XX学院
毕业设计(文)外文资料翻译
专 业： 财务理
姓 名：
学 号：
外文出处： The University Journal of
(外文写)
Business Vol 3 No 4
附 件： 1外文资料翻译译文2外文原文
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年 月 日
附件1：外文资料翻译译文
财务报表分析
A财务率
需财务率分析财务报表较财务报表分析方法真正效出想结果非采取研究报表中项目项目间关系形式例知道史密斯公司特定日期中拥10000美元现金余额没价值假知道种余额种衡中4流动负债年前现金余额25流动负债银行家公司通常求现金余额保持银行信度20果公司财务状况出现问题立发现
较财务报表中项目作出结：
1 项目间资产负债表较：
a）资产负债表中日期间较例项目现金流动负债相
b）项目资产负债表中日期日期间较例现现金年前较
c）较两项目间资产负债表中日期相似率资产负债表中日期率例现现金流动负债率项目年前相似率已标记现金状况趋势较
2．项目报表中收入支出较：
a）定时期中报表项目较
b）项目报表中现阶段阶段较
c）报表中项目间率年相似率较
3．资产负债表中项目报表中收入支出项目较：
a）报表项目间定时间例年净利润百分计算年净值
b）两报表中项目间率年时间较例净利润率占年净值百分年者前年相似率较
果采述较率然次较较分析结果获重意义：
1 样数较报表缺少种数金融史条件判断十分重例商业周期阶段性
2 财务财务率分析财务报表竞争角度民较关注类似业务较 财务报表较表示成项目间较例现金状况流动负债项目总产品现金出商表示总现金项目测试两种方式表示例销售固定资产率表示销售固定资产率样方式表达例增加期间利降低财务状况中利金融条件
应列财务率分析较财务报表：
流动资金率：
1 流动资产流动负债率
2 现金流动负债总额率
3 现金售证券票应收账款流动负债总额率
4 销售应收款项例说应收账款周转率
5 商品库存存货周商品成率
6 应收票应收账款率
7 应收账款存货率
8 库存营运资金净额率
9 应付票应付账款率
10库存应付帐款率
二 固定资产形资产资率：
1 销售固定资产率固定资周转
2 销售形资产率形资产周转率
3 年折旧报废费率折旧资产核销
4 固定资产净值率
三 资率：
1 债务净值率
2 资存量总市值率
3 固定资产长期债务率
四 收入支出率：
1 销售净营业利润率
2 净营业利润总资率
3 销售额营成开支率
4 销售净利润例
5 净利润净值率
6 销售财务费率
7 入资资成率
8 投资投资收入率
9 非营性收入营溢利净额率
10净营业利润营业外支出率
11净利润资存量率
12净利润投资净利润总额率普通股股息率
13利润利息利息开支率
财务率永久性种分类非详遗率购买指示外率反映资金效率反映资金融资效率销售应收款项存货固定资产形资净营业利润资总额销售率销售营成开支率反映资金效率数率反映金融效率
B财务报表分析技术
报表数否充足？较分析出财务报表前希确保财务报表合理足够充分然应该完整应该期数果样必须限制涵盖期间例2008年条件结完全建立2006年报表数
较资产负债表否反映时情况？果样重知道金融条件高点低点财务状况资产流动性非常快债务低时必须避免分造成低点时商务判断流动性较差资产债务较高时候应避免分否定高点时判决
建议发行新证券根日期资产负债表反映财务状况估计？果样话确定该日期实际财务状况减少证券发行数量必果债券出售必须类似金额减根估计款项问题声明中反映资产负债
报表审核未审核？常说审计报表完整审计未注册会计师审核批准报表真实报表分析师应该确定出审计公司否超出职责范围
正运行资状况否良？果分析报表目合理足够充分步分析关注营运资趋势位置开始确定流动资产流动负债率率关注力损害净营运资偿付义务种额外营运资金续没困难短期贷款措施事情相等条件流动负债超流动资产越短期债券风险越信贷业务越假设保守估值全部流动资产流动负债均计算流动资产两美元利率美元流动负债验法例通常认令满意
验法流动率运营资状况趋势令满意测试两美元美元说流动率少两美元足够者超两美元流动率美元恰取决流动资产流动性点
流动资产流动性现金状况变化变化流动资产现金出现例越流动资产作整体流动越快般说现金应等少20％总流动负债（流动负债总额）银行家通常需关注保持银行结余等20％信贷额度否开放式信贷额度资产负债表没显示总流动负债（应付银行票）测试现金状况两流动率现金率20％少验法标准
现金余额否令满意取决销售条款购买存货周转率公司销售商品现金流入量现金流出量赊货销售更加满意支付现金购买消费品买卖长期信卡需更现金条件相情况售出存货越快现金流入量越接现金流出量
现金余额需求会受商业周期阶段影响结算时候景气运营资带销售暴跌充足现金结余额助维持银行信贷支付费清算
金融政策差异会影响现金结余公司认具备银行开行利政策公司具备标准满足贷款合理特定求第公司现金余额会远远第二家公司
流动资产流通性着严峻考验程度变化 流动资产流动性现售证券票应收账款（扣坏账准备充足储备）率流动负债总额（划分总前四项目总流动负债）变化变化谓严峻考验前条件流动性11率令满意流动负债容易支付债权库存商品确定价值没风险11率足够果应收账款快速收集库存容易快销售空说营业额变动风险
流动资产流通性着应收款项偿力变化根年销售额均应收账款者年应收账款确定非应收票代表证正常金额信贷客户销售条件必须考虑应收款项营业额中例果年销售额1200000美元均应收款项总计100000美元应收款项营业额120000010000012现果顾客说信贷条款期限三十天应收款项快清报酬应该考虑市场条件商业周期阶段性农业方面贷款条件工业更加济繁荣时期处金融危机者济景气时候慢
应收款项流通性反应应收账款利率数情况货物账户代表性销售应收账款利率降预示着信标准降通常关闭逾期账户果话应收款项计划表应该出没支付款项期三十天六十天九十天款项种计划表价值展示信效性款项回收解释应收款项营业额流动趋势应收款项流通额流通越快收回账目损失风险越相等条件应收账款投入资存款利润越总资利润越高
作者 C O Hardy and S P Meech
附件2：外文原文（复印件）
ANALYSIS OF FINANCIAL STATEMENTS
A The Financial Ratios
We need to use financial ratios in analyzing financial statements—— The analysis of comparative financial statements cannot be made really effective unless it takes the form of a study of relationships between items in the statements It is of little value for example to know that on a given date the Smith Company has a cash balance of 1oooo But suppose we know that this balance is only IV per cent of all current liabilities whereas a year ago cash was 25 per cent of all current liabilities Since the bankers for the company usually require a cash balance against bank lines used or unused of 20 per cent we can see at once that the firm's cash condition is exhibiting a questionable tendency
We may make comparisons between items in the comparative financial statements as follows
1 Between items in the comparative balance sheet
a) Between items in the balance sheet for one date eg cash may be compared with current liabilities
b) Between an item in the balance sheet for one date and the same item in the balance sheet for another date eg cash today may be compared with cash a year ago
c) Of ratios or mathematical proportions between two items in the balance sheet for one date and a like ratio in the balance sheet for another date eg the ratio of cash to current liabilities today may be compared with a like ratio a year ago and the trend of cash condition noted
