Analysis Financial Statement-Akbar

Name : Andi Jumadil Akbar

Class : 3A/D3

NIM : 361 10 023

Analysis of Financial Statements

Long-term Debt Ratio

Financial statement analysis

Financial statement analysis is the process of evaluating the financial position and performance of the firms by using financial statements.

The purpose of financial statement analysis:
1.Help assess the financial position and performance.
2.Compare the company's financial position and performance of the financial position and performance of the company in the past, other companies, and industries.
3.Assist financial statement users in making decisions

v  Financial ratio analysis - analysis by comparing the financial ratio, both internal and external comparisons.

v  Trend analysis - analysis to determine the development of the rising and falling components in the financial statements.

Leverage Ratio

v  1. Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses.

2. A ratio used to measure a company's mix of operating costs, giving an idea of how changes in output will affect operating income. Fixed and variable costs are the two types of operating costs; depending on the company and the industry, the mix will differ.

Long-term Debt Ratio

The long-term debt ratio is a measure of how much debt a company carries compared with the value of its assets or its equity. It is not strictly a measure of solvency, but it does give an insight into the fundamental financial health of a company. A company with a high long-term debt ratio is more at risk in the event of a business downturn.

There are two potential interpretations of long-term debt ratio. One compares long-term debtwith the total value of a company's assets. Another compares long-term debt with the shareholder equity, which is made up of the company's assets minus its liabilities. As long-term debt is a key part of these liabilities, the two ratios are effectively different calculations to reach largely similar analytical goals. It is important, though, to make sure two specific ratiofigures under comparison were worked out in the same way.

When calculating the long-term debt ratio, an analyst needs to distinguish between current and long-term liabilities. It is the latter of these categories that covers long-term debts. Usually the distinction is that current liabilities comprise debts that the company expects to repay in the next accounting period, most commonly the coming year.

The usefulness of the long-term debt ratio is limited by the presence of credit facilities. Thelong-term liabilities figured in a company's accounts will usually only cover the actual amounts owed, but the account will separately list the total credit available, for example with an overdraft facility or a credit line from a supplier. These may influence the analyst's assessment of the company. For example, a company may appear to be relying too heavily on its overdraft, which may mean the situation will get worse if there is a large limit still to use. Such factors are harder to quantify.

The long-term debt ratio will naturally be of most interest to long-term creditors. Short-termcreditors are generally more interested in cash flow, as this influences whether the money will be in the right place at the right time to repay them. Long-term creditors are more interested in the overall picture of debt, as this gives an insight into whether the company is likely to be able to meet its obligations as a whole, and how much competition the creditor will have if the company is struggling to repay debts.

Common-size Income Statements

v  A common-size income statement restates all expenses asc a percentage of sales

v  This allows the analyst to quickly and easily see which expenses have increased or decreased relative to sales

 

Common-size Balance Sheets

v  A common-size balance sheet restates all assets and liabilities as a percentage of total assets

v  This allows the analyst to quickly and easily see which accounts have increased or decreased relative to total assets

Long-term Debt Ratio

 

For EPI the long-term debt ratio in 1997 is:

 

                                                                                                        

CONCLUSION

When calculating the long-term debt ratio, an analyst needs to distinguish between current and long-term liabilities. It is the latter of these categories that covers long-term debts. Usually the distinction is that current liabilities comprise debts that the company expects to repay in the next accounting period, most commonly the coming year.

A company with a high long-term debt ratio is more at risk in the event of a business downturn.