Financial Statement Analysis

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[...] A successful firm's market to book ratios typically exceeds 1. The enterprise value of a firm is the total value of its underlying operations. A. The Income Statement The income statement reports the firm's revenues and expenses, and it computes the firm's bottom line of net income, over a given time interval. Operating income = sales revenue – COGS – operating expenses. After adjusting for other, non-operating income or expenses, we have the firm's net income, which we can divide by the number of shares outstanding the calculate earnings per share (EPS). [...]

[...] Financial Statement Analysis I. Firm's Disclosure of Financial Information Financial statements are accounting reports that firm issues periodically to describe its past performance. Investors, financial analysts, managers and other interested parties such as creditors rely on financial statements to obtain reliable information about a corporation. The three required financial statements are the balance sheet, the income statement, the statement of cash flows, and the balance sheet. II. The Balance Sheet The balance sheet shows the current financial position (assets, liabilities, and stockholders' equity) of the firm at a single point in time. [...]

[...] Financial Statement Analysis Types of ratios: profitability ratios, liquidity ratios, working capital ratios, interest coverage ratios, leverage ratios, valuation ratios, operating returns. A. Profitability Ratios X margin = X/sales Gross margin = gross profit/sales Operating margin = operating income/sales EBIT margin = EBIT/sales Net profit margin = net income/sales B. Liquidity Ratios X ratio = X/current liabilities Current ratio = current assets/current liabilities Quick ratio = cash & short-term investments + accounts receivable/current liabilities Cash ratio = cash/current liabilities C. [...]