2 Between items in the comparative statement of income and expense
a) Between items in the statement for a given period
b) Between one item in this period's statement and the same item in last period's statement
c) Of ratios between items in this period's statement and similar ratios in last period's statement
3 Between items in the comparative balance sheet and items in the comparative statement of income and expense
a) Between items in these statements for a given period eg net profit for this year may be calculated as a percentage of net worth for this year
b) Of ratios between items in the two statements for a period of years eg the ratio of net profit to net worth this year maybe compared with like ratios for last year and for the years preceding that
Our comparative analysis will gain in significance if we take the foregoing comparisons or ratios and in turn compare them with
I Such data as are absent from the comparative statements but are of importance in judging a concern's financial history and condition for example the stage of the business cycle
2 Similar ratios derived from analysis of the comparative statements of competing concerns or of concerns in similar lines of business What financial ratios are used in analyzing financial statements Comparative analysis of comparative financial statements may be expressed by mathematical ratios between the items compared for example a concern's cash position may be tested by dividing the item of cash by the total of current liability items and using the quotient to express the result of the test Each ratio may be expressed in two ways for example the ratio of sales to fixed assets may be expressed as the ratio of fixed assets to sales We shall express each ratio in such a way that increases from period to period will be favorable and decreases unfavorable to financial condition
We shall use the following financial ratios in analyzing comparative financial statements
I Workingcapital ratios
1 The ratio of current assets to current liabilities
2 The ratio of cash to total current liabilities
3 The ratio of cash salable securities notes and accounts receivable to total current liabilities
4 The ratio of sales to receivables ie the turnover of receivables
5 The ratio of cost of goods sold to merchandise inventory ie the turnover of inventory
6 The ratio of accounts receivable to notes receivable
7 The ratio of receivables to inventory
8 The ratio of net working capital to inventory
9 The ratio of notes payable to accounts payable
IO The ratio of inventory to accounts payable
II Fixed and intangible capital ratios
1 The ratio of sales to fixed assets ie the turnover of fixed capital
2 The ratio of sales to intangible assets ie the turnover of intangibles
3 The ratio of annual depreciation and obsolescence charges to the assets against which depreciation is written off
4 The ratio of net worth to fixed assets
III Capitalization ratios
1 The ratio of net worth to debt
2 The ratio of capital stock to total capitalization
3 The ratio of fixed assets to funded debt
IV Income and expense ratios
1 The ratio of net operating profit to sales
2 The ratio of net operating profit to total capital
3 The ratio of sales to operating costs and expenses
4 The ratio of net profit to sales
5 The ratio of net profit to net worth
6 The ratio of sales to financial expenses
7 The ratio of borrowed capital to capital costs
8 The ratio of income on investments to investments
9 The ratio of nonoperating income to net operating profit
10 The ratio of net operating profit to nonoperating expense
11 The ratio of net profit to capital stock
12 The ratio of net profit reinvested to total net profit available for dividends on common stock
13 The ratio of profit available for interest to interest expenses
