Business Diagnosis and Performance ppsx

Why This Subject is ImportantTại sao môn này là quan trọng • Companies need to understand how well they are performing • Problem areas need to be identified • Investors need to know abo

Business Diagnosis and

Why This Subject is Important

Tại sao môn này là quan trọng

• Companies need to understand how well

they are performing

• Problem areas need to be identified

• Investors need to know about their company

performance

• Stakeholders in companies (suppliers,

lenders, government departments) need to know the financial strength of the company

Các công ty cần phải hiểu

thực hiện như thế nào thì tốt

Vấn đề các khu vực cần

phải được xác định

Nhà đầu tư cần biết về

hiệu suất công ty của họ

Các bên liên quan trong

Business Structures

Các cấu trúc kinh doanh

• Sole Trader: owner responsible for all the

debts of the business

• Partnership: partners all equally

responsible for debts of the firm

• Company: shareholder’s liability for debts

of firm limited to the amount of shares they have in the company

Thương nhân duy nhất: chủ sở hữu

chịu trách nhiệm cho tất cả các khoản

nợ của doanh nghiệp

Quan hệ đối tác: các đối tác

tất cả đều chịu trách nhiệm về

các khoản nợ của công ty

Công ty: cổ đông của trách nhiệm

về các khoản nợ của công ty giới hạn

số lượng cổ phần mà họ có trong công ty

Financial Analysis

Phân tích tài chính

• We need to understand the basic the basic

financial statements of the company so that

we can diagnose and understand the strengths and weaknesses, and the potential dangers that the firm may be facing

• Understanding financial statements also

helps us to recognize good companies which

we may wish to invest in or trade with

Chúng ta cần phải hiểu cơ bản báo cáo

tài chính cơ bản của công ty để chúng tôi

có thể chẩn đoán và hiểu được những

điểm mạnh và điểm yếu, và những

mối nguy hiểm tiềm năng mà công ty

có thể phải đối mặt với

Hiểu biết về báo cáo tài chính cũng

giúp chúng ta nhận ra công ty tốt mà

chúng ta có thể muốn đầu tư

hoặc thương mại với

Business Financial Statements

Báo cáo tài chính Kinh doanh

There are 3 main financial statements of a firm that we need to

understand:

1 Income Statement (Profit & Loss Statement)

2 Balance Sheet

3 Cash Flow Statement

Hiện có 3 báo cáo chính tài chính

của một công ty mà chúng ta cần phải hiểu:

Báo cáo thu nhập (lợi nhuận

& Tuyên bố tổn thất)

Bản đối chiếu

Báo cáo lưu chuyển tiền tệ

Revisiting Basic Accounting The Income Statement

Xem xét lại kế toán cơ bản Báo cáo thu nhập

The Income Statement, or Profit & Loss Statement, records the incomes, the expenses, and the net profit or loss for an

accounting period

Revenue minus Expenses = Income (net profit/loss)

Example – Income Statement

Ví dụ - Báo cáo thu nhập

XYZ Company – Income Statement for year ending 2008

Operating Profit $ 896,118 Interest Expense 17,849

Earnings before taxes 878,269

Abnormal expense items 120,000

758,269 Provision for Income Tax 298,052

Net Income 460,217

Assets = Liabilities + Shareholder’s Equity

Tài sản = Nợ phải trả + Vốn chủ sở hữu của cổ đông

Example – Balance Sheet

Ví dụ - Bảng cân đối

Assets Liabilities

Current Current

Inventories Investments

Fixed Non-Current

Buildings Land

Intangibles Equity

goodwill

Tài sản Nợ phải trả

Hiện tại hiện tại

Tài khoản tiền phải nộp

Các khoản phải thu

ngắn hạn nợ

Hàng tồn kho

Đầu tư

Sửa lỗi không hiện tại

Máy móc, trang bị cho vay

Financial Cash Flows

• In finance, the most important item that can be extracted from

the financial statements is the actual cash flow of the firm

• Cash flows are simply a summary and classification of what

has gone into the bank account of the firm and what has been withdrawn between two periods

Summary of Cash Flow Statement

Bank account balance at the beginning of

Evaluating Financial Performance

Financial Analysis

• Financial analysis is the assessment of a

firm’s past, present and anticipated future financial condition Its objectives are to

determine the firm’s financial strengths

and to identify its weaknesses

Using Financial Ratios

Financial ratios provide useful tools for analysis when compared against a standard or norm

Two such standards are commonly used.

• The first consists of similar ratios for the same

firm from previous financial statements An

analysis based on comparisons of this type is

commonly referred to as a trend analysis.

• A second standard comes from the ratios of

other firms that are considered comparable in

their general characteristics with the subject firm – generally this involves the use of published

industry-average ratios.

Question 1: How Liquid is the

Current Ratio

Current Ratio

The current ratio is computed as follows:

Current ratio = current assets _

current liabilities

= $ 70,474,000 $ 28,928,000

= 2.44: 1 This means that SKP’s current assets were 2.57 times larger that its current liabilities For every

$1.00 of current liabilities, SKP have $2.44 to meet that $1.00 liability This would mean that SKP can comfortably meet its current debt obligations.

