BUS 254 Lecture Notes - Lecture 10: Asset Turnover, Accounts Payable, Current Liability

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 254
• Professor: Masood Kamlani

Document Summary

Financial statement analysis is necessary to make knowledgeable decisions. It is important to also understand the business" operations, economics, risks and external economic factors. Reading financial statements: auditor"s report, ensure that statements make sense for the business activities2, notes to financial statements. Time-series analysis using information from different time periods looking for trends. Cross-sectional analysis comparison between different companies for same time period data used in analysis: raw financial directly from financial statements, common size statements represent line items as percentage of sales, ratio. Return on assets determines return on investment in assets: can be broken down into profit margin ratio x total asset turnover. Return on equity determines shareholders" return on their investment. Leverage measures proportion of debt holders to shareholders investment in assets and its effect on return on equity. Accounts receivable measures how many times per year accounts receivable balance is collected and replaced: associated ratio is days to collect accounts receivable.