In the part of this chapter, I’ll make clean some ratios, such as Current Ratio , Total Debt Ratio, Inventory Turnover……All of these ratios are necessary to financial analysis.
There are two primary tools in financial analysis:
·Ratio analysis–to assess（评价）how various line items in financial statements relate to each other and to measure relative performance.
·Cash flow analysis–to evaluate liquidity and the management of operating, investing, and financing activities as they relate to cash flow.
In this chapter we will mainly introduces ratio analysis.
As we all known, profitability and growth drive firm value. Managers can employ four levers to achieve growth and profit targets:
1. Operating management
2. Investment management
3. Financing strategy
4. Dividend policy（股息分配方针）
Then ratio analysis seeks to evaluate the firm’s effectiveness in these areas.
Ratio Analysis
·Evaluating ratios requires comparison against some benchmark（基准）. Such benchmarks include:
–Ratios over time from prior periods (time series)
–Ratios of other firms in the industry (cross-sectional)
–Some absolute benchmark
·Effective ratio analysis must attempt to relate underlying business factors to the financial numbers （有效的财务分析必须联系相关的财务要素来分析财务数字）and we use ratios to analysis the company’s solvency（偿债能力）、Operating Capacity（营运能力）、generating capacity/ Profitability（获利能力）Financial Leverage Analysis
·Borrowing allows a firm to access to capital, but increases the risk of ownership for equity holders.
·Analysis of leverage can be performed on both short- and long-term debts:
1. Liquidity analysis relates to evaluating current liabilities。
2. Solvency analysis relates to longer term liabilities。
Liquidity Analysis（Short-term solvency analysis短期偿债能力）•There are several ratios useful to evaluate a firm’s liquidity, including: –Current ratio
–Quick ratio
–Cash ratio
–Operating cash flow ratio
•Each of these ratios attempts to measure the ability of a firm to pay its current obligations.
•Knowing how the liquidity ratios are calculated allows the user to understand how to interpret解释them:
①Current ratio = Current assets / Current liabilities
Current ratio also called Working Capital Ratio（营运资金比率）
②Quick ratio = Cash + Short-term investments + Accounts. receivable
Current liabilities
This ratio also called Acid test.
Here, I need to explain quick ratio. First, quick access refer to the current assets minus the inventory that cash flow ability is bad and unstable, prepaid receivable, a maturity of non-current assets（一年内到期的非流动资产）and other current assets. Quick access include cash, short term investment, and receivable（应收票据）and accounts receivable (less the loss of bad), prepaid receivable, other receivables（其他应收款）, etc
The current ratio and quick ratio is a reflection of the enterprise short-term solvency index. Generally speaking, the two ratio is high, the enterprise assets that the stronger ability of cash and short-term debt paying ability also is stronger; Otherwise, the weak. Generally thinking that current ratio should be in the 2:1 above, quick ratio should be at 1:1 above. The current ratio 2:1,means that current assets is two times of current liabilities, even if the current assets have half in the short term not realizable, also can ensure that all of the current liabilities be paid back. Quick ratio 1:1,means that quick assets has sold instant cash ability equal liquid liability，at any time to pay all current liabilities. But we should know that the two ratios are not the higher the better. The current ratio is too high, which is current assets relative to the current liabilities too much, may be the backlog inventories, also may be too much cash held. All of these are not we would like to see.一般说来，这两个比率越高，说明企业资产的变现能力越强，短期偿债能力亦越强；反之则弱。一般认为流动比率应在2：1以上，速动比率应在1：1以上。流动比率2：1，表示流动资产是流动负债的两倍，即使流动资产有一半在短期内不能变现，也能保证全部的流动负债得到偿还；速动比率1：1，表示现金等具有即时变现能力的速动资产与流动负债相等，可以随时偿付全部流动负债。应当说明的是，这两个比率并非越高越好。流动比率过高，即流动资产相对于流动负债太多，可能是存货积压，也可能是持有现金太多，或者两者兼而有之；速动比率过高，即速动资产相对于流动负债太多，说明现金持有太多。企业的存货积压，说明企业经营不善，存货可能存在问题；现金持有太多，说明企业不善理财，资金利用效率低下。
