İŞLETME FİNANSI I

In vertical (or common size analysis), the items in the financial statements are expressed as a percentage of total assets or sales. The main advantage of vertical analysis is that such an analysis is not much affected by price fluctuations and that it lets industry-wide comparisons.

QuickRatio= (Cash+CashEquiv.+TradingSec.+Accts.Rec.+NotesRec.) / Current Liabilities

Current Assets = Total Assets - Fixed Assets = $240.000

Current Liabilities = Total Assets - Long-term Debts - Shareholders' Equity = $120.000

Current Ratio= Current assets/Current liabilities = $240.000 / $120.000 = 2

Net Working Capital is defined as the difference between the current assets and current liabilities of the same period.

Analysts often use the concept of sustainable growth as a way to evaluate a firm’s future growth rate. Sustainable growth rate refers to the rate at which a firm can grow if its profitability and financial policies do not change.

Price Earnings Ratio (P/E Ratio) This ratio is very important for shareholders or potential investors, because it gives the number of times EPS that investors are willing to pay for one share of stock. It is also called the “multiple”. Most analysts publish P/E ratios for various companies.

• Ratios are representations of average conditions that existed in the past, and are influenced by the selection of accounting methods (e.g., weighted average vs. FIFO cost flow; accelerated vs. straight line depreciation);

• Since financial statements are based on historical data, they do not reflect price level effects and real economic values;

• Computation of ratios are not standardized, and thus are influenced by data selection choices;

• Changes in many ratios are strongly associated with each other; e.g., changes in the current ratio and quick ratio between two different times are often in the same direction, and usually proportional. Therefore, it is not necessary to calculate all ratios, and interrelationships between/ among the ratios should be investigated;

• When ratios for the same company are compared over a period of time, care must betaken to analyzethe changes in operating conditions (e.g., changes in economic conditions, changes in product lines or geographic markets, changes in prices, levels of inflation, etc.); and

• When a specific firm is compared with similar firms, differences between/among the firms should be recognized (e.g., accounting policies, type of financing available, operating characteristics such as product lines, size and geographical location).

• The last, but the most important, consideration for the analysis is to obtain audited financial statements. Although unaudited statements might provide valuable information about a company, conclusions reached with this information are questionable, because its use brings up fair representation issues. Financial statement analysis is a multi-faceted issue. An analyst should consider all available techniques and ratios in order to produce useful reports to investors.

Quick Ratio, Or Acid Test provides a severe test of immediate liquidity, revealing a company’s ability to meet sudden demands upon liquid current assets.

quick ratio= current assets - inventories / short-term debt

= $100.000 - $ 30.000 / $70.000 = 1

Net working capital = Current assets - current liabilities = $100.000 - $70.000 = $30.000

The sum of liabilities and equity must be equal to assets.

Current ratio is found by dividing current assets to current liabilities. So 16200/5400=3 is the current ratio for 2015.

Accrual acounting is used to measure the full effects of an economic transaction which takes place within an accounting period regardless of the timing of cash outcomes.

Days In Inventory=365/Inventory Turnover

Since

Inventory Turnover=Cost Of Goods Sold/Average Inventory

Then:

Days In Inventory=(365*Average Inventory)/Cost of Goods Sold

Average Inventory=(10800+9600)/2=10200

Therefore;

Days In Inventory=(365*10200)/61200=60,83333....

Current assets are the assets that are expected to be converted into cash within the next year or within the next operating cycle, whichever is longer. Common types of current assets are; cash and cash equivalents, trade receivables, inventories, and prepaid expenses.The correct answer is A.

Horizontal analysis is also known as trend analysis. This analysis performs better for longterm analysis within the same company. However, selection of the base year is crucial. Depending on the base year, some items might be given more weight than the others. Care must also be taken to incorporate any accounting policy changes during the analysis period, because horizontal analysis is affected by changes in accounting methods.The correct answer is D.

Gross profit margin=(revenues-cost of goods sold)/revenues

So for 2014;

Gross profit margin=(139400-55400)/139400=0.603=60.3%

Debt ratio shows the percentage of assets that is financed by creditors, and thus is an indication of the level of financial leverage used by the company. It is computes as follows :

Debt Ratio : Total Liabilities / Total Assets

The correct answer is C.

Profitability ratios measure tor operating success of a company in regards to its resources. Starting point to profitability analysis is the Return on Equity (ROE) ratio because it provides an indication of how well managers are employing the invested funds in business to generate returns. The correct answer is D.

dept to equity ratio=total liabilities/owners equity

so for 2015; dept to equity=20400/48000=0.425=0.43

Price to Book Ratio gives the expectations of the market regarding the returns on a specific stock. The correct answer is B.