In this chapter, you will know how to standardise financial statements for comparison purposes, know how to compute and interpret important financial ratios, know the determinants of a firm’s profitability and growth, understand the problems and pitfalls in financial statement analysis. | Working with financial statements Chapter 3 Key concepts and skills Know how to standardise financial statements for comparison purposes Know how to compute and interpret important financial ratios Know the determinants of a firm’s profitability and growth Understand the problems and pitfalls in financial statement analysis 3- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Chapter outline Standardised financial statements Ratio analysis The Du Pont identity Internal and sustainable growth Using financial statement information 3- Copyright ©2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Standardised financial statements Common-size balance sheets Compute all accounts as a percentage of total assets Common-size income statements Compute all line items as a percentage of sales Standardised statements make it easier to compare financial information, particularly as the company grows. They are also useful for comparing companies of different sizes, particularly within the same industry. 3- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Financial statements of one company are readily compared with those of other similar companies. It is almost impossible, however, to compare different companies owing to size and currency differences. The financial statements are standardised to facilitate comparison. One common way is to use percentages instead of total dollars (common-size statements). Common-size statement: A standardised financial statement presenting all items in percentage terms. Balance sheet items are shown as a percentage of assets and income statement items as a percentage of sales. Swagman Camping Ltd Balance . | Working with financial statements Chapter 3 Key concepts and skills Know how to standardise financial statements for comparison purposes Know how to compute and interpret important financial ratios Know the determinants of a firm’s profitability and growth Understand the problems and pitfalls in financial statement analysis 3- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Chapter outline Standardised financial statements Ratio analysis The Du Pont identity Internal and sustainable growth Using financial statement information 3- Copyright ©2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Standardised financial statements Common-size balance sheets Compute all accounts as a percentage of total assets Common-size income statements Compute all line items as a .
