Group ProjectAnalyse three different companies’ profiles, go online and look up three companies that match each of the
three profiles shared on the next slide.
That means you should choose three different companies, one that matches each profile. In your response, be
sure to do the following:
•Name the company you chose for each profile
•Explain why you believe that company would have the profile you selected
•Comment on the company’s cash management strategy and how its cash flow profile may reveal the
company’s age, maturity (high growth or mature), and success
•Reflect on the future prospects of each company selected
•Attach a copy or screenshot of each of the three companies’ Statements of Cash Flows to your response
Group Project STEP 1
Group Project STEP 2
Look up the Balance Sheets and Income Statements for each of the three
companies you chose
Use the Vertical and Horizontal analysis to understand the financial situation of the
company
Apply the ratios you’d learn throughout this class
Submit a final evaluation on each company information
Group Project Evaluation Criteria
Group Project Evaluation Criteria
Cash flows Statements!
Main difference between Direct and Indirect Method
These are two methods on getting the Cash flows
Cash flows statements can de divided on 3 parts
1.Cash flows from Investing
Some key concepts
Main difference between Direct and Indirect Method
These are two methods on getting the Cash flows
Cash flows statements can de divided on 3 parts
1.Cash flows from Investing
2.Cash flows from financing
Some key concepts
Main difference between Direct and Indirect Method
These are two methods on getting the Cash flows
Cash flows statements can de divided on 3 parts
1.Cash flows from Investing
2.Cash flows from financing
3.Cash flows from Operating activities!
Some key concepts
Some key concepts
Let’s do some more exercises
Prepare the operating activities section of the Statement of Cash Flows using the indirect method based
on the information below.
Bracelet Ltd. reported net income of USD 195,000 for 2020.
Bracelet also reported depreciation expense of USD 40,000
A gain of USD 5,000 on disposal of plant assets.
The comparative statements of financial position show an increase in accounts receivable of USD
15,000 for the year, a USD 17,000 increase in accounts payable, and a USD 4,000 decrease in prepaid
expenses.
Instructions:
Prepare the operating activities section of the Statement of Cash Flows for 2020 using the indirect
method.
Let’s do some more exercises
Let’s do some more exercises
1.You’ll be divided in groups of 2 or 3
2.20 minutes it’s the time assigned to solve this problems
3.Send me your group solution over the chat or email
Prepare the Statement of Cash Flows using the indirect method and compute free cash flow based on the information below.
Munaro Ltd.’s comparative statements of financial position are presented below:
A
Additional information:
1. Net income was EUR 22,590. Dividends declared and paid were 16,500.
2. All other changes in non-current account balances had a direct effect on cash flows, except the change in accumulated depreciation. The
land was sold for 5,000.
Instructions:
a) Prepare a statement of cash flows using the indirect method.
b) Compute free cash flow.
The exercises for this section have been taken from the following text: Weygandt, Jerry J., et al. Financial Accounting: With International
Financial Reporting Standards. Wiley, 2019.
Solution
Depreciation expense: Don´t forget
depreciation is a non-cash expense and
needs to be added back to net income in
order to reconcile this amount with cash
flows from operating activities.
Given the information available, we can
determine that depreciation expense for
the period is accumulated depreciation
2020 minus the accumulated depreciation
of 2019.
Land: The loss on disposal of land is
computed taking into account the
information provided: we had initial land
value of 26,000, and we have been told
that ending land balance equals 20,000.
Therefore, the land we sold had a book
value of 6,000. If land was sold for 5,000,
we have to reflect a loss of 1,000.
Solution
Changes in accounts receivable and
payable: The changes in accounts
receivable and payable need to be
considered when reconciling income
statement information with cash flow
information.
In this particular case, accounts receivable
decreased from 2019 to 2020; therefore,
the company collected more, which implies
a positive adjustment.
In the case of accounts payable, they also
decreased, but this time the impact on
cash flow is negative because it means the
company paid more.
Solution
Solution
Financial Statement Analysis
Prof. Rodrigo Hurtado
ACTIVITIES Day 2 – 26th of April
Each excel worksheet represents an independent activity,
Wait for the professor heads-up before starting.
At the end of the day, one participant on a group must submit the file with answers throug
The class workings should be done in groups.
