Financial Ratios -- Gathering the Data
Uploaded by kevinbracker on 28.06.2012
Transcript:
This is video one of a multipart video series dealing with ratio analysis.
And in video one what we're going to do is introduce ratio analysis
a little bit
Give an overview of the ratios we're going to use in this series
and gather the data for calculating the ratios
In a couple of the later videos we'll walk through the specific calculations
as well as have a few comments on each of ratios out there
Now I want to start with an overview of the ratios that we're going to use for
this class
Now this handout is available in Canvas if you're enrolled in one of my classes
If you're watching this video and you're not in one of my classes
you can get this handout here at the
bit.ly address posted up top
What I've done is just put that up in
Google documents
and so you can just follow that link
and should be able to print off a copy of these ratios
Now every finance book that you look at has a slightly different set of financial
ratios that they cover. There are tons of different financial ratios out there.
Some are specific to particular industries
for example one of the big ones in retail is sales per square foot
that works great in retail, but it
doesn't work too well in other industries. For example that ratio would
make no sense in trying to evaluate a company like Merck which is a
pharmaceutical company
So these are just some basic ratios
We've got them segmented into five separate categories -- liquidity ratios,
asset management ratios,
debt management ratios, profitability ratios,
and then market value ratios.
Each of these categories is designed to give us a little bit different
perspective
on different aspects of the firm.
Now the first thing that we're going to do
with this video is in order to calculate all these videos, I mean all these
ratios
which you could see listed here we've got quite a few of them
you need lots of different pieces of information
For example in the inventory turnover ratio
you need the cost of goods sold
divided by inventory
When we want to calculate the return on equity,
we need net income divided by common equity or sometimes referred to as owners equity.
So the first thing we need to do before we can calculate these ratios
is go ahead and gather the data
Now in this video we're going to walk through analyzing calculating ratios for
Pepsi
and you can find the data that we're going to use in the guided tutorial
handout
This is available again if you're in my class in Canvas
and if you're not my class you can go to this bit.ly address right
here
And you can download the three pages that include the income statement
balance sheet and statement of cash flows that were using to gather the data
If you're not doing this for pepsi and you're just trying to do this for any other
company,
a couple of places that I like to go to are
yahoo finance
(finance.yahoo.com)
They have a great source of
data for individual companies
MSN Money is another good source for that
Most brokerages will have access to financial statements for companies
However if you really doing financial statement analysis,
the places I mentioned give kind of a condensed "here's the financial statements". If you're
really doing financial statement analysis what you need to do is go to
the company's
financial statements
every company has an investor relations segment setup
online so you can just go to the Internet for that company. Find their investor
relations
Usually they will have something
labeled
financial statements or financial documents
and pull up the 10K and/or 10Q reports
and those are going to have the financial statements with detailed explanations.
That's really where you want to go if you're doing financial statement
analysis
We're just gathering this data to give an overview of how to do the
calculations.
What I've got here is a handout we're going to use to record the
various values that we need for all the ratios
So these are different numbers we're going to need for the ratios
And then here we've got the actual financial statements
The Pepsi 2011
income statement
2011 balance sheet
and the 2011 statement of cash flows. We're going to use each of these
statements to gather the necessary data
to calculate
these ratios.
Again, what I'd really encourage you to do right now is get out your guided
tutorial so you can look at these
it's going to be a pretty small in the video trying to follow along if you don't have them available to you.
Or if you're watching and you're not enrolled in one of my classes
go ahead to that bit.ly address
and print these off so you have them sitting next to you
So let's go back to our gathering the data sheet
Now I tried to organize this a little bit so we'll start with the balance sheet
data
and then move on to the income statement data
So the first thing we've got are our current assets
Current assets are part of the balance sheet
So we get out our Pepsi balance sheet
Total current assets
and we need the 2011 data
so that 17,441,000
and note that all these numbers are in thousands
So that's not seventeen million that seventeen billion four hundred forty one
million
We're just going to write that down as
17.441
So now we've got
that reported
Now we want to go to our current liabilities
Current liabilities are also on the balance sheet.
Notice the balance sheet is set up with assets, current
and then long-term
liabilities
and stockholders equity.
So we need our
current liabilities
for 2011
that's
18.154 billion dollars
next on that sheet
we need inventory
Inventory is one of our current assets
We look at our balance sheet -- current assets are broken down by category
inventory
is
3.827 billion dollars
Next up is the accounts receivable
Now Pepsi refers to that as their net receivables
and scroll over
2011 data at $6.912 billion
Next up we need our total assets
Still working on our balance sheet
total assets
scroll over
$72.882 billion
Liabilities
Here we're looking at our total liabilities
still on the balance sheet
its going to be
$52.294 billion
Next we need net fixed assets
Net fixed assets is for our fixed asset turnover ratio
and oftentimes when companies are referring to net fixed assets what
they're talking about
is their property plant and equipment
So we go find property plant and equipment
scroll over
$19.698 bilion
The last item we need from the balance sheet is the common equity
That's near the bottom here
Now one thing we should note is that if the company has
preferred stock we don't want to include that
Now in Pepsi we don't have that worry about
so we can just look at the total stockholder equity
down here at the bottom
scroll over
$20.704 billion
Now we want to go to the income statement.
