ERWIN
46110051
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)
(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.