2021
2020
2019
Activity 2
Rows 76 and below show the financial statements for STC for the last 4 years
The top of the tab (rows 14 to 73) show a partially completed ratio analysis
Your task:
1.- Answer the questions and fill in the blanks with the missing ratio calculations (refer to the slides for formula)
2.- For each section (general, profitability, solvency, liquidity) briefly comment on the evolution of that section for S
Based on STC standalone you can only comment on improvement / deterioration
After actvity 4 (next one) you will also be able to put in perspective the ratios below by comparing with a competi
Learning objective:
Go through a sistematic and structured process in order to understand STC consolidated financial performance
RATIO ANALYSIS
2021
2020
2019
General comments based on vertical analysis (columns I to L in rows)
What is the broad asset composition of STC, mostly current or non-current assets? What is the biggest asset the company has?
Non current (PP&E)
What is the main financing source of STC, equity or liability? What has been the evolution in the last four years?
Equity (Decreased in the 2nd & 3rd year then increased again in the 4th year)
Liabilities (Increased by 8% in the 2nd year then started to decrease in the following years by 3%)
What is the second biggest asset STC has? Is that related somehow to sales growth? How have both evolved over the years?
Trade and other Receivables.
Yes, both has increased over the years.
However, the A/R to sales ratio have been increasing over the years (1st year = 28%, 4th year 40%) meaning if STC’s credit sales (only) kept on
increasing in the future, the company may run into ST liquidity problems since it will not be making enough cash sales.
Looking at net profit row, would you say that STC has increased or decreased its profitability over the last four years?
The net profit increased over the last four years
Profitability Ratios
Sales growth
Gross Margin
RoA
RoE
7,6%
53,3%
10,3%
16,2%
8,4%
57,6%
10,4%
17,1%
4,6%
59,6%
10,5%
17,4%
18,3%
0,34 x
21,21 x
2,64%
18,3%
0,35 x
20,40 x
2,80%
17,6%
0,34 x
16,29 x
3,65%
Comment on profitability evolution
The Gross margin declined due to the continues increase in COGS
Solvency
Debt / Total assets
Debt / Equity
Interest coverage ratio
Debt interest rate
Comment on solvency evolution
Overall the debt to asset & equity ratio have been increasing over the years, while interest coverage ratio & the debt interest rate kept on decreasing
Only 18.3 % of STC’s assets have been financed through debt (creditors) and 34% are financed by shareholders
The lower ICR the less solvent STC is, this indicates a slighl lower ability to service debt from operating earnings.
Liquidity
Current ratio
Cash ratio
1,53
0,25
1,39
0,27
1,33
0,24
Comment on liquidity evolution
In 2020: STC has SR 1.39 of CA for every SR 1 of CL therefore they’re able to use current resources to fund ST obligations
However, since the cash ratio more stringently defines the immediate ability of the company to pay off its ST obligation. I believe a cash ratio of 0.28
is low and STC has insufficient cash to pay ST debt
Saudi Telecom Company
A Saudi Joint Stock Company
CONSOLIDATED FINANCIAL STATEMENTS
(All Amounts in Saudi Riyals Thousands unless otherwise
Note stated)
2021
2020
2019
47.205.038
10.734.798
2.951.652
5.924.858
521.374
535.809
8.437.814
76.311.343
47.847.623
10.466.408
2.892.814
6.704.947
637.470
457.657
7.106.265
76.113.184
45.099.265
9.874.779
2.894.934
6.621.673
594.519
897.181
7.640.094
73.622.445
917.510
5.732.865
25.464.155
3.127.894
7.944.349
8.281.301
51.468.074
127.779.417
1.008.645
6.059.440
15.724.725
3.627.971
10.433.849
9.004.286
45.858.916
121.972.100
1.721.686
6.922.857
21.849.168
4.723.210
2.034.454
8.178.460
45.429.835
119.052.280
20.000.000
10.000.000
1.285.894
37.984.611
69.270.505
2.115.474