Acid test or quick asset ratio

Acid test or quick asset ratio

Because inventories are the least liquid of the firm’s assets, it may be desirable to remove them from the current ratio

calculation, thus obtaining a more refined liquidity measure.

Acid test ratio = current assets – inventories

Even deducting inventories from the current asset ratio to

measure the ability of SKP to meet its current liabilities or

financial obligations, SKP can comfortably meet their

obligations, having $1.95 in quick assets to meet every $1.00 of current liabilities.

Average Collection Period

The average collection period serves as the basis for

determining how rapidly the firm’s credit accounts are being collected The lower this number is, the more efficient the firm is in managing its investment in

accounts receivable

Average collection period = accounts receivable

Annual credit sales / 365 (days in year)

Creditor’s Repayment Period

• How rapidly does the firm pay its debts (suppliers)

Average trade payables (creditors) x 365 days Credit purchases*

• Purchases: cost of sales + closing inventory – opening

Inventory turnover

The effectiveness or efficiency with which the firm is managing its investment in inventories is reflected in the number of times that its inventories are turned over (replaced) during the year

Inventory turnover = cost of goods sold

Inventories

= $148,972,000

$ 14,195,000

= 10.49 times Thus, SKP turns over its stock 10.5 times a year

Q2: Evaluating Financial Performance

Financial Ratios- Profitability

The gross profit margin is calculated as follows:

Financial Ratios- Profitability

Operating profit margin = net operating income

Sales

= $ 22,892,000

$183,515,000

= 0.125 or 12.5%

This operating profit margin reflects the firm’s

operating expenses as well as its cost of goods sold Therefore, this ratio serves as an overall measure of operating effectiveness.

Financial Ratios- Profitability

• Expenses to Sales: ratio of individual or total operating

Financial Ratios- Profitability

The operating income return on investment

reflects the rate of return on the firm’s total

investment before interest and taxes For SKP, this return measure is computed as follows:

Operating income = net operating income

Financial Ratios- Profitability

The total asset turnover ratio indicates how

many dollars in sales the firm squeezes out

of each dollar it has invested in assets For SKP, this ratio is calculated as follows:

Total asset turnover = Sales

Total asset

= $183,515,000 $167,698,000

= 1.09 times

Financial Ratios- Profitability

To measure the efficiency with which the firm uses its investment in non-current assets, the non-current asset turnover ratio is calculated

as follows:

Non current assets

= $183,515,000

$ 97,224,000

= 1.89 times

Q3: Evaluating Financial Performance Financial Ratios- Financing Investments

The debt ratio measures the extent to which

the total assets of the firm have been

financed using borrowed funds For SKP, the ratio is computed as follows:

Debt ratio = total liabilities

Total assets

= $ 37,747,000 $167,698,000

= 0.225 or 22.5%

Thus, SKP is financing approximately 22% of its assets with borrowed funds.

Financial Ratios- Financing Investments

The long-term debt to total capitalization ratio

indicates the extent to which the firm has used long term debt as its permanent financing

Long term debt to total capitalization

= Long term (non current) liabilities

Long term debt (liabilities) + equity

= $ 8,819,000

$ 8,819,000 + $129,951,000

• = 0.064 or 6.4%

Financial Ratios- Financing Investments

The times-interest-earned ratio indicates the firm’s

ability to meet its interest payments out of its annual operating earnings The ratio measures the number

of times the firm is covering its interest SKP’S ratio

is computed as follows:

Times interest earned

= net operating income (profit) (or EBIT)

Net interest expense

= $ 22,892,000 ($ 710,000 – ($310,000))

= 57.23 times

Q4: Evaluating Financial Performance Financial Ratios- Return on Investment

Net profit margin The net profit margin

involves the net after tax profits of the firm as

a percentage of sales For SKP the net profit margin is computed as follows:

Net profit margin = net profit

Sales

= $ 18,473,000

$183,515,000

= 0.1006 or 10.06%

For ever $1.00 of sales, SKP earn

approximately 10 cents for their shareholders

Financial Ratios- Return on Investment

Return on total assets The return on total assets ratio, or return non investment ratio, relates after tax net income to the firm’s total investment in assets For SKP this ratio is as follows:

Total assets

= $ 18,473,000

$167,698,000

= 0.1101 or 11.01%

Financial Ratios- Return on Investment

The return on equity ratio measures the rate of return earned on shareholder investment

SKP earned the following rate of return on for its shareholders:

Return on equity = Net profit

Equity

= $ 18,473,000 $129,951,000

= 0.1422 or 14.22%

Economic Value Added

EVA represents economic profit, which is always less than accounting profit It is fairly simple to determine:

It is the after-tax operating profits minus the

appropriate capital charge for both debt and equity The exact formula is:

EVA = NOPAT – c% (TC)

Where

EVA = Economic Value Added

NOPAT = net operating profits after taxes

C% = percentage cost of capital

TC = total capital

Economic Value Added

Economic Value Added

Microsoft Corporation, 2006 (in millions)

Net operating profits after taxes $12,599

Equity cost of capital * 4,010

Economic Value Added (EVA) $ 8,589

* Shareholder equity = $40,104 x 10% = $4,014

In other words, in 2006 Microsoft added value beyond the normal rate of investment by $8.589 billion Clearly, Microsoft was adding value for its shareholders and creating wealth in the global economy.

