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FINANCIAL STATEMENTS ANALYSIS Prima Naomi

Chapter Outline
2.1 The Balance Sheet
2.2 The Income Statement
2.3 Net Working Capital
2.4 Financial Cash Flow
2.5 Ratio Analysis
2.6. The Du Pont Identity
2.7. External Financing & Growth
Ada 4 Pernyataan Pendapat/ Opini
KAP terhadap Laporan Keuangan
1. Wajar tanpa Pengecualian (Unqualified Opinion)
LK mulus, sesuai dg Standard Akuntansi yg berlaku umum, dapat
dipertanggung jawabkan dan dapat dipercaya

2. Wajar dengan Pengecualian (Qualified Opinion)

Terdapat hal-hal yang tidak sesuai dengan SA yang berlaku umum

3. Tidak Wajar (Adverse)

Tidak sesuai degan SA yang berlaku

4. Tidak Memberikan pendapat (Disclamer)

Contoh Pendapat/ Opini KAPterhadap LK
 2.1 The Balance Sheet
•An accountant’s snapshot of the firm’s accounting value as
of a particular date.

•The Balance Sheet Identity is:

Assets = Liabilities + Stockholder’s Equity

2.1 The Balance Sheet Cont’
2.1 The Balance Sheet Cont’

When analyzing a balance sheet, the

financial manager should be aware of three
concerns:
1.Liquidity
2.Debt versus equity
3.Value versus cost
Liquidity Cont’

Refers to the ease and speed with which assets can be

converted to cash.
Current assets are the most liquid.
Some fixed assets are intangible.
The more liquid a firm’s assets, the less likely the firm is to
experience problems meeting short-term obligations.
Liquid assets frequently have lower rates of return than fixed
assets.
2.1 The Balance Sheet
Cont’

The assets are listed in order by the

length of time it normally would take a
firm with ongoing operations to
convert them into cash.

Clearly, cash is much more liquid than

property, plant and equipment.
Debt versus Equity
 Generally, when a firm borrows it gives the bondholders first
claim on the firm’s cash flow.
 Contractual Obligations

 Thus shareholder’s equity is the residual difference between

assets and liabilities.
 Risidual Claims
 Debt versus Equity
Contractual Obligations

Risidual Claims
Value versus Cost
 Market value is a completely different concept. It is the price at
which willing buyers and sellers trade the assets.
2.2 The Income Statement
The income statement measures performance over a
specific period of time.
The accounting definition of income is

Income = Revenue – Expenses

2.2 The Income
Statement
The operations section of
the income statement
reports the firm’s revenues
and expenses from
principal operations

The non-operating section of

the income statement
includes all financing costs,
such as interest expense.

Net income is the

“bottom line”.
2.3 Net Working Capital
NWC = CURRENT ASSETS – CURRENT LIABILITIES

NWC is + when current assets are greater than current

liabilities.
A firm can invest in NWC. This is called change in NWC .
The change in NWC is usually + in a growing firm.
2.3 Net Working Capital

Current Assets Current Liabilities NWC

2014 6,337,170 8,864,832 (2,527,662) Is Unilever growing ??

2013 5,218,219 7,774,722 (2,556,503)

2.4 Financial Cash Flow
In finance, the most important item that can be extracted from financial
statements is the actual cash flow of the firm.

Since there is no magic in finance, it must be the case that the cash
received from the firm’s assets must equal the cash flows to the firm’s
creditors and stockholders

CF (Assets) = CF (Debt) + CF (Stock)

2.4 Financial Cash Flow
Statement of Cash Flow
2.4 Financial Cash Flow
3 Component of the Statement of Cash Flow
2.4 Financial
Cash Flow

?
2.5 Financial Statement Analysis
Financial ratios provide information about five
areas of financial performance:
1. Short-term solvency
2. Long-term solvency/ Financial leverage
3. Profitability
4. Activity
5. Market value
Why Evaluate Financial Statements?
Cont’

Internal uses

 Performance evaluation – compensation and comparison between

divisions
 Planning for the future – guide in estimating future cash flows

External uses
 Creditors
 Stockholders
 Suppliers
 Customers
 Government
Siapa Pengguna LK
Pemegang
Saham/Calon
Investor/Analis
Sekuritas

Pemerintah
Pemasok/
Kreditur
Pengguna
Laporan
Keuangan
Manajer
Pelanggan

Karyawan
Why Evaluate Financial Statements?
Cont’

Internal uses

 Performance evaluation – compensation and comparison between

divisions
 Planning for the future – guide in estimating future cash flows
 Suppliers
External uses
 Creditors 1. Berapa besar kredit yang akan disalurkan
 Stockholders 2. Berapa lama kredit akan disalurkan
3. Dalam jangka waktu kredit itu, berapa laba dan
 Suppliers
arus kas yang akan dihasilkan
 Employee 4. Berapa baik arus kas yang dihasilkan akan
 Customers mampu menutup cicilan hutang (pokok & Bunga)
 Government 5. Berapa baik proyeksi yang dilakukan memenuhi
kriteria minimal yang disyaratkan oleh kreditor
Why Evaluate Financial Statements?
Cont’