71.385.979
20.000.000
10.000.000
-3.562.245
37.508.027
63.945.782
1.321.233
65.267.015
20.000.000
10.000.000
-2.748.379
34.598.178
61.849.799
1.292.452
63.142.251
BALANCE SHEET
ASSETS
NON-CURRENT ASSETS
Property and equipment
9
Intangible assets and goodwill
11
Right of use assets
12
Investments in associates and joint ventures
7
Contract costs
13
Contract assets
14
Financial assets and others
15
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Inventories
16
Contract assets
14
Trade and other receivables
17
Financial assets and others
15
Short term murabahas
18
Cash and cash equivalents
19
TOTAL CURRENT ASSETS
TOTAL ASSETS
EQUITY AND LIABILITIES
EQUITY
Share capital
21
Statutory reserves
22
Other reserves
24
Retained earnings
Equity attributable to the equity holders of the Parent Company
Non-controlling interests
25
TOTAL EQUITY
LIABILITIES
NON-CURRENT LIABILITIES
Long term borrowings
End of service benefits provision
Lease liabilities
Provisions
Contract liabilities
Financial liabilities and others
TOTAL NON-CURRENT LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Provisions
Contract liabilities
Zakat and income tax
Short term borrowings
Lease liabilities
Financial liabilities and others
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
26
27
28
29
30
31
7.846.606
5.466.916
2.353.593
550.741
771.915
5.843.115
22.832.886
8.637.605
5.239.313
2.237.853
725.625
771.915
6.201.591
23.813.902
8.784.194
4.810.034
1.582.648
957.214
771.915
4.854.070
21.760.075
32
29
30
33
26
28
31
17.114.298
3.647.727
3.591.950
1.833.840
1.456.684
869.574
5.046.479
33.560.552
56.393.438
127.779.417
19.711.207
4.158.923
1.901.237
1.903.791
318.485
742.185
4.155.355
32.891.183
56.705.085
121.972.100
19.472.473
5.091.304
2.444.661
1.362.773
528.621
1.304.542
3.945.580
34.149.954
55.910.029
119.052.280
2021
2020
2019
34
35
63.416.977,00
-29.622.948,00
33.794.029,00
58.953.318,00
-24.998.923,00
33.954.395,00
54.376.424,00
-21.969.479,00
32.406.945,00
36
37
-5.463.336,00
-5.490.093,00
-9.712.845,00
-20.666.274,00
13.127.755,00
-6.053.632,00
-5.810.763,00
-9.358.875,00
-21.223.270,00
12.731.125,00
-5.581.969,00
-5.543.623,00
-8.797.480,00
-19.923.072,00
12.483.873,00
-313.258,00
377.911,00
-618.956,00
49.996,00
-600.000,00
413.873,00
-623.925,00
-42.995,00
-609.092,00
629.529,00
-766.220,00
-74.131,00
-778.028,00
789.643,00
-492.692,00
12.635.063,00
-1.040.366,00
11.594.697,00
52.953,00
424.612,00
-375.482,00
12.355.643,00
-1.170.446,00
11.185.197,00
56.188,00
-60.179,00
-823.905,00
11.659.968,00
-645.161,00
11.014.807,00
12.635.063,00
12.355.643,00
11.659.968,00
9.712.845,00
9.358.875,00
8.797.480,00
492.758,00
844.027,00
39.755,00
-377.911,00
618.956,00
772.747,00
623.652,00
1.072.959,00
3.433,00
-413.873,00
623.925,00
560.627,00
504.289,00
664.705,00
57.086,00
-629.529,00
766.220,00
935.304,00
778.028,00
-52.953,00
-56.188,00
INCOME STATEMENT
Note
Revenues
Cost of revenues
GROSS PROFIT
OPERATING EXPENSES
Selling and marketing
General and administration
Depreciation. amortisation and impairment
9, 11, 12
TOTAL OPERATING EXPENSES
OPERATING PROFIT
OTHER INCOME AND EXPENSES
Cost of early retirement program
Finance income
Finance cost
Net other income (expenses)
Net share in results and impairment of investments in
associates and joint ventures
Net other gains
TOTAL OTHER INCOME (EXPENSES)
NET PROFIT BEFORE ZAKAT AND INCOME TAX
Zakat and income tax
NET PROFIT
38
39
7
40
33
CASH FLOW STATEMENT
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit before zakat and income tax
Adjustments for:
Depreciation, amortisation and impairment
9,11,12
Impairment loss and amortisation of contract costs and
contract assets
35, 36
Impairment loss on trade receivables
36
Allowance for slow moving inventories (write-down)
Finance income
38
Finance costs
39
Provision for end of service benefits and other provisions
