ACYMANS: Financial Statement Analysis

Percentage Increase/Decrease

Current Year - Base Year / Base Year

True

Contribution margin is considered a better measure of product profitability because it deducts from sales revenue only the variable costs. Gross profit does not reflect CVP relationships.

Price Factor

Difference in Selling Price x Actual sales units

Cost Factor

Difference in Cost per Unit x Actual Sales Units

Volume Factor

Difference in Units x Budgeted GP per Unit

Sales Price Variance

(Actual Selling Price - Budgeted Selling Price) x Actual Sales

Sales Volume Variance

(Actual sales volume - Budgeted Sales Volume) x Budgeted Sales Price

Cost Price Variance

(Actual cost per unit - Budgeted cost per unit) x Actual sales in units

Cost Volume Variance

(Actual Sales Volume - Budgeted Sales Volume) x Budgeted Cost per Unit

Sales Price Variance

Difference in Price x Budgeted sales

Sales Volume Variance

Difference in Volume x Budgeted Sales Price

Sales Price-Volume Variance

Difference in Units x Difference in Price

Cost Price Variance

Difference in Cost Price x Budgeted Sales

Cost Volume Variance

Difference in Volume x Budgeted Cost per Unit

Cost Price-Volume Variance

Difference in Units x Difference in Cost Price

Profitability Ratios

Relate to the company's performance in the current period. It shows the company's ability to generate income.

Liquidity Ratios

Relate to the company's short-term survival. It shows the company's ability to use current assets to repay liabilities as they become due. It measures the short-term ability of the enterprise to pay its obligations and to meet unexpected needs for cash.

Solvency Ratios

Relate to the company's long-run survival. It shows the company's ability to repay lenders when debt matures and to make the required interest payments prior to the date of maturity.

Net Profit Margin or Return on Sales

Net Income / Net Sales

Net Profit Margin or Return on Sales

Represents the percentage of revenue that ultimately makes it into net income, after deducting expenses. It determines the amount of income by owners.

Return on Total Assets

Net Income / Average Total Assets

Return on Total Assets

Efficiency with which assets are used to operate a business.

Return on Equity

Net Income / Average Shareholders' Equity

Return on Equity

It compares the amount of net income to average stockholders' equity. It reports the net amount earned during the period as a percentage of each peso contributed by stockholders and retained in the business.

Return on Equity (DuPont Equation)

Net Income / Sales x Sales / Total Assets x Assets / Equity

Return on Equity (DuPont Equation)

Net Profit Margin x Asset Turnover Ratio x Equity Multiplier

Gross Profit Percentage

Net Sales - COGs / Net Sales

Gross Profit Percentage

It indicates how much profit was made, on average, on each peso of sales after deducting the cost of goods sold.

Asset Turnover

Net Sales / Average Total Assets

Asset Turnover

It indicates the amount of sales revenue generated for each peso invested in assets during the period.

Fixed Asset Turnover

Net Sales / Average Net Fixed Assets

Fixed Asset Turnover

It indicates how much revenue the company generates for each peso invested in fixed assets.

Earnings per Share

Net Income for Common Shares / Average No. of Common Shares Outstanding

Earnings per Share

It indicates the amount of earnings generated for each share of outstanding common stock.

Price/Earnings (P/E) Ratio

Stock Market Price / Earnings per Share

Price/Earnings (P/E) Ratio

It indicates the number of pesos required to buy Php 1.00 of earnings.

Dividend Yield

Dividend per Share / Price per Share

Dividend Yield

It measures the rate of return in the investor's common stock investments.

Dividend Pay-out

Common Dividend per Share / Earnings per Share

Dividend Pay-out

Ordinary Share Dividends / Net Income (Ordinary Shareholders)

Dividend Pay-out

It indicates the proportion of earnings distributed as dividends.

Current Ratio

Current Assets / Current Liabilities

Current Ratio

It measures the company's ability to pay its current liabilities. It is a measure of adequacy of working capital. It is the primary test of solvency to meet current obligations from current assets.

Quick Ratio / Acid-Test Ratio

Quick Assets / Current Liabilities

Quick Ratio / Acid-Test Ratio

Current Assets - Inventory / Current Liabilities

Quick Ratio / Acid-Test Ratio

A much more stringent test of short-term liquidity. It measures the number of times that the current liabilities could be paid with the available cash and near-cash assets.

