Lecture workshop financial statement analysis (17-3-20)
Brief recap
A financial statement shows you where a company’s money came from, where it went and where it
is now: balance sheet, income statement, and cash flow statement
The number on the latest balance
sheet under ‘cash and cash
equivalents’ (for example €75.000) is
the end number of the cash flow
statement under ‘cash and cash
equivalents at end of year’ (thus
€75.000).
The number that comes out of
subtracting net assets (= equity &
retained earnings) on the latest
balance sheet (for example €177.000)
with the net assets on the balance
sheet from before (for example
€132.000) is the end number on the
income statement under ‘excess of
revenue over expenses (= profit or
loss)’ (thus 177.000-132.000 =
€45.000.
Regional health center ‘Maas’
Case from the course book. Let’s see where the numbers came from.
See Excel file: Lead sheets exhibit & Bank sheet exhibit. And also Pdf file ‘Explanation Excel data file’
Balance sheet – income statement Balance sheet – cash flow statement
Who uses financial statements?
- Lenders
- Potential investors
- Regulators
- Donors
- Etc.
- Management
, Financial statement analysis
- Assessment of the organization’s past, present, and future financial conditions
- Done to find organization’s financial strengths and weaknesses
- Primary tools:
o Financial statements
o Comparison of financial ratios to past, industry, sector and all organizations
Financial ratios
- First step in financial analysis
- Ratios show relationships between financial statement within organization or between
organizations
- Profitability ratios
- Liquidity ratios
- Capital structure ratios
- Activity ratios
Let’s see how the regional health center ‘Maas’ performs based on the ratios
Example base case – lead sheets
Interpretation of financial ratios (1)
Interpretation of financial ratios can be done in two ways”
- Benchmark with the past of the organization, i.e. comparison to the ratios of the last year
- Benchmark with the industry, i.e. comparison to the ratios of other similar organizations, e.g.
other hospital of the same type
Interpretation of financial ratios (2)
Ratios: mind the difference between the numbers/value and the performance qualification
A ratio which number/value rises CAN (but not automatically does) indicate a better performance:
- Profitability ratio’s > a higher number/value implicates a better performance
- Liquidity ratios > a higher number/value implicates a better performance
- Fixed asset turnover > a higher number/value implicates a better performance
BUT: a ratio which value/number drops CAN ALSO indicate a better performance:
- Asset to equity ratio > a lower number/value implicates a better performance
- Collection period > a lower number/value implicates a better performance
Brief recap
A financial statement shows you where a company’s money came from, where it went and where it
is now: balance sheet, income statement, and cash flow statement
The number on the latest balance
sheet under ‘cash and cash
equivalents’ (for example €75.000) is
the end number of the cash flow
statement under ‘cash and cash
equivalents at end of year’ (thus
€75.000).
The number that comes out of
subtracting net assets (= equity &
retained earnings) on the latest
balance sheet (for example €177.000)
with the net assets on the balance
sheet from before (for example
€132.000) is the end number on the
income statement under ‘excess of
revenue over expenses (= profit or
loss)’ (thus 177.000-132.000 =
€45.000.
Regional health center ‘Maas’
Case from the course book. Let’s see where the numbers came from.
See Excel file: Lead sheets exhibit & Bank sheet exhibit. And also Pdf file ‘Explanation Excel data file’
Balance sheet – income statement Balance sheet – cash flow statement
Who uses financial statements?
- Lenders
- Potential investors
- Regulators
- Donors
- Etc.
- Management
, Financial statement analysis
- Assessment of the organization’s past, present, and future financial conditions
- Done to find organization’s financial strengths and weaknesses
- Primary tools:
o Financial statements
o Comparison of financial ratios to past, industry, sector and all organizations
Financial ratios
- First step in financial analysis
- Ratios show relationships between financial statement within organization or between
organizations
- Profitability ratios
- Liquidity ratios
- Capital structure ratios
- Activity ratios
Let’s see how the regional health center ‘Maas’ performs based on the ratios
Example base case – lead sheets
Interpretation of financial ratios (1)
Interpretation of financial ratios can be done in two ways”
- Benchmark with the past of the organization, i.e. comparison to the ratios of the last year
- Benchmark with the industry, i.e. comparison to the ratios of other similar organizations, e.g.
other hospital of the same type
Interpretation of financial ratios (2)
Ratios: mind the difference between the numbers/value and the performance qualification
A ratio which number/value rises CAN (but not automatically does) indicate a better performance:
- Profitability ratio’s > a higher number/value implicates a better performance
- Liquidity ratios > a higher number/value implicates a better performance
- Fixed asset turnover > a higher number/value implicates a better performance
BUT: a ratio which value/number drops CAN ALSO indicate a better performance:
- Asset to equity ratio > a lower number/value implicates a better performance
- Collection period > a lower number/value implicates a better performance