Net share in results and impairment of investments in
associates and joint ventures
7
Net other gains
40
Changes in:
Trade receivables and others
Inventories
Contract costs
Contract assets
Other assets
Trade payables and others
Contract liabilities
Other liabilities
Cash generated from operations
Less: zakat and income tax paid
33
Less: provision for end of service benefits paid
27
Net cash generated from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment
Additions to intangible assets
Proceeds from sale of property and equipment
Associates (sale, acquisition)
Proceeds from the initial public offering of a stake in 6-1
a subsidiary
Dividends from associates
Proceeds from finance income
Proceeds and payments related to financial assets. net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to the equity holders of the Parent Company
Payment of lease liabilities
Repayment of borrowings
26
Proceeds from borrowings
26
Finance costs paid
Other payments
Net cash used in financing activities
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE VEAR
Net foreign exchange difference
CASH AND CASH EQUIVALENTS AT END OF THE VEAR 19
-746.917,00
-418.496,00
60.179,00
-11.236.400,00
51.364,00
-258.224,00
129.958,00
876.011,00
-2.991.346,00
1.690.723,00
-349.612,00
12.681.825,00
-1.106.049,00
-355.621,00
11.220.155,00
4.540.765,00
709.452,00
-220.515,00
807.042,00
921.405,00
280.331,00
-564.499,00
-434.684,00
29.753.089,00
-750.643,00
-677.741,00
28.324.705,00
-8.049.939,00
-988.586,00
-271.196,00
-1.572.363,00
-2.330.328,00
5.446.072,00
-151.234,00
-3.732.525,00
11.109.415,00
-756.577,00
-452.380,00
9.900.458,00
-6.030.788,00
-2.179.186,00
21.171,00
184.628,00
3.560.295,00
83.087,00
314.480,00
2.331.730,00
-1.714.583,00
-9.150.117,00
-1.690.470,00
16.748,00
760.862,00
-9.430.880,00
-1.917.682,00
140.307,00
-219.173,00
516.006,00
-7.882.206,00
-17.429.177,00
37931
642.498,00
8.936.413,00
-1.810.586,00
-10.138.784,00
-976.719,00
-731.248,00
1.123.981,00
-262.407,00
750.000,00
-10.235.177,00
-729.605,00
9.004.286,00
6.620,00
8.281.301,00
-8.076.199,00
-831.642,00
-402.386,00
21.363,00
-330.354,00
-300.000,00
-9.919.218,00
976.310,00
8.031.010,00
-3.034,00
9.004.286,00
-12.105.714,00
-711.400,00
-350.937,00
5.381.417,00
-279.933,00
-8.066.567,00
23.305,00
8.153.865,00
1.290,00
8.178.460,00
2018
2021
2020
2019
2018
r to the slides for formula)
evolution of that section for STC over the years
by comparing with a competing firm
ated financial performance
TIPS
2018
t the company has?
d over the years?
s credit sales (only) kept on
s.
CORRECT
CORRECT
CORRECT
16,6% CORRECT
0,084 Simple growth rate. If year 0 the value is 20 and year 1 the value is 22, the growth is 2. In percentage form 2 / 20 = 10
0,596
0,103
0,166
11,2% CORRECT
0,19 x CORRECT
30,97 x CORRECT
3,24% CORRECT
0,183 Debt will be any any liability like: borrowings, financial, lease, loan, note, etc
0,34
20,4
0,026 The interest rate is the interest expense divided over the balance of debt
interest rate kept on decreasing
1,56 CORRECT
0,28 CORRECT
1,394
0,277
on. I believe a cash ratio of 0.28
2018
2021
2020
2019
2018
6.581.733
504.042
1.030.129
3.744.637
63.341.069
37%
8%
2%
5%
0%
0%
7%
60%
39%
9%
2%
5%
1%
0%
6%
62%
38%
8%
2%
6%
0%
1%
6%
62%
38%
9%
0%
6%
0%
1%
3%
58%
787.456
5.539.412
14.422.178
7.441.123
9.685.491
8.153.865
46.029.525
109.370.594
1%
4%
20%
2%
6%
6%
40%
100%
1%
5%
13%
3%
9%
7%
38%
100%
1%
6%
18%
4%
2%
7%
38%
100%
1%
5%
13%
7%
9%
7%
42%
100%
20.000.000
10.000.000
-1.903.878
37.417.562
65.513.684
1.147.914
66.661.598
16%
8%
1%
30%
54%
2%
56%
16%
8%
-3%
31%
52%
1%
54%
17%
8%
-2%
29%
52%
1%
53%
18%
9%
-2%
34%
60%
1%
61%
VERTICAL ANALYSIS
41.920.409
9.560.119
3.965.479
3.919.362
0
891.910
771.915
3.703.275
13.251.941
6%
4%
2%
0%
1%
5%
18%
7%
4%
2%
1%
1%
5%
20%
7%
4%
1%
1%
1%
4%
18%
4%
4%
0%
1%
1%
3%
12%
14.092.907
6.829.451