Economic Value Added

Economic Value Added

SKP, 2008 (in millions)

Net operating profits after taxes $18,473 Equity cost of capital * 10,383 Economic Value Added (EVA) $ 8,089

* Shareholder equity = $129,789 x 8% = $10,383

In other words, in 2008 SKP added value beyond the normal rate of investment by $8,089,000 Clearly, SKP was adding value for its shareholders and creating

wealth in the global economy.

Earnings per Share

This measures the amount of profit attributable to each unit of ordinary shares on issue

Earning per share = Net Profit

Number of ordinary shares

issued

Earnings per Share

Earnings per share = $18,473,000

Earnings Yield

• Earnings yield is a better measure of how much you are

actually making on your investment in a company based upon the market price of the shares Just because a share has a par value of $1.00 does not mean that you purchased that share at that value The price of the share may have been higher (or lower) when you actually purchased the share

Earnings Yield

Earnings yield indicates the potential return on the

market value of shares It is calculated as follows:

Earnings yield = Earnings per share

Market value per share

The earnings per share for SKP at the end of

31/3/2008 were 3.08 sens per share Let us presume that the market price – the price of the shares on the Malaysian Stock exchange- at that date was 16 sens per share.

3.08

16.0 = 0.1925, or 19.25%

Price-Earnings Ratio

• Earnings per share is used as the basis for

calculating this ratio A price earnings (P/E) ratio indicates the number of year’s purchase

of the earnings

• It is generally held that a P/E ratio indicates

the future performance of a company’s shares Price-earnings ratio = Market price per share Earnings per share

Price-Earnings Ratio

Using the previous figures for SKP, let us calculate the P/E for the company at 31/3/2008.

16 sens 3.08 sens = 5.19 times

The share price is 5.19 times the earnings available

Gross dividend per share = $6,000,000/ 600,000,000 issued

shares

= 0.01 sens per share

To calculate the dividend yield:

Dividend yield = Gross dividend per share

Market value of share

= 1.00 sens

16 sens = 0.0625, or 6.25%

Shareholder Funds

Quỹ cổ đông

Issued shares

• A company is a separate legal entity Money which

people invest in the company is owed by the company to investors.

• Shares purchased in a company are money which

the company owes and must be repaid to investors

at some future time

• Because the company has a separate legal existence

and a perpetual life span i.e it goes on forever, investors can transfer the ownership of their shares

to wiling buyers

• However, whoever holds the legal ownership of

shares in a company is a creditor to that company

Ban hành cổ phiếu

Công ty A là một pháp nhân riêng biệt Tiền

mà người đầu tư vào công ty là nợ của

công ty để nhà đầu tư.

Mua cổ phần trong một công ty là tiền mà

công ty còn thiếu nợ và phải được hoàn

trả cho nhà đầu tư tại một số thời gian

trong tương lai.

Bởi vì công ty đã có một sự tồn tại riêng

biệt quy phạm pháp luật và một cuộc sống

vĩnh viễn span tức là nó diễn ra mãi mãi,

các nhà đầu tư có thể chuyển quyền sở

hữu cổ phần của mình cho người mua

wiling.

Tuy nhiên, ai nắm giữ quyền sở hữu hợp

pháp của cổ phiếu trong một công ty là chủ

nợ cho công ty

Shareholder Funds

them attractive to a wide range of investors

value), so that one share is sold at $1.00

$30,000,000 in shareholder funds, it would issue 30,000,000 shares with a value per share of

$1.00 This would possibly attract a wide range

of investors who may wish to invest a small amount in the company (say, 100 shares @

$1.00 each = $100.00) to larger investors who may wish to buy many thousands of shares

Cổ phần được chia thành một

lượng nhỏ để làm cho chúng hấp

dẫn cho một loạt các nhà đầu tư.

Cổ phiếu thường được chia

thành $ 1,00 đơn vị (mệnh giá),

để chia sẻ một được bán tại $

1,00.

Do vậy, nếu công ty trên là có

nhu cầu nâng cao $ 30.000.000

trong các quỹ cổ đông, nó sẽ

phát hành 30.000.000 cổ phiếu

với giá trị mỗi cổ phiếu của $

1,00 Điều này có thể sẽ thu hút

nhiều nhà đầu tư có thể đầu tư

một lượng nhỏ trong công ty

(nói, 100 cổ phiếu @ $ 1,00 mỗi

$ = 100,00) để các nhà đầu tư

lớn hơn những người có thể

muốn mua nhiều nghìn cổ phiếu