Class 9-10-11

• Class 9 (หยุด)
• Class 10 - บอกคะแนน Midterm + สอนนิดหน่อย
• Class 11 - March 17
  • March 17+7 หยุด อาจารย์ทำฟัน

Financial Statements Are Designed for Analysis

• Classified Financial Statements
  • Items with certain characteristics are grouped together
  • Results in standardized, meaningful subtotals
• Comparative Financial Statements
  • Amounts from several years appear side by side
  • Helps identify significant changes and trends
• Consolidated Financial Statements
  • Information for the parent and subsidiary are presented
  • Presented as if the two companies are a single business unit

Tools of Analysis

Four main tools used to analyze financial statements:

• Dollar & Percentage Changes — How much did a line item change?
• Trend Percentages — What is the multi-year direction?
• Component Percentages — What proportion is each item relative to the whole?
• Ratios — What is the relationship between two financial items?

1. Dollar and Percentage Changes

Dollar Change

$\boxed{\text{Dollar Change} = \text{Analysis Period Amount} - \text{Base Period Amount}}$

Percentage Change

$\boxed{\text{Percent Change} = \frac{\text{Dollar Change}}{\text{Base Period Amount}}}$

Analogy: If your salary was ฿20,000 last year and ฿25,000 this year, the dollar change is +฿5,000, and the % change is 25%. Simple before-and-after comparison.

Example — Clover, Inc. Comparative Balance Sheets (Dec 31)

Calculation example: $(-11,500 \div 23,500) \times 100\% = -48.9\%$

2. Trend Percentages

Used to reveal patterns in data covering successive periods.
$\boxed{\text{Trend \%} = \frac{\text{Analysis Period Amount}}{\text{Base Period Amount}} \times 100\%}$

Analogy: Set year 1 as "100%" (your baseline). Every subsequent year, you ask: "Compared to where I started, am I at 110%? 150%? 80%?" It's like tracking your fitness gains vs. your Day 1 benchmark.

Example — Berry Products Income Information

⚠️ Notice: Cost of sales grew faster (150%) than revenues (145%) — this signals a margin squeeze. Gross profit % growth (135%) lagging behind revenue growth is a warning sign!

3. Component Percentages (Common-Size Analysis)

Examines the relative size of each item as a % of a base amount.
$\boxed{\text{Component \%} = \frac{\text{Analysis Amount}}{\text{Base Amount}} \times 100\%}$

Analogy: Imagine slicing a pizza. Each slice = one line item. Component % tells you _how big each slice is_compared to the whole pizza. Useful to compare companies of different sizes on equal footing.

Example — Clover, Inc. Balance Sheet (Common-Size)

Example calculation: ($12,000 \div $315,000) \times 100\% = 3.8\%

Example — Clover, Inc. Income Statement (Common-Size)

⚠️ Key insight: Cost of sales jumped from 65.6% → 69.2% of revenue, while net income margin shrank from 4.7% → 3.4%. The company is less profitable despite higher revenues.

4. Ratios

A ratio is a simple mathematical expression of the relationship between one item and another.

Ratios can compare:

• Past performance to present performance
• Other companies to your company

Uses & Limitations

All four methods are in #FinalExam
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A Classified Balance Sheet

• ไม่ลืมหรอกว่า Equation of Balance Sheet
  • Assets = L + O

Asset Section — Matrix, Inc. (Dec 31, 2025)

Current Assets:

• Cash: $30,000
• Notes receivable: $16,000
• Accounts receivable: $60,000
• Inventory: $70,000
• Prepaid expenses: $4,000
• Total current assets: $180,000

Non-Current Assets (Plant & Equipment):

• Land: $150,000
  • สำคัญมาก ว่าไม่ต้องคำนวณ Depreciation ถูกมะ
• Building $121,000 − Accum. depreciation ($10,000) = $111,000
• Equipment & Fixtures $46,000 − Accum. depreciation ($27,000) = $19,000
• Total plant & equipment: $280,000

Intangible Assets: (สินทรัพย์ที่จับต้องไม่ได้)

• Patents: $170,000

Total Assets: $630,000

Liability & Stockholders' Equity Section

Current Liabilities:

• Notes payable: $10,000
• Accounts payable: $62,000
• Income taxes payable: $16,000
• Accrued expenses payable: $8,000
• **Total current liabilities: $96,000** _(slide shows$4,000 as a typo — actual sum is $96,000)_

Non-Current Liabilities:

• Mortgage payable (due 25 years): $65,000
• Bonds payable (due 15 years): $100,000
• Total long-term liabilities: $165,000
• Total liabilities: $265,000

Stockholders' Equity:

• Capital stock (15,000 shares): $15,000
• Retained earnings: $350,000 (กำไรสะสม)
• Total stockholders' equity: $365,000

Total Liabilities & Stockholders' Equity: $630,000

Liquidity Ratios

• Ability to pay short term liability/debt
  Data used: Babson Builders, Inc. 2025

Working Capital

• Working capital is the excess of current assets over current liabilities.
• Should be positive, higher is better!

$\boxed{\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}}$
= $65,000 - $42,000 = $23,000

Analogy: How much "cushion" money does the company have after paying all bills due within a year?

Current Ratio

$\boxed{\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}}$
= \frac{$65,000}{$42,000} = 1.55 : 1

Measures the short-term debt-paying ability. A ratio > 1 means the company can cover its short-term debts. Think of it as: "For every $1 of debt due soon, I have$1.55 of assets."