2.538.940
1.465.775
320.533
0
4.209.449
29.457.055
42.708.996
109.370.594
13%
3%
3%
1%
1%
1%
4%
26%
44%
100%
16%
3%
2%
2%
0%
1%
3%
27%
46%
100%
16%
4%
2%
1%
0%
1%
3%
29%
47%
100%
13%
6%
2%
1%
0%
0%
4%
27%
39%
100%
2018
2021
2020
2019
2018
51.963.243,00
-21.490.161,00
30.473.082,00
100%
-47%
53%
0%
-9%
-9%
-15%
-33%
21%
0%
0%
1%
-1%
0%
0%
-1%
1%
-1%
20%
-2%
18%
100%
-42%
58%
0%
-10%
-10%
-16%
-36%
22%
0%
-1%
1%
-1%
0%
0%
0%
1%
-1%
21%
-2%
19%
100%
-40%
60%
0%
-10%
-10%
-16%
-37%
23%
0%
-1%
1%
-1%
0%
0%
0%
0%
-2%
21%
-1%
20%
100%
-41%
59%
0%
-11%
-10%
-15%
-35%
24%
0%
-1%
1%
-1%
0%
0%
0%
0%
-1%
23%
-1%
21%
-5.480.288,00
-5.157.039,00
-7.590.530,00
-18.227.857,00
12.245.225,00
-450.000,00
551.535,00
-395.440,00
102.943,00
-10.605,00
-215.493,00
-417.060,00
11.828.165,00
-747.667,00
11.080.498,00
11.828.165,00
7.590.530,00
623.136,00
741.583,00
31.863,00
-551.535,00
395.440,00
1.293.581,00
10.605,00
215.493,00
5.274.505,00
-337.038,00
-477.758,00
-3.339.955,00
-1.210.921,00
3.246.720,00
-724.005,00
-4.383.387,00
20.227.022,00
-690.934,00
-521.861,00
19.014.227,00
-8.406.935,00
-1.350.151,00
123.283,00
595.731,00
4.129.233,00
-4.908.839,00
-8.054.671,00
-635.710,00
303.936,00
-130.517,00
-8.516.962,00
5.588.426,00
2.567.044,00
-1.605,00
8.153.865,00
SUMMARY OF LIQUIDITY, PROFITABILITY, AND
SOLVENCY RATIOS
Ratio
Liquidity Ratios
Formula
Purpose or Use
1. Current ratio
Current assets
————————
Current liabilities
Measures short-term debt-paying ability.
2. Acid-test or quick ratio
Cash + marketable
securities +
receivables (net)
————————
Current liabilities
Measures immediate short-term liquidity.
3. Current cash debt
coverage ratio
4. Receivables turnover
5. Inventory turnover
Net cash provided by
operating activities
—————————
Average current
liabilities
Net credit sales
———————
Average net
receivables
Cost of goods sold
————————
Average inventory
Measures short-term debt-paying ability
(cash basis).
Measures liquidity of receivables.
Measures liquidity of inventory.
SUMMARY OF LIQUIDITY, PROFITABILITY, AND
SOLVENCY RATIOS
Ratio
Profitability Ratios
6. Profit margin
7. Cash return on sales
ratio
Formula
Purpose or Use
Net income
—————
Net sales
Measures net income generated by each
dollar of sales.
Net cash provided by
operating activities
—————————
Net sales
8. Asset turnover
Net sales
———————
Average assets
9. Return on assets
Net income
———————
Average assets
Measures the net cash flow generated by
each dollar of sales.
Measures how efficiently assets are used
to generate sales.
Measures overall profitability of assets.
SUMMARY OF LIQUIDITY, PROFITABILITY, AND
SOLVENCY RATIOS
Ratio
Profitability Ratios
10. Return on common
stockholders’ equity
11. Earnings per share
12. Price-earnings ratio
13. Payout ratio
Formula
Net income
—————————
Average common
stockholders’ equity
Net income
—————————
Weighted average
common shares
outstanding
Purpose or Use
Measures profitability of owners’
investment.
Measures net income earned on each
share of common stock.
Market price per share
of common stock
Measures the ratio of the market price
—————————— per share to earnings per share.
Earnings per share
Cash dividends
———————
Net income
Measures percentage of earnings
distributed in the form of dividends.
SUMMARY OF LIQUIDITY, PROFITABILITY, AND
SOLVENCY RATIOS
Ratio
Solvency Ratios
Formula
14. Debt to total assets
Total debt
——————
Total assets
15. Tmes interest earned
Income before income
taxes and interest
expense
—————————
Interest expense
16. Cash debt coverage
ratio
Net cash provided by
operating activities
—————————
—
Average total
liabilities
Purpose or Use
Measures the percentage of total assets
provided by creditors.
Measures ability to meet interest
payments as they come due.
Measures the long-term debt paying
ability (cash basis).
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