Final Term CheatSheet2

COMMON SIZE IS – Base is NET Sale (sale – excise duty) COMMON SIZE BS – Liability + SE
Tools used in FSA
Comparative analysis: Evaluation of consecutive financial statements to examine direction, speed,
& extent of any trend(s)
Common size analysis: Evaluation of internal makeup of financial statements, and/or financial statement accounts across companies Common size income statement as a percentage of revenue
Common size balance sheet as a percentage of revenue Ratio analysis: Evaluates relation between two or more economically important items. Prior
Accounting analysis is important
Interpretation is key
Categories of financial ratios
Profitability Measures the company’s ability to generate profits from its resources
Activity Measures how efficiently a company performs day-to-day activities such as collection of receivables and management of inventory
Solvency Measures the company’s ability to meet long term obligations
Liquidity Measures the company’s ability to meet its short-term obligations
Valuation Measures the quantity of an asset or flow(earnings or CF) associated with ownership of a specified claim (e.g. share)
Profitability Ratios
1. Return on Equity (ROE)
ROCE = Net Income / Average Shareholders’
Equity
=