonders Basket Wonders December December 31,200731,2007Indicates the efficiency of operations and firm pricing policies.Income Statement/Balance SheetRatiosProfitability Ratios$612$612$2,211$2,211=.277277Profitability RatiosProfitability Ratios(2)Net Profit Margin(2)Net Profit Margin(2)Net Profit MarginNet Profit after TaxesNet Profit after TaxesNet Profit after TaxesNet SalesNet SalesNet SalesFor For Basket Wonders Basket Wonders December December 31,200731,2007Indicates the firms profitability after taking account of all expenses and income taxes.Income Statement/Balance SheetRatiosProfitability Ratios$91$91$2,211$2,211=.041.041Profitability RatiosProfitability Ratios(3)Return on Investment(3)Return on Investment(3)Return on InvestmentNet Profit after TaxesNet Profit after TaxesNet Profit after TaxesTotal AssetsTotal AssetsTotal AssetsFor For Basket Wonders Basket Wonders December December 31,200731,2007Indicates the profitability on the assets of the firm(after all expenses and taxes).Income Statement/Balance SheetRatiosProfitability Ratios$91$91$2,160$2,160=.042.042Profitability RatiosProfitability Ratios(4)Return on Equity(4)Return on Equity(4)Return on EquityNet Profit after TaxesNet Profit after TaxesNet Profit after TaxesShareholders EquityShareholders EquityShareholders EquityFor For Basket Wonders Basket Wonders December December 31,200731,2007Indicates the profitability to the shareholders of the firm(after all expenses and taxes).Income Statement/Balance SheetRatiosProfitability Ratios$91$91$1,139$1,139=.08.08Return on Investment and the Return on Investment and the Du Pont ApproachDu Pont ApproachROIROI20072007 =.041.041 x x 1.021.02=.042.042 or or 4.2%4.2%ROIROIIndustry Industry =.082.082 x x 1.171.17=.098.098 or or 9.8%9.8%ROI =Net profit margin X Total asset turnoverEarning Power =Sales profitability X Asset efficiencyReturn on Equity and Return on Equity and the Du Pont Approachthe Du Pont ApproachROEROE2007 2007 =.041.041 x x 1.021.02 x x 1.901.90=.080.080ROEROEIndustry Industry =.082.082 x x 1.171.17 x x 1.881.88=.179179Return On Equity =Net profit margin X Total asset turnover X Equity MultiplierEquity Multiplier=Total AssetsShareholders EquitySummary of the Profitability Summary of the Profitability Trend AnalysesTrend Analysesl lThe profitability ratios for The profitability ratios for BWBWBW have have ALLALL been falling been falling since 2005.Each has been below the since 2005.Each has been below the industryindustryindustry averages for the past three years.averages for the past three years.l lThis indicates that This indicates that COGSCOGSCOGS andand administrative costsadministrative costsadministrative costs may both be too high and a potential problem for may both be too high and a potential problem for BWBWBW.l lNote,this result is consistent with the low interest Note,this result is consistent with the low interest coverage ratio.coverage ratio.Summary of Ratio AnalysesSummary of Ratio Analysesl lInventories are too high.Inventories are too high.l lMay be paying off creditors(accounts May be paying off creditors(accounts payable)too soon.payable)too soon.l lCOGS may be too high.COGS may be too high.l lSelling,general,and administrative costs Selling,general,and administrative costs may be too high.may be too high.Common-size Analysis.Common-size AnalysisAn analysis of An analysis of percentagepercentage financial financial statements where all balance sheet statements where all balance sheet items are divided by items are divided by total assetstotal assets and all and all income statement items are divided by income statement items are divided by net salesnet sales or or revenuesrevenues.Index Analyses.Index AnalysesAn analysis of An analysis of percentagepercentage financial financial statements where all balance sheet or statements where all balance sheet