So now we want to get Pepsi's 2011 income statement
again all numbers here are in thousands
now typically
the market price is not included on the income statement
but I went ahead and included that and
the dividends per share
on the income statement so we have those values
and again
you can get these
financial statements
at this bit.ly address here
Its just going to take you to my Google docs folder
where you can download this particular
file. Okay, so the first thing we need are sales
Sales sometimes are referred to as revenues
So the first line we see is typically going to be a revenue or sales
line
and that's what we've got here
$66.504 billion
Next we need our cost of goods sold
or as we see it listed here for Pepsi the cost of revenue
This is going to be used to calculate our gross profit margin
and that's
$31.593 billion
The next
two items they we have are operating income and EBIT are earnings before interest
in taxes
Quite often these are the same.
In many cases
operating income and EBIT are going to be the same.
In Pepsi's case
they are slightly different here
Our operating income
is $9.633 billion
and our earnings before interest in taxes
Thats our EBIT
$9.690 billion
And notice these numbers are very close to one another. Like I said, quite often
they're going to be exactly the same
Next we need our interest expense
Interest expense listed right below our EBIT
in 2011 that was $856 million
So, $0.856 billion
Next we need our depreciation
Now depreciation is going to come from our statement of cash flows
So we grab our Pepsi 2011 statement of cash flows
Right up here
one of the first adjustments from net income is our depreciation
$2.737 billion
For market price
and a lot of times you'll just get today's market price from someplace like yahoo finance
are any of a hundred different sources online
but for this example we're going to use the market price of the stock that I
recorded earlier when I prepared this handout
And at the time was $66.35
Earnings per share
we're actually going to calculate that, that shouldn't have been on this sheet.
Dividends per share
that's provided again on the income statement. Now that won't always be on
the income statement
but again for this hand out I went ahead and recorded that
$2.03 was the
dividends per share
that Pepsi paid out
in 2011
and lastly we just need the number of shares
and the number of shares down at the bottom of our income statement
Again, this won't always be on the income statement but usually you can find it on the
income statement or balance sheet
and the number of shares outstanding
is
1.564 billion
That gives us our data
and now we're going to use this data to go through our ratio calculations
and a few other
ideas in the following videos
And in video one what we're going to do is introduce ratio analysis
a little bit
Give an overview of the ratios we're going to use in this series
and gather the data for calculating the ratios
In a couple of the later videos we'll walk through the specific calculations
as well as have a few comments on each of ratios out there
Now I want to start with an overview of the ratios that we're going to use for
this class
Now this handout is available in Canvas if you're enrolled in one of my classes
If you're watching this video and you're not in one of my classes
you can get this handout here at the
bit.ly address posted up top
What I've done is just put that up in
Google documents
and so you can just follow that link
and should be able to print off a copy of these ratios
Now every finance book that you look at has a slightly different set of financial
ratios that they cover. There are tons of different financial ratios out there.
Some are specific to particular industries
for example one of the big ones in retail is sales per square foot
that works great in retail, but it
doesn't work too well in other industries. For example that ratio would
make no sense in trying to evaluate a company like Merck which is a
pharmaceutical company
So these are just some basic ratios
We've got them segmented into five separate categories -- liquidity ratios,
asset management ratios,
debt management ratios, profitability ratios,
and then market value ratios.
Each of these categories is designed to give us a little bit different
perspective
on different aspects of the firm.
Now the first thing that we're going to do
with this video is in order to calculate all these videos, I mean all these
ratios
which you could see listed here we've got quite a few of them
you need lots of different pieces of information
For example in the inventory turnover ratio
you need the cost of goods sold
divided by inventory
When we want to calculate the return on equity,
we need net income divided by common equity or sometimes referred to as owners equity.
So the first thing we need to do before we can calculate these ratios
is go ahead and gather the data
Now in this video we're going to walk through analyzing calculating ratios for
Pepsi
and you can find the data that we're going to use in the guided tutorial
handout
This is available again if you're in my class in Canvas
and if you're not my class you can go to this bit.ly address right
here
And you can download the three pages that include the income statement
balance sheet and statement of cash flows that were using to gather the data
If you're not doing this for pepsi and you're just trying to do this for any other
company,
a couple of places that I like to go to are
yahoo finance
(finance.yahoo.com)
They have a great source of
data for individual companies
MSN Money is another good source for that
Most brokerages will have access to financial statements for companies
However if you really doing financial statement analysis,
the places I mentioned give kind of a condensed "here's the financial statements". If you're
really doing financial statement analysis what you need to do is go to
the company's
financial statements
every company has an investor relations segment setup
online so you can just go to the Internet for that company. Find their investor
relations
Usually they will have something
labeled
financial statements or financial documents
and pull up the 10K and/or 10Q reports
and those are going to have the financial statements with detailed explanations.
