Exam 3 Business
2015: 7.3x more 2014: 8.0x more Industry: 9
P/E trending down, stockholder don't think we're as good as others
Can the company collect its receivables?
balance sheet compare the acct. receivable to the % increase of sales over the past two years.
company worth to shareholders?
book values (total A- total L= book val) review EPS
can the company sell inventory in a timely matter?
calculate DSI/inventory turnover rate (COGS/av. inventory balance)
cash available for expansion?
calculate total current assets from the BS
calculate the Day sales outstanding
can company collect receivables?
DSR
can the company collect its receivables? compare to credit terms.
Gross Profit
can the company make money selling its products?
DSI
can the company sell its products? compare to industry averages.
Which of the following is not a way to accurately determine the financial performance of a company?
carefully examine one years financial results
where is company's cash coming from? where is it being used?
cash flow statement and operating activities
If receivables are growing faster than sales
collections may be too slow, and a cash shortage may result
Can the company pay its current liabilities?
compare current assets to current liabilities.
Can the company pay its current and long term liabilities?
compare total assets and total liabilities.
Liquidity
current liabilities, cash available
current assets/current liabilities
current ratio
Which of the following items is a measure of a company's ability to collect receivables?
days sales in receivables
<2 is good for
debt to equity ratio
a high current ratio
does not mean that current liabilities are greater than assets
is the company profitable on its product sales?
gross profit %? increasing or decreasing over the past 3 years?
company is profitable at selling their products?
gross profit margin
current ratio
is good to be over 1
valuation
is the company a good investment?
a high current ratio
is usually more than 2
type of ratio that tells if theres too much debt?
leverage
leverage ratio
long term liabilities, debt
most favorable ratio
lower (ex. 1.6 is better vs 5.8)
type of ratio that tells if theres issues selling inventory?
operational
In a vertical analysis of the income statement, each line item is shown as a
percentage of the net sales
declining gross margin, sales, operating net/income
red flags
vertical analysis
reporting an amount on a financial statement as a percentage of another year on the same financial statement
are sales growing or falling? What is the trend for the last three years?
review sales revenue on the income statement
Can the company sell its products?
review sales revenue on the income statement.
Zach's company had a sales increase of 15%. inventory and A/R both declined.
sales, inventory, and A/R should move in the same direction - investigate further.
A high turnover ratio means:
shows the company does not overspend by buying too much inventory and wastes resources by storing non-salable inventory. It also shows that the company can effectively sell the inventory it buys.
when the EPS is going up
that is good for common shareholder
a high current ratio means
the company may not be using its current assets or its short-term financing facilities efficiently
A higher P/E ratio means that:
the stock is relatively expensive. more confidence.
operational
turnover ratio, profitability ratio,
comparing financial results from period to period v
vertical, horizontal, and trend analysis
compare financial results to different operating periods?
vertical, horizontal, and trend analysis.
average accts. receivable collection term
30 day
outstanding accts. receivable collection term
45 days
industry average days in inventory
60 days
company's average days in inventory
90 days
The cost of goods sold as a percentage of net sales revenue is ________.
COGS/Net Sales Revenue