Quick Ratio (Acid-Test Ratio)

$\boxed{\text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}}$
$\boxed{\text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}=\frac{\text{Cash + Marketable Securities + Receivables}}{\text{Current Liabilities}}}$

Where Quick Assets = Cash + Marketable Securities + Receivables (excludes inventory & prepaid expenses)

= \frac{$50,000}{$42,000} = 1.19 : 1

Like the current ratio but stricter — strips out inventory which may take time to sell. If the quick ratio drops below 1, the company may struggle to pay short-term debts quickly.

Measures of Profitability

Income statements can be prepared in two formats:

• Single-step: Simpler — all revenues & gains listed, then all expenses & losses
• Multiple-step: More detailed — shows gross margin, operating income, non-operating items separately

Income Statement (Multiple-Step) — Babson Builders, Inc.

Remember to compute EPS (Earnings per share - กำไรต่อหุ้น).

• Interest Income มาจาก เงินเราเหลือ ให้คนอื่นยืมไป (Note Receivable) แล้วก็จะได้ Interest มา

• Gain, เราซื้อ equipment มาใช้ หลังจากใช้ไปแล้ว 10 ปี เก่าละ (อาจจะเป็น โต๊ะ, เก้าอี้) ก็ขายทิ้ง

  • เราจะเอาไว้ตรงนี้ เพราะว่า profit ไม่ได้มาจาก product ที่เราขายตรง ๆ

• ส่วนตรง Other expenses (Interst) - ก็อาจจะเป็น ที่เราไปกู้ธนาคารมา แล้วต้องจ่าย ดอกเบี้ย

Income Statement (Single-Step) — Babson Builders, Inc.

Profitability Ratios

Data used: Babson Builders, Inc. 2025

Earnings Per Share (EPS)

$\boxed{\text{EPS} = \frac{\text{Net Income}}{\text{Average Shares of Capital Stock Outstanding}}}$
= \frac{$53,690}{27,400} = $1.96

How much profit is attributed to each share. Investors use this to compare profitability across companies.

Price-Earnings (P/E) Ratio

$\boxed{P/E = \frac{\text{Current Market Price per Share}}{\text{Earnings Per Share (EPS)}}}$
= \frac{$15.25}{$1.96} = 7.78

Shows the relationship between a company's earnings and its market price. A higher P/E means investors expect higher future growth.

Return on Assets (ROA)

$\boxed{\text{ROA} = \frac{\text{Net Income}}{\text{Average Total Assets}}}$
= \frac{$53,690}{($300,000 + $346,390) \div 2} = 16.61\%

Generally considered the best overall measure of profitability. Tells you how efficiently the company uses ALL its assets to generate profit. Higher = better.

Return on Equity (ROE)

$\boxed{\text{ROE} = \frac{\text{Net Income}}{\text{Average Total Equity}}}$
= \frac{$53,690}{($180,000 + $234,390) \div 2} = 25.91\%

Measures how well the company uses owner investments to earn income. Higher ROE than ROA indicates that financial leverage (debt) is amplifying returns to shareholders.

Dividend Yield

$\boxed{\text{Dividend Yield} = \frac{\text{Dividends Per Share}}{\text{Market Price Per Share}}}$
= \frac{$1.50}{$15.25} = 9.84\%

Identifies the return in terms of cash dividends on the current market price. Useful for income-focused investors.

Analysis by Long-Term Creditors

Data: Babson Builders, Inc. 2025

Note: EBIT = Earnings Before Interest and Taxes = also called Net Operating Income

Times Interest Earned (Interest Coverage Ratio)

• The ability to pay ???
• Higher the better - how many times can the company pay the interest expensees
  $\boxed{\text{Times Interest Earned} = \frac{\text{Operating Income before Interest \& Taxes (EBIT)}}{\text{Annual Interest Expense}}}$
  = \frac{$84,000}{$7,300} = 11.5 \text{ times}

The most common measure of a firm's ability to protect its long-term creditors. A higher number = safer for creditors. If this ratio approaches 1, the company barely earns enough to cover interest payments.

Debt Ratio

$\boxed{\text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}}}$
= \frac{$112,000}{$346,390} = 32.33\%

Measures creditor's long-term risk. Smaller % = less risk for creditors (company relies less on debt). Think: "What fraction of everything we own was funded by borrowed money?"

Analysis by Short-Term Creditors

Data: Babson Builders, Inc. 2025

Accounts Receivable Turnover Rate

$\boxed{\text{AR Turnover} = \frac{\text{Net Sales}}{\text{Average Accounts Receivable}}}$
= \frac{$500,000}{($17,000 + $20,000) \div 2} = 27.03 \text{ times}

Measures how many times a company converts its receivables into cash each year. Higher = better — customers are paying faster, less cash is tied up.

Inventory Turnover Rate

• ยิ่งสูงยิ่งดี — ถ้าต่ำ = สินค้าค้างสต็อก ขายไม่ออก
  $\boxed{\text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}}$
  = \frac{$140,000}{($10,000 + $12,000) \div 2} = 12.73 \text{ times}

Measures how many times merchandise inventory is sold and replaced during the year. Higher = faster-moving goods = efficient inventory management.

Operating Cycle

The operating cycle flows through three stages:

Cash → (1. Purchase of Merchandise) → Inventory
     → (2. Sale on Account)         → Accounts Receivable
     → (3. Collection)              → Cash

Analogy: Think of it like a food stall — you spend cash to buy ingredients (inventory), sell to customers on credit, then collect cash from them. The faster the cycle, the healthier the cash flow.

Summary: Key Ratios Quick Reference

Net sale vs net icome? เลือกอะไร เวลาเปิด แนทยฟืั