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Analysis on Items of Financial

Statement

1. Analysis on Itemsof Balance Sheet

(1)Trade Receivables(2)Stock asset(3)Fixed asset and investment asset(4)Loan

2. Analysis on Itemsof Income Statement

(1)Sales(2)Gross Profit(3)Operating profit(4)Ordinary profit(5)Net profit before reduction of corporate tax

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1. Analysis on Items of Balance Sheet

(1)Trade Receivables

In case turnover of Trade Receivables is dramatically lowered compared to same industry

Accumulation ofBad Trade Receivables

Delay in Collectionof Trade Receivables

Loss of Marketability for Products

Aggravation in Lack of Fund

In case turnover of Trade Receivables is active compared to same industry

Fair Fund Operation based on

Early Bond Collection

Caution in Early Bond Collection due to

Lack of Fund

(2)Stock asset

In case turnover of stock asset is dramatically lowered compared to same industry

Accumulation of Bad Stock

Loss of Marketability for Product

Failure in Development of

New Product

Aggravation in Lack of Fund

Ex) Declining in beeper due to appearance of PCS Declining in Video and Audio Tape due to DVD and MP3

In case turnover of stock asset is dramatically activated compared to same industry

Clearance sale for stock of finished

goods due to lack of fund

Frequent Sale with Discount

Sales under Raw Cost

In case of reduction in finished goods

Failure in Securing Raw Material in