Cash Ratio

Cash + Marketable Securities / Current Liabilities

Cash RAtio

It measures the number of times that the current liabilities could be paid using cash and marketable securities.

Receivable Turnover

Net Credit Sales / Average Receivables

Receivables Turnover

It is the time required to complete one collection cycle from the time receivables are recorded, then collected, to the time new receivables are recorded again.

Average Age of Receivables / Days Sales Outstanding

Number of Days in a Year / Receivables Turnove r

Average Age of Receivables / Days Sales Outstanding

It indicates the average number of days during which the company must wait before receivables are collected.

Inventory Turnover

Cost of Goods Sold / Average Inventory

Inventory Turnover

It indicates how frequently inventory is bought and sold during the year. It measures the number of times that inventory is replaced during the period.

Average Age of Inventory or Days in Inventory

Number of Days in a Year / Inventory Turnover

Average Age of Inventory or Days in Inventory

It shows the average number of days needed to sell each purchase of inventory.

Raw Materials Inventory Turnover

Cost of Materials Used / Average Raw Materials Inventory

Raw Materials Inventory Turnover

It indicates how frequently raw materials are bought and used in production.

Goods in Process Turnover

Cost of Goods Manufactured / Average Work in Process Inventory

Goods in Process Turnover

It indicates how frequently goods in process are continued and finished.

Days in Operating Cycle

Days in AR + Days in Inventory (All Kinds)

Days in Operating Cycle

Shows how long the operating cycle of the company is. It is the time needed to turn cash into inventory, inventory into receivables, and receivables back into cash.

Trade Payables Turnover

Net Credit Purchases / Average Trade Payables

Trade Payables Turnover

It indicates the time required to complete one payment cycle from the time payables are recorded, then paid, to the time new payables are recorded again.

Average Age of Trade Payables or Days in Trade Payables

Number of Days in a Year / Payables Turnover

Average Age of Trade Payables or Days in Trade Payables

It indicates the length of time during which payables remain unpaid.

Cash Conversion Cycle

Days in Operating Cycle - Average Age of Trade Payables

Cash Conversion Cycle

It shows the time from when the cash is used in operations to the time it is converted into cash again.

Current Asset Turnover

Cost of Sales + OpEx (Exclude Non-Cash) / Average Current Assets

Current Asset Turnover

It measures the movement and utilization of current assets to meet operating requirements.

Debt to Assets

Total Liabilities / Total Assets

Debt to Assets

It indicates the proportion of total assets that creditors finance.

Times Interest Earned

EBIT / Interest Expense

Times Interest Earned

It indicates how many times the company's interest expense was covered by its net operating income. It determines the extent to which operations cover interest expense.

Debt to Equity Ratio

Total Liabilities / Total SHE

Debt to Equity Ratio

Proportion of assets provided by creditors compared to that provided by owners.

Debt Ratio

Total Liabilities / Total Assets

Debt Ratio

Proportion of total assets provided by creditors.

Equity Ratio

Total SHE / Total Assets

Equity Ratio

Proportion of total assets provided by owners.

Additional Funds Needed

Assets at Time 0 / Current Sales - Liabilities at Time 0 / Current Sales - (Return on Sales or Profit Margin)( Current Sales * 1 + Growth in Sales) (Retention Ratio or Addition to RE / Net Income)

Full Capacity Sales

Current Sales / % of Capacity

Inventories

(Current Ratio x Working Capital) - (Quick Ratio x Working Capital)

Inventories

Current Assets - Quick Assets

Market to Book Ratio

Market Capitalization / Book Value

Market to Book Ratio

Price per Share / Book Value per Share

Market to Book Ratio Formula

Price per Share / Shareholders' Equity - Preferred Equity / Weighted Average Number of Ordinary Shares

Dividend Yield

(EPS x Dividend Payout Ratio) / Market Price per Share

Book Value per Share

Shareholders' Equity - Preferred Equity / Weighted Average Common Shares Outstanding

Book Value per Share

SHE - (Liquidation Value per Share x No. of Preference Shares) - Preference Dividends / No. of Common Shares Outstanding

Degree of Financial Leverage

Operating Income / Income after Interest Expense

Basic Earnings Power Ratio

This ratio indicates the ability of the firm's assets to generate operating income. This ratio shows the raw earning power of the firm's assets before the influence of taxes and debt, and is useful when comparing firms with different debt and tax situations.

Basic Earnings Power Ratio

EBIT / Total Assets