This classification of financial ratios is permanent not exhaustive Other ratios may be used for purposes later indicated Furthermore some of the ratios reflect the efficiency with which a business has used its capital while others reflect efficiency in financing capital needs The ratios of sales to receivables inventory fixed and intangible capital the ratios of net operating profit to total capital and to sales and the ratios of sales to operating costs and expenses reflect efficiency in the use of capital' Most of the other ratios reflect financial efficiency
B Technique of Financial Statement Analysis
Are the statements adequate in generalBefore attempting comparative analysis of given financial statements we wish to be sure that the statements are reasonably adequate for the purpose They should of course be as complete as possible They should also be of recent date If not their use must be limited to the period which they cover Conclusions concerning 1923 conditions cannot safely be based upon 1921 statements
Does the comparative balance sheet reflect a seasonable situation If so it is important to know financial conditions at both the high and low points of the season We must avoid unduly favorable judgment of the business at the low point when assets are very liquid and debt is low and unduly unfavorable judgment at the high point when assets are less liquid and debt likely to be relatively high
Does the balance sheet for any date reflect the estimated financial condition after the sale of a proposed new issue of securities If so in order to ascertain the actual financial condition at that date it is necessary to subtract the amount of the security issue from net worth if the issue is of stock or from liabilities if bonds are to be sold A like amount must also be subtracted from assets or liabilities depending upon how the estimated proceeds of the issue are reflected in the statement
Are the statements audited or unaudited It is often said that audited statements that is complete audits rather than statements rubber stamped by certified public accountants are desirable when they can be obtained This is true but the statement analyst should be certain that the given auditing film's reputation is beyond reproach
Is workingcapital situation favorable If the comparative statements to be analyzed are reasonably adequate for the purpose the next step is to analyze the concern's workingcapital trend and position We may begin by ascertaining the ratio of current assets to current liabilities This ratio affordsa test of the concern's probable ability to pay current obligations without impairing its net working capital It is in part a measure of ability to borrow additional working capital or to renew shortterm loans without difficulty The larger the excess of current assets over current liabilities the smaller the risk of loss to shortterm creditors and the better the credit of the business other things being equal A ratio of two dollars of current assets to one dollar of current liabilities is the ruleofthumb ratio generally considered satisfactory assuming all current assets are conservatively valued and all current liabilities revealed
The ruleofthumb current ratio is not a satisfactory test of workingcapital position and trend A current ratio of less than two dollars for one dollar may be adequate or a current ratio of more than two dollars for one dollar may be inadequate It depends for one thing upon the liquidity of the current assets
The liquidity of current assets varies with cash positionThe larger the proportion of current assets in the form of cash the more liquid are the current assets as a whole Generally speaking cash should equal at least 20 per cent of total current liabilities (divide cash by total current liabilities) Bankers typically require a concern to maintain bank balances equal to 20 per cent of credit lines whether used or unused Opencredit lines are not shown on the balance sheet hence the total of current liabilities (instead of notes payable to banks) is used in testing cash position Like the twoforone current ratio the 20 per cent cash ratio is more or less a ruleofthumb standard
