Deep river

Review of Financial Claims and Ratios

I. Fundamental Financial Assertions

A. Cash flow Statement -- summary of firm's accounting revenues, expenditures, and revenue over some time period

Ex. => see Consolidated Statements of Income intended for Dell Inc. from the 10-k filed with SEC pertaining to fiscal june 2006

B. Balance Sheet - brief summary of accounting values of any firm's possessions and claims against these assets

Ex. => discover Consolidated Transactions of Financial Location for Dell Inc. through the 10-k for fiscal 2005

II. Standardised Financial Statements

1 . Common-size balance bedsheets

=> compute all accounts as a percent of total assets

2 . Common-size cash flow statements

=> compute most line things as a percent of sales

Uses for common size assertions:

1) easier to compare organizations of different sizes

2) easier to compare economical information around time as firm grows

III. Ratios

A. Overview

1 . Proportions examine relationships between numbers on economical statements

installment payments on your Internal uses

1) examine performance and determine payment

2) plan for the future

several. External uses: Analysis of firm by simply:

1) Suppliers

2) Lenders

3) Stockholders

4) Consumers

5) Competitors

A. Percentage Analysis

1 ) Key => Ratios may reveal very much by themselves thus usually generate two simple types of comparisons:

1) industry uses or ratios of most effective competitors

SEMBLABLE or NAICS codes to determine industry

2) firm's past own proportions

2 . Types of Industry Ratios

1) RMA

2) MarketGuide. com

3) moneycentral. bing. com

W. Warning Signs

1 ) Ratios " too” high or low compared to sector or competitors

2 . Ratios trending from industry or perhaps competitors

Be aware: We'll employ Dell for examples

=> see Dell's financial claims for monetary 2005 (ends January twenty-eight, 2005) and financial 2004 (ends January 40, 2004).

C. Cautions:

1 . Different people and different options calculate proportions in different ways

=> make certain comparing ratios calculated in a similar manner.

2 . Ratios indicate potential sources of concerns

=> tell us where to seem

3. Proportions are sensitive to accounting method used

4. Ratios are based on accounting numbers instead of value and cash goes 5. Percentages can be distorted in seasonal businesses.

Deb. Liquidity Ratios

=> show ability to settle payments over growing process

1 . Current Ratio (CR) = CA/CL


CA sama dengan current resources,

CL = current debts


Dell (2005) = 16, 897/14, 136 = 1 ) 20

Dell (2004) sama dengan 10, 633/10, 896 = 0. 98

Note: substantial and/or increasing ratios indicate: ability to pay out current debts by liquidating current possessions

2 . Speedy Ratio (QR) = (CA – I)/CL

where: My spouse and i = products on hand

key => removes products on hand since generally takes a for a longer time time to come to be cash

Former mate.

Dell (2005) = (16, 897-459)/14, 136 = 1 . 18

Dell (2004) = (10, 633-327)/10, 896 = zero. 95


1) high and increasing signifies: ability to spend current debts by liquidating current property other than inventory 2) also called acid-test ratio

3. Cash Ratio ($R) = $/CL

where: dollar = money

Most exacting measure of fluidity


Dell (2005) = 4747/14, 136 sama dengan 0. 34

Dell (2004) = 4317/10, 896 sama dengan 0. forty five

Note: high and/or raising indicates: ability to pay current liabilities with existing funds

General notice on fluid ratios: High liquidity proportions indicate ability to pay although also likely inefficient usage of short-term assets

E. Long term Solvency Percentages

=> indicate long-run ability to meet commitments

1 . Total Debt Rate (DR) sama dengan (TA – TE)/TA


TA = total assets

TE = total equity


Dell (2005) = (23, 215-6485)/23, 215 = zero. 72

Dell (2004) sama dengan (19, 311-6280)/19, 311 = 0. 67


1) excessive and/or increasing ratio signifies: reliance on debt to fund assets 2) Variations on the debt rate:

a) debt-equity proportion = debt/equity

b) equity multiplier = assets/equity

2 . Moments Interest Gained (TIE) = EBIT/IE




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