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.