University:
Massachusetts Institute of Technology
Course:
15.501 | Introduction To Financial And Managerial Accounting
Academic year:

2023
Views:

20

Pages:

13
Author:

Ezekiel Bradford

Objectives and Game Plan ! Introduction to Ratio Analysis ! Overview of other properties of earnings ROE (Dupont) Analysis NI = NI + (int. exp.) SE Assets X Operating Performance “return on assets” “return on sales” “asset turnover” NI + (int. exp.) Sales X Assets Sales NI NI + (int. exp.) X Capital Structure Assets SE Comparative Analysis: 2000 Return on Sales vs. Asset Turnover Sales Assets Each point represents an industry NI + (int. exp.) Sales Return on Sales (positive only) vs. Asset Turnover Sales Assets Each point represents an industry Semiconductors NI + (int. exp.) Sales Return on Sales (positive only) vs. Asset Turnover Sales Assets Return on Assets 14% 8% 2% Semiconductors NI + (int. exp.) Sales Comparative Analysis: 2000 Intel over time Comparative Analysis Microsoft Microsoft ! Anything unusual about Microsoft? < 2002 Total Assets $67.646 billion – $38,652 billion was cash or near-cash (57 percent) – Even at 5% that’s going to earn less than $2 billion (MSFT reported $1.76 billion in interest) < What effect does this have on ROA? Other components? < Remove the effects of cash from NI (after-tax) and Assets < Other aspects of MSFT accounting choices - they expense all software development when some could be capitalized. – What accounts does this decision affect? What direction? Microsoft Percent of firms reporting negative NI