Internal uses

 Performance evaluation – compensation and comparison between

divisions
 Planning for the future – guide in estimating future cash flows

External uses
 Creditors
 Stockholders 1. Berapa besar intrinsic value perusahaan, dgn
melihat : proyeksi tk pertumbuhan, proyeksi tk
 Suppliers
laba, proyeksi arus kas bebas, proyeksi biaya
 Employee modal
 Customers
 Government 2. Bagaimana portfolio saham yang ideal
Why Evaluate Financial Statements?
Cont’

Internal uses

 Performance evaluation – compensation and comparison between

divisions
 Planning for the future – guide in estimating future cash flows
External uses
 Creditors
 Stockholders
 Suppliers 1. Kelangsungan pembayaran utang
pembayaran perusahaan kepada pemasok
 Employee
 Customers
 Government
Why Evaluate Financial Statements?
Cont’

Internal uses

 Performance evaluation – compensation and comparison between

divisions
 Planning for the future – guide in estimating future cash flows
External uses
 Creditors
Kelangsungan pembayaran utang pembayaran
 Stockholders
perusahaan kepada pemasok
 Suppliers
 Employee 1. Kompensasi
 Customers 2. Kondisi perusahaan di masa yad.
 Government
3. pensiun
Why Evaluate Financial Statements?
Cont’

Internal uses

 Performance evaluation – compensation and comparison between

divisions
 Planning for the future – guide in estimating future cash flows
External uses
 Creditors
 Stockholders
 Suppliers
 Employee Kelangsungan produk yang telah dibeli, garansi
 Customers
 Government 1. Pajak
2. Kebijakan terkait
2.5.1 Short-term solvency/ Liquidity
Measure the firm’s ability to meet recurring financial
obligations
Total current assets
Current ratio 
Total current liabilitie s

A higher current ratio indicates greater liquidity

2.5.1 Short-term solvency/ Liquidity cont.
Quick assets
Quick ratio 
Total current liabilities
Quick assets = Current assets – inventories
Quick ratio determines firm’s ability to pay off current
liabilities without relying on the sale of inventories.

Cash
Cash ratio 
Total current liabilities
2.5.1 Short-term solvency/ Liquidity cont.

Quick assets
Quick ratio 
Total current liabilities

Quick assets = Current assets – inventories

Quick ratio determines firm’s ability to pay off current
liabilities without relying on the sale of inventories.
 2.5.2 Long-Term Solvency/
Financial leverage ratios
Intended to Total debt
address the firm’s
Total Debt ratio 
Total assets
long-run ability to
meet its Total debt
obligations, or its Debt equity ratio 
Total equity
financial leverage

Total assets
Equity multiplier 
Total equity
2.5.2 Long-Term Solvency/
Financial leverage ratios
Earnings before interest and taxes (EBIT)
Interest coverage 
Interest expense

Interest coverage ratio is directly connected

to the firm’s ability to pay interest.
2.5.3 Profitability ratios

Net income
Net profit margin 
Total operating revenue

trade firms and service firms tend to have

low and high profit ratios respectively.
2.5.3 Profitability ratios (cont)

Return on assets  Profit margin x Asset turnover

Net income Total operating revenue
Return on assets  x
Total operating revenue Average total assets

Firms tend to face a trade-off between

turnover and margin
.
2.5.3 Profitability ratios (cont)
Net income
Return on equity 
Average shareholders equity
ROE  Profit margin x Asset turnover X Equity multiplier
Net income Total operating revenue Average total assets
ROE  x x
Total operating revenue Average total assets Average shareholde rs' equity

The difference between ROA and ROE is due

to financial leverage.
2.5.4 Activity ratios
Measure how effectively the firm’s assets are being
managed
Total operating revenues
Total asset turnover 
Average total assets

Example: retail and wholesale trade firms tend

to have high asset turnover ratios compared to
manufacturing firms
2.5.4 Activity ratios cont.
Total operating revenues
Receivables turnover 
Average receivables

Days in period (i.e.365)

Average collection period 
Receivable s turnover

These ratios provide information on the success

of the firm in managing its investment in
accounts receivable.
2.5.4 Activity ratios cont.
Cost of goods sold
Inventory turnover 
Average inventory

Days in period (i.e.365)

Days in inventory 
Inventory turnover

Measure how quickly inventory is produced and

sold
2.5.5 Market value ratios
Market price/shar e
Price - Earnings ratio 
current annual earnings /share

•P/E ratio shows how much investors are willing

to pay for $1 of earnings per share.
• It also reflects investors’ views of the growth potential
of different sectors.
2.5.5 Market value ratios

Market price/share
Market - to - Book ratio 
Book value/share
•The M/B ratio compares the market value of the
firm’s investments to their cost .

• a M/B value < 1 indicates that the firm has not

been successful in creating value for its
shareholders.
Remarks on ratios

Financial ratios are linked to one another.

Measures of profitability do not take risk or

timing of cash flows into account.
Benchmarking Cont’

Ratios are not very helpful by themselves; they need to be

compared to something

Time-Trend Analysis
Used to see how the firm’s performance is changing
through time
Internal and external uses

Peer Group Analysis

Compare to similar companies or within industries
SIC and NAICS codes
Potential Problems
Cont’
There is no underlying theory, so there is no way to know which
ratios are most relevant

 Benchmarking is difficult for diversified firms

 Globalization and international competition makes comparison
more difficult because of differences in accounting regulations
 Varying accounting procedures, i.e. FIFO vs. LIFO
 Different fiscal years
 Extraordinary events
THE END OF THE 2 ND SESSION SEE U NEXT