The Operating Cash Flow Ratio Against Liabilities

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The Operating Cash Flow Ratio Against Liabilities

Financial statement analysis

Financial statement analysis  is  the process of understanding the risk and profitability of a firm through analysis of reported financial information, by using different accounting tools and techniques.

THE PURPOSE OF FINANCIAL STATEMENT ANALYSIS

   Acquiring basic concepts related to how to analyze financial statements, techniques that are commonly used to determine the condition of both the company's profitability and the risks inherent in companies analyzed

Users Financial Statement Analysis

Who analyzes financial statements?

1.    Internal users (i.e., management)

2.    External users (emphasis of chapter)

a.       Investors, creditors, regulatory agencies & …

b.      stock market analysts and

c.       auditors

Methods of Financial Statement Analysis

1.      Horizontal Analysis

2.      Vertical Analysis

3.      Common-Size Statements

4.      Trend Percentages

5.      Ratio Analysis

Vertical Analysis

On vertical analysis for a single financial statement, each item is expressed as a percentage of a significant total, e.g., all income statement items are expressed as a percentage of sales.

Common-Size Statements

Financial statements that show only percentages and no absolute dollar amounts

Trend Percentages

Show changes over time in given financial statement items (can help evaluate financial information of several years)

Ratio Analysis

Expression of logical relationships between items in a financial statement of a single period
(e.g., percentage relationship between revenue and net income)

Financial report

1.    Cash Flow. Shows change in the entity’s during the reporting period 

2.    Balance Sheet. Shows the entity asset’s, and stakeholder equity as of the report date

3.    Income statement. Shows the results of the entity’s operation and financial activities for the reporting period

The operating cash flow ratio against liabilities

Cash Flow to Total Debt ratio measures the length of time it will take the company to pay its total debt using only its cash flow

The operating cash flow ratio against liabilities

As of December 31, 2005, with amounts expressed in millions, Zimmer Holdings had net cash provided by operating activities of $878.20, and total debt of only $1,036.80.

TIMES INTEREST EARNED (FINAL TEST) created By Masdarwati Madjid

TIMES INTEREST EARNED 

A.   Definition  of Financial Statement Analysis

          The process of reviewing and evaluating a company's financial statements (such as the balance sheet or profit and loss statement), thereby gaining an understanding of the financial health of the company and enabling more effective decision making. Financial statements record financial data; however, this information must be evaluated through financial statement analysis to become more useful to investors, shareholders, managers and other interested parties.

B. Kind Of  Financial  Statement Analysis

1. Liquidity Analysis 
2.  Solvency Analysis
3. Profitability Analysis 
4.  Cash Flow Analysis 
5.  Risk Analysis 
6.  Bankruptcy Analysis 
7. Investment Analysis

C.  Ratio of Solvency Analysis

1. Total Debt To Equity Capital Ratio 
2. Short-term Debt To Total Debt Ratio 
3. Long-term Debt To Equity Capital Ratio 
4. Cash Flow From Operating Activities To Total Debt 
5. Times Interest Earned Ratio

 D. Times Interest Earned

 

               show how much earning available to cover interest expense. By this ratio we can know company’s ability  to pay interest expense of debt used in financing. Earnings available is a earning before interest and tax that be gotten by a company. Interest expense is  a interest expense of debt. And the formula of Time interest earned is 

Key Points of Times Interest Earned

• Times Interest Earned Ratio is the same as the interest coverage ratio.
• The higher the Times Interest Earned Ratio, the better, and a ratio below 2.5 is considered a warning sign of financial distress.
•  A company will eventually default on its required interest payments if it cannot generate enough income to cover its required interest payments.
  

E. CASE STUDY

F. CONCLUSION

• From the calculate shows that in 2011, PT. Unilever Indonesia Tbk and Subsidiary is able to get profit about 364,42 times  from  interest expense to be borne and  in 2012, the company is able to get profit about 52,99 times from  interest expense to be borne 
• Result of these calculations indicate that in 2011 and 2012 PT. Unilever Indonesia Tbk and subsidiary is solvable because capable of making adequate profit to cover the interest expense 

it means the company is still very possible to increase debt financing of company