That's really where you want to go if you're doing financial statement
analysis
We're just gathering this data to give an overview of how to do the
calculations.
What I've got here is a handout we're going to use to record the
various values that we need for all the ratios
So these are different numbers we're going to need for the ratios
And then here we've got the actual financial statements
The Pepsi 2011
income statement
2011 balance sheet
and the 2011 statement of cash flows. We're going to use each of these
statements to gather the necessary data
to calculate
these ratios.
Again, what I'd really encourage you to do right now is get out your guided
tutorial so you can look at these
it's going to be a pretty small in the video trying to follow along if you don't have them available to you.
Or if you're watching and you're not enrolled in one of my classes
go ahead to that bit.ly address
and print these off so you have them sitting next to you
So let's go back to our gathering the data sheet
Now I tried to organize this a little bit so we'll start with the balance sheet
data
and then move on to the income statement data
So the first thing we've got are our current assets
Current assets are part of the balance sheet
So we get out our Pepsi balance sheet
Total current assets
and we need the 2011 data
so that 17,441,000
and note that all these numbers are in thousands
So that's not seventeen million that seventeen billion four hundred forty one
million
We're just going to write that down as
17.441
So now we've got
that reported
Now we want to go to our current liabilities
Current liabilities are also on the balance sheet.
Notice the balance sheet is set up with assets, current
and then long-term
liabilities
and stockholders equity.
So we need our
current liabilities
for 2011
that's
18.154 billion dollars
next on that sheet
we need inventory
Inventory is one of our current assets
We look at our balance sheet -- current assets are broken down by category
inventory
is
3.827 billion dollars
Next up is the accounts receivable
Now Pepsi refers to that as their net receivables
and scroll over
2011 data at $6.912 billion
Next up we need our total assets
Still working on our balance sheet
total assets
scroll over
$72.882 billion
Liabilities
Here we're looking at our total liabilities
still on the balance sheet
its going to be
$52.294 billion
Next we need net fixed assets
Net fixed assets is for our fixed asset turnover ratio
and oftentimes when companies are referring to net fixed assets what
they're talking about
is their property plant and equipment
So we go find property plant and equipment
scroll over
$19.698 bilion
The last item we need from the balance sheet is the common equity
That's near the bottom here
Now one thing we should note is that if the company has
preferred stock we don't want to include that
Now in Pepsi we don't have that worry about
so we can just look at the total stockholder equity
down here at the bottom
scroll over
$20.704 billion
Now we want to go to the income statement.
So now we want to get Pepsi's 2011 income statement
again all numbers here are in thousands
now typically
the market price is not included on the income statement
but I went ahead and included that and
the dividends per share
on the income statement so we have those values
and again
you can get these
financial statements
at this bit.ly address here
Its just going to take you to my Google docs folder
where you can download this particular
file. Okay, so the first thing we need are sales
Sales sometimes are referred to as revenues
So the first line we see is typically going to be a revenue or sales
line
and that's what we've got here
$66.504 billion
Next we need our cost of goods sold
or as we see it listed here for Pepsi the cost of revenue
This is going to be used to calculate our gross profit margin
and that's
$31.593 billion
The next
two items they we have are operating income and EBIT are earnings before interest
in taxes
Quite often these are the same.
In many cases
operating income and EBIT are going to be the same.
In Pepsi's case
they are slightly different here
Our operating income
is $9.633 billion
and our earnings before interest in taxes
Thats our EBIT
$9.690 billion
And notice these numbers are very close to one another. Like I said, quite often
they're going to be exactly the same
Next we need our interest expense
Interest expense listed right below our EBIT
in 2011 that was $856 million
So, $0.856 billion
Next we need our depreciation
Now depreciation is going to come from our statement of cash flows
So we grab our Pepsi 2011 statement of cash flows
Right up here
one of the first adjustments from net income is our depreciation
$2.737 billion
For market price
and a lot of times you'll just get today's market price from someplace like yahoo finance
are any of a hundred different sources online
but for this example we're going to use the market price of the stock that I
recorded earlier when I prepared this handout
And at the time was $66.35
Earnings per share
we're actually going to calculate that, that shouldn't have been on this sheet.
Dividends per share
that's provided again on the income statement. Now that won't always be on
the income statement
but again for this hand out I went ahead and recorded that
$2.03 was the
dividends per share
that Pepsi paid out
in 2011
and lastly we just need the number of shares
and the number of shares down at the bottom of our income statement
Again, this won't always be on the income statement but usually you can find it on the
income statement or balance sheet
and the number of shares outstanding
is
1.564 billion
That gives us our data
and now we're going to use this data to go through our ratio calculations
and a few other
ideas in the following videos