or income statement figures for a base year income statement figures for a base year equal 100.0(percent)and subsequent equal 100.0(percent)and subsequent financial statement items are expressed as financial statement items are expressed as percentages of their values in the base year.percentages of their values in the base year.Chapter 8Overview of Working Overview of Working Capital ManagementCapital Management Pearson Education Limited 2004Fundamentals of Financial Management,12/eCreated by:Gregory A.Kuhlemeyer,Ph.D.Carroll College,Waukesha,WIOverview of Working Capital ManagementlWorking Capital ConceptslWorking Capital IssueslFinancing Current Assets:Short-Term and Long-Term MixlCombining Liability Structure and Current Asset Decisions.Working Capital ConceptsNet Working CapitalCurrent Assets-Current Liabilities.Gross Working CapitalThe firms investment in current assets.Working Capital ManagementThe administration of the firms current assets and the financing needed to support current assets.Significance of Working Capital ManagementlIn a typical manufacturing firm,current assets exceed one-half of total assets.lExcessive levels can result in a substandard Return on Investment(ROI).lCurrent liabilities are the principal source of external financing for small firms.lRequires continuous,day-to-day managerial supervision.lWCM affects the companys risk,return,and share price.Working Capital IssuesAssumptionsl50,000 maximum units of productionlContinuous productionlThree different policies for current asset levels are possibleOptimal Amount(Level)of Current Assets0 25,000 50,000OUTPUT(units)ASSET LEVEL($)Current AssetsPolicy CPolicy CPolicy APolicy APolicy BPolicy B.Impact on LiquidityLiquidity AnalysisPolicyPolicyLiquidityLiquidity A AHighHigh B BAverageAverage C CLowLowGreater current asset levels generate more liquidity;all other factors held constant.Optimal Amount(Level)of Current Assets0 25,000 50,000OUTPUT(units)ASSET LEVEL($)Current AssetsPolicy CPolicy CPolicy APolicy APolicy BPolicy B.Impact on Expected ProfitabilityReturn on Investment Return on Investment=Net ProfitNet ProfitTotal AssetsTotal AssetsLet Current Assets Current Assets=(Cash+Rec.+Inv.)Return on Investment Return on Investment=Net ProfitNet ProfitCurrent Current+Fixed AssetsFixed AssetsOptimal Amount(Level)of Current Assets0 25,000 50,000OUTPUT(units)ASSET LEVEL($)Current AssetsPolicy CPolicy CPolicy APolicy APolicy BPolicy B.Impact on Expected ProfitabilityProfitability AnalysisPolicyPolicy ProfitabilityProfitability A ALowLow B BAverageAverage C CHighHighAs current asset levels decline,total assets will decline and the ROI will rise.Optimal Amount(Level)of Current Assets0 25,000 50,000OUTPUT(units)ASSET LEVEL($)Current AssetsPolicy CPolicy CPolicy APolicy APolicy BPolicy B.Impact on RisklDecreasing cash reduces the firms ability to meet its financial obligations.More More risk!risk!lStricter credit policies reduce receivables and possibly lose sales and customers.More risk!More risk!lLower inventory levels increase stockouts and lost sales.More risk!More risk!Optimal Amount(Level)of Current Assets0 25,000 50,000OUTPUT(units)ASSET LEVEL($)Current AssetsPolicy CPolicy CPolicy APolicy APolicy BPolicy BImpact on RiskRisk AnalysisPolicyPolicyRiskRisk A ALowLow B BAverageAverage C CHighHighRisk increases as the level of current assets are reduced.Optimal Amount(Level)of Current Assets0 25,000 50,000OUTPUT(units)ASSET LEVEL($)Current AssetsPolicy CPolicy CPolicy APolicy APolicy BPolicy BSummary of the Optimal Amount of Current AssetsS SUMMARYUMMARY O OF F O OPTIMALPTIMAL C CURRENTURRENT A ASSETSSET A ANALYSISNALYSISPolicyPolicyLiquidityLiquidity ProfitabilityProfitability RiskRisk A A High High Low Low Low Low B BAverageAverage Average Average Average Average C C Low Low High High High High 1.Profitability varies inv