Yulriani Sambara
46110017
3b-d4
Business English Task
Financial Statement
Analysis
“Cash Reinvestment
Ratio”
A.
Definition of Financial Statement
Analysis
Analysis
of Financial Statements is a systematic process of the critical
examination the financial information
contained in the financial statements in order to understand and make decisions
regarding the operations in the firm.
B.
The method used in Financial Statement
Analysis
1.
Vertical Analysis
Analyzing
a single period financial statement works well with vertical analysis. On the
income statement, percentages represent the correlation of each separate
account to net sales. Express all accounts other than net sales as a percentage
of net sales. Net income represents the percentage of net sales not used on expenses.
For example, if expenses total 69 percent of net sales, net income represents
the remaining 31 percent. Vertical analysis performed on balance sheets uses
total assets and total liabilities for comparison of individual balance sheet
accounts.
2.
Horizontal Analysis
Horizontal
analysis is the comparison of data sets for two periods. Financial statements
users review the change in data much like an indicator. Optimistic analysts
look for growth in revenue, net income and assets in addition to reductions in
expenses and liabilities. Calculating absolute dollar changes requires the user
to subtract the base figure from the current figure. Expressing changes with
percentages requires the user to divide the base figure by the current figure,
and multiply by 100.
3.
Trend Analysis
Review of three or more financial
statement periods typically represents trend analysis, a continuation of
horizontal analysis. The base year represents the earliest year in the data
set. Although dollars can represent subsequent periods, analysts commonly use
percentages for comparability purposes. Users review statements for patterns of
incremental change representing changes in the business in questions. Financial
statement improvements include increased income and decreased expenses.
4.
Ratio Analysis
Ratios
express a relationship between two more financial statement totals, and compare
to budgets and industry benchmarks. Five common categories of ratios exist:
liquidity, asset turnover, leverage, profitability and solvency. Reviewing ratios
for performance compared with prior periods or industry specific benchmarks
provides financial statements users with recognition of strengths and
weaknesses. Risk Management Association, or RMA, publishes data on industry
specific benchmarks for more in-depth analysis.
C.
The purpose of financial analysis
1. Profitability
Profitability
is the ability of the company to generate a profit and sustain growth in both
short term and long term. Profitability of the company is usually seen from the
company's profit and loss (income statement) that shows the performance results
of the company's report.
2. Solvency
Solvency is the ability of a business to have enough
assets to cover its liabilities.
3. Liquidity
Liquidity
This analysis relates to the ability of the company to meet its short-term
liabilities (short-term liabilities). Liquidity analysis is used to measure a
company's financial position in the short term.
4. Stability
Stability
is the ability of the company to maintain its business in the long term without
having to suffer losses. Used to assess the stability of the company's income
statement and balance sheet (balance sheet) as well as the company's various
financial and non-financial indicators of other.
D.
Definition of Financial Statements
Financial
statements are a collection of reports about an organization's financial
results and the financial position of
the company.
E.
Cash Flow Statement Analysis
Analyze
the sources and uses of cash in a company, regarding cash inflow and cash outflow of a company. To measure the
cash flow of a company, we can use these ratio:
1.
Operating cash flow to current
liabilities ratio
2.
Operating cash flow to total liabilities
ratio
3.
Operating cash flow to total assets
ratio
4.
Cash flow adequacy ratio (CFAR)
5.
Cash reinvestment ratio (CRR)
F.
CASH REINVESTMENT RATIO
Cash
reinvestment ratio (CRR) is an analysis technique who measure how big
investment in assets who describing operating cash flow who detained and
invested re-within company for replace assets and supports the growth of
company's operations. The greater the value this ratio then it increasingly
good for the company.
Formula
of cash reinvestment ratio:
CRR
= operating cash flow – Dividends
Gross
fixed asset + investment + other asset + working capital
Example: Lion Metal Works Ltd
|
2010
|
2009
|
|
|
Operating cash flow
|
32.525.842
|
50.456.390
|
|
Dividend Pay Out
|
7.022.160
|
7.022.160
|
|
Gross
fixed asset
|
75.705.511
|
73.182.111
|
|
Investment
|
-4.203.548
|
3.036.005
|
|
Other
Assets
|
0
|
0
|
|
Working Capital
|
242.535.343
|
208.317.379
|
|
CRR
|
8,1
%
|
15,2%
|
G.
Conclusion
In
2009, Lion Metal Works Ltd and Subsidiaries reinvesting cash from operations by
15,2% to replace assets and support the company's growth. Whereas in 2010, the
company invested its operating cash back of 8,1%.