The cash balance that will be satisfactory depends upon terms of sale terms of purchase and upon inventory turnover A firm selling goods for cash will find cash inflow more nearly meeting cash outflow than will a firm selling goods on credit A business which pays cash for all purchases will need more ready money than one which buys on long terms of credit The more rapidly the inventory is sold the more nearly will cash inflow equal cash outflow other things equal
Needs for cash balances will be affected by the stage of the business cycle Heavy cash balances help to sustain bank credit and pay expenses when a period of liquidation and depression depletes working capital and brings a slump in sales The greater the effects of changes in the cycle upon a given concern the more thought the financial executive will need to give to the size of his cash balances
Differences in financial policies between different concerns will affect the size of cash balances carried One concern may deem it good policy to carry as many openbank lines as it can get while another may carry only enough lines to meet reasonably certain needs for loans The cash balance of the first firm is likely to be much larger than that of the second firm
The liquidity of current assets varies with ability to meet acid test Liquidity of current assets varies with the ratio of cash salable securities notes and accounts receivable (less adequate reserves for bad debts) to total current liabilities (divide the total of the first four items by total current liabilities) This is the socalled acid test of the liquidity of current condition A ratio of I I is considered satisfactory since current liabilities can readily be paid and creditors risk nothing on the uncertain values of merchandise inventory A less than 11 ratio may be adequate if receivables are quickly collected and if inventory is readily and quickly sold that is if its turnover is rapid andif the risks of changes in price are small
The liquidity of current assets varies with liquidity of receivables This may be ascertained by dividing annual sales by average receivables or by receivables at the close of the year unless at that date receivables do not represent the normal amount of credit extended to customers Terms of sale must be considered in judging the turnover of receivables For example if sales for the year are 1200000 and average receivables amount to 100000 the turnover of receivables is 120000010000012 Now if credit terms to customers are net in thirty days we can see that receivables are paid promptly Consideration should also be given market conditions and the stage of the business cycle Terms of credit are usually longer in farming sections than in industrial centers Collections are good in prosperous times but slow in periods of crisis and liquidation
Trends in the liquidity of receivables will also be reflected in the ratio of accounts receivable to notes receivable in cases where goods are typically sold on open account A decline in this ratio may indicate a lowering of credit standards since notes receivable are usually given to close overdue open accounts If possible a schedule of receivables should be obtained showing those not due due and past due thirty sixty and ninety days Such a schedule is of value in showing the efficiency of credits and collections and in explaining the trend in turnover of receivables The more rapid the turnover of receivables the smaller the risk of loss from bad debts the greater the savings of interest on the capital invested in receivables and the higher the profit on total capital other things being equal
Author(s) C O Hardy and S P Meech
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XX学院
毕业设计(文)外文资料翻译
专 业： 财务理
姓 名：
学 号：
外文出处： The University Journal of
(外文写)
Business Vol 3 No 4
附 件： 1外文资料翻译译文2外文原文
指导教师评语：
签名：
年 月 日
附件1：外文资料翻译译文
财务报表分析
A财务率
需财务率分析财务报表较财务报表分析方法真正效出想结果非采取研究报表中项目项目间关系形式例知道史密斯公司特定日期中拥10000美元现金余额没价值假知道种余额种衡中4流动负债年前现金余额25流动负债银行家公司通常求现金余额保持银行信度20果公司财务状况出现问题立发现
较财务报表中项目作出结：
1 项目间资产负债表较：
a）资产负债表中日期间较例项目现金流动负债相
b）项目资产负债表中日期日期间较例现现金年前较
c）较两项目间资产负债表中日期相似率资产负债表中日期率例现现金流动负债率项目年前相似率已标记现金状况趋势较
2．项目报表中收入支出较：
a）定时期中报表项目较
b）项目报表中现阶段阶段较
c）报表中项目间率年相似率较
3．资产负债表中项目报表中收入支出项目较：
a）报表项目间定时间例年净利润百分计算年净值
b）两报表中项目间率年时间较例净利润率占年净值百分年者前年相似率较
果采述较率然次较较分析结果获重意义：
1 样数较报表缺少种数金融史条件判断十分重例商业周期阶段性
2 财务财务率分析财务报表竞争角度民较关注类似业务较 财务报表较表示成项目间较例现金状况流动负债项目总产品现金出商表示总现金项目测试两种方式表示例销售固定资产率表示销售固定资产率样方式表达例增加期间利降低财务状况中利金融条件
应列财务率分析较财务报表：
流动资金率：
1 流动资产流动负债率
2 现金流动负债总额率
3 现金售证券票应收账款流动负债总额率
4 销售应收款项例说应收账款周转率
5 商品库存存货周商品成率
6 应收票应收账款率
7 应收账款存货率
8 库存营运资金净额率
9 应付票应付账款率
10库存应付帐款率
二 固定资产形资产资率：
1 销售固定资产率固定资周转
2 销售形资产率形资产周转率
3 年折旧报废费率折旧资产核销
4 固定资产净值率
三 资率：
1 债务净值率
2 资存量总市值率
3 固定资产长期债务率
四 收入支出率：
1 销售净营业利润率
2 净营业利润总资率
3 销售额营成开支率
4 销售净利润例
5 净利润净值率
6 销售财务费率
7 入资资成率
8 投资投资收入率
9 非营性收入营溢利净额率
10净营业利润营业外支出率
11净利润资存量率
12净利润投资净利润总额率普通股股息率
13利润利息利息开支率
财务率永久性种分类非详遗率购买指示外率反映资金效率反映资金融资效率销售应收款项存货固定资产形资净营业利润资总额销售率销售营成开支率反映资金效率数率反映金融效率
B财务报表分析技术
报表数否充足？较分析出财务报表前希确保财务报表合理足够充分然应该完整应该期数果样必须限制涵盖期间例2008年条件结完全建立2006年报表数
较资产负债表否反映时情况？果样重知道金融条件高点低点财务状况资产流动性非常快债务低时必须避免分造成低点时商务判断流动性较差资产债务较高时候应避免分否定高点时判决
建议发行新证券根日期资产负债表反映财务状况估计？果样话确定该日期实际财务状况减少证券发行数量必果债券出售必须类似金额减根估计款项问题声明中反映资产负债
报表审核未审核？常说审计报表完整审计未注册会计师审核批准报表真实报表分析师应该确定出审计公司否超出职责范围
正运行资状况否良？果分析报表目合理足够充分步分析关注营运资趋势位置开始确定流动资产流动负债率率关注力损害净营运资偿付义务种额外营运资金续没困难短期贷款措施事情相等条件流动负债超流动资产越短期债券风险越信贷业务越假设保守估值全部流动资产流动负债均计算流动资产两美元利率美元流动负债验法例通常认令满意
验法流动率运营资状况趋势令满意测试两美元美元说流动率少两美元足够者超两美元流动率美元恰取决流动资产流动性点
流动资产流动性现金状况变化变化流动资产现金出现例越流动资产作整体流动越快般说现金应等少20％总流动负债（流动负债总额）银行家通常需关注保持银行结余等20％信贷额度否开放式信贷额度资产负债表没显示总流动负债（应付银行票）测试现金状况两流动率现金率20％少验法标准
现金余额否令满意取决销售条款购买存货周转率公司销售商品现金流入量现金流出量赊货销售更加满意支付现金购买消费品买卖长期信卡需更现金条件相情况售出存货越快现金流入量越接现金流出量
现金余额需求会受商业周期阶段影响结算时候景气运营资带销售暴跌充足现金结余额助维持银行信贷支付费清算
金融政策差异会影响现金结余公司认具备银行开行利政策公司具备标准满足贷款合理特定求第公司现金余额会远远第二家公司
流动资产流通性着严峻考验程度变化 流动资产流动性现售证券票应收账款（扣坏账准备充足储备）率流动负债总额（划分总前四项目总流动负债）变化变化谓严峻考验前条件流动性11率令满意流动负债容易支付债权库存商品确定价值没风险11率足够果应收账款快速收集库存容易快销售空说营业额变动风险
流动资产流通性着应收款项偿力变化根年销售额均应收账款者年应收账款确定非应收票代表证正常金额信贷客户销售条件必须考虑应收款项营业额中例果年销售额1200000美元均应收款项总计100000美元应收款项营业额120000010000012现果顾客说信贷条款期限三十天应收款项快清报酬应该考虑市场条件商业周期阶段性农业方面贷款条件工业更加济繁荣时期处金融危机者济景气时候慢
应收款项流通性反应应收账款利率数情况货物账户代表性销售应收账款利率降预示着信标准降通常关闭逾期账户果话应收款项计划表应该出没支付款项期三十天六十天九十天款项种计划表价值展示信效性款项回收解释应收款项营业额流动趋势应收款项流通额流通越快收回账目损失风险越相等条件应收账款投入资存款利润越总资利润越高
作者 C O Hardy and S P Meech
附件2：外文原文（复印件）
ANALYSIS OF FINANCIAL STATEMENTS
A The Financial Ratios
We need to use financial ratios in analyzing financial statements—— The analysis of comparative financial statements cannot be made really effective unless it takes the form of a study of relationships between items in the statements It is of little value for example to know that on a given date the Smith Company has a cash balance of 1oooo But suppose we know that this balance is only IV per cent of all current liabilities whereas a year ago cash was 25 per cent of all current liabilities Since the bankers for the company usually require a cash balance against bank lines used or unused of 20 per cent we can see at once that the firm's cash condition is exhibiting a questionable tendency
We may make comparisons between items in the comparative financial statements as follows
1 Between items in the comparative balance sheet
a) Between items in the balance sheet for one date eg cash may be compared with current liabilities
b) Between an item in the balance sheet for one date and the same item in the balance sheet for another date eg cash today may be compared with cash a year ago
c) Of ratios or mathematical proportions between two items in the balance sheet for one date and a like ratio in the balance sheet for another date eg the ratio of cash to current liabilities today may be compared with a like ratio a year ago and the trend of cash condition noted
2 Between items in the comparative statement of income and expense
a) Between items in the statement for a given period
b) Between one item in this period's statement and the same item in last period's statement
c) Of ratios between items in this period's statement and similar ratios in last period's statement
3 Between items in the comparative balance sheet and items in the comparative statement of income and expense
a) Between items in these statements for a given period eg net profit for this year may be calculated as a percentage of net worth for this year
b) Of ratios between items in the two statements for a period of years eg the ratio of net profit to net worth this year maybe compared with like ratios for last year and for the years preceding that
Our comparative analysis will gain in significance if we take the foregoing comparisons or ratios and in turn compare them with
I Such data as are absent from the comparative statements but are of importance in judging a concern's financial history and condition for example the stage of the business cycle
2 Similar ratios derived from analysis of the comparative statements of competing concerns or of concerns in similar lines of business What financial ratios are used in analyzing financial statements Comparative analysis of comparative financial statements may be expressed by mathematical ratios between the items compared for example a concern's cash position may be tested by dividing the item of cash by the total of current liability items and using the quotient to express the result of the test Each ratio may be expressed in two ways for example the ratio of sales to fixed assets may be expressed as the ratio of fixed assets to sales We shall express each ratio in such a way that increases from period to period will be favorable and decreases unfavorable to financial condition
We shall use the following financial ratios in analyzing comparative financial statements
I Workingcapital ratios
1 The ratio of current assets to current liabilities
2 The ratio of cash to total current liabilities
3 The ratio of cash salable securities notes and accounts receivable to total current liabilities
4 The ratio of sales to receivables ie the turnover of receivables
5 The ratio of cost of goods sold to merchandise inventory ie the turnover of inventory
6 The ratio of accounts receivable to notes receivable
7 The ratio of receivables to inventory
8 The ratio of net working capital to inventory
9 The ratio of notes payable to accounts payable
IO The ratio of inventory to accounts payable
II Fixed and intangible capital ratios
1 The ratio of sales to fixed assets ie the turnover of fixed capital
2 The ratio of sales to intangible assets ie the turnover of intangibles
3 The ratio of annual depreciation and obsolescence charges to the assets against which depreciation is written off
4 The ratio of net worth to fixed assets
III Capitalization ratios
1 The ratio of net worth to debt
2 The ratio of capital stock to total capitalization
3 The ratio of fixed assets to funded debt
IV Income and expense ratios
1 The ratio of net operating profit to sales
2 The ratio of net operating profit to total capital
3 The ratio of sales to operating costs and expenses
4 The ratio of net profit to sales
5 The ratio of net profit to net worth
6 The ratio of sales to financial expenses
7 The ratio of borrowed capital to capital costs
8 The ratio of income on investments to investments
9 The ratio of nonoperating income to net operating profit
10 The ratio of net operating profit to nonoperating expense
11 The ratio of net profit to capital stock
12 The ratio of net profit reinvested to total net profit available for dividends on common stock
13 The ratio of profit available for interest to interest expenses
This classification of financial ratios is permanent not exhaustive Other ratios may be used for purposes later indicated Furthermore some of the ratios reflect the efficiency with which a business has used its capital while others reflect efficiency in financing capital needs The ratios of sales to receivables inventory fixed and intangible capital the ratios of net operating profit to total capital and to sales and the ratios of sales to operating costs and expenses reflect efficiency in the use of capital' Most of the other ratios reflect financial efficiency
B Technique of Financial Statement Analysis
Are the statements adequate in generalBefore attempting comparative analysis of given financial statements we wish to be sure that the statements are reasonably adequate for the purpose They should of course be as complete as possible They should also be of recent date If not their use must be limited to the period which they cover Conclusions concerning 1923 conditions cannot safely be based upon 1921 statements
Does the comparative balance sheet reflect a seasonable situation If so it is important to know financial conditions at both the high and low points of the season We must avoid unduly favorable judgment of the business at the low point when assets are very liquid and debt is low and unduly unfavorable judgment at the high point when assets are less liquid and debt likely to be relatively high
Does the balance sheet for any date reflect the estimated financial condition after the sale of a proposed new issue of securities If so in order to ascertain the actual financial condition at that date it is necessary to subtract the amount of the security issue from net worth if the issue is of stock or from liabilities if bonds are to be sold A like amount must also be subtracted from assets or liabilities depending upon how the estimated proceeds of the issue are reflected in the statement
Are the statements audited or unaudited It is often said that audited statements that is complete audits rather than statements rubber stamped by certified public accountants are desirable when they can be obtained This is true but the statement analyst should be certain that the given auditing film's reputation is beyond reproach
Is workingcapital situation favorable If the comparative statements to be analyzed are reasonably adequate for the purpose the next step is to analyze the concern's workingcapital trend and position We may begin by ascertaining the ratio of current assets to current liabilities This ratio affordsa test of the concern's probable ability to pay current obligations without impairing its net working capital It is in part a measure of ability to borrow additional working capital or to renew shortterm loans without difficulty The larger the excess of current assets over current liabilities the smaller the risk of loss to shortterm creditors and the better the credit of the business other things being equal A ratio of two dollars of current assets to one dollar of current liabilities is the ruleofthumb ratio generally considered satisfactory assuming all current assets are conservatively valued and all current liabilities revealed
The ruleofthumb current ratio is not a satisfactory test of workingcapital position and trend A current ratio of less than two dollars for one dollar may be adequate or a current ratio of more than two dollars for one dollar may be inadequate It depends for one thing upon the liquidity of the current assets
The liquidity of current assets varies with cash positionThe larger the proportion of current assets in the form of cash the more liquid are the current assets as a whole Generally speaking cash should equal at least 20 per cent of total current liabilities (divide cash by total current liabilities) Bankers typically require a concern to maintain bank balances equal to 20 per cent of credit lines whether used or unused Opencredit lines are not shown on the balance sheet hence the total of current liabilities (instead of notes payable to banks) is used in testing cash position Like the twoforone current ratio the 20 per cent cash ratio is more or less a ruleofthumb standard
The cash balance that will be satisfactory depends upon terms of sale terms of purchase and upon inventory turnover A firm selling goods for cash will find cash inflow more nearly meeting cash outflow than will a firm selling goods on credit A business which pays cash for all purchases will need more ready money than one which buys on long terms of credit The more rapidly the inventory is sold the more nearly will cash inflow equal cash outflow other things equal
Needs for cash balances will be affected by the stage of the business cycle Heavy cash balances help to sustain bank credit and pay expenses when a period of liquidation and depression depletes working capital and brings a slump in sales The greater the effects of changes in the cycle upon a given concern the more thought the financial executive will need to give to the size of his cash balances
Differences in financial policies between different concerns will affect the size of cash balances carried One concern may deem it good policy to carry as many openbank lines as it can get while another may carry only enough lines to meet reasonably certain needs for loans The cash balance of the first firm is likely to be much larger than that of the second firm
The liquidity of current assets varies with ability to meet acid test Liquidity of current assets varies with the ratio of cash salable securities notes and accounts receivable (less adequate reserves for bad debts) to total current liabilities (divide the total of the first four items by total current liabilities) This is the socalled acid test of the liquidity of current condition A ratio of I I is considered satisfactory since current liabilities can readily be paid and creditors risk nothing on the uncertain values of merchandise inventory A less than 11 ratio may be adequate if receivables are quickly collected and if inventory is readily and quickly sold that is if its turnover is rapid andif the risks of changes in price are small
The liquidity of current assets varies with liquidity of receivables This may be ascertained by dividing annual sales by average receivables or by receivables at the close of the year unless at that date receivables do not represent the normal amount of credit extended to customers Terms of sale must be considered in judging the turnover of receivables For example if sales for the year are 1200000 and average receivables amount to 100000 the turnover of receivables is 120000010000012 Now if credit terms to customers are net in thirty days we can see that receivables are paid promptly Consideration should also be given market conditions and the stage of the business cycle Terms of credit are usually longer in farming sections than in industrial centers Collections are good in prosperous times but slow in periods of crisis and liquidation
Trends in the liquidity of receivables will also be reflected in the ratio of accounts receivable to notes receivable in cases where goods are typically sold on open account A decline in this ratio may indicate a lowering of credit standards since notes receivable are usually given to close overdue open accounts If possible a schedule of receivables should be obtained showing those not due due and past due thirty sixty and ninety days Such a schedule is of value in showing the efficiency of credits and collections and in explaining the trend in turnover of receivables The more rapid the turnover of receivables the smaller the risk of loss from bad debts the greater the savings of interest on the capital invested in receivables and the higher the profit on total capital other things being equal
Author(s) C O Hardy and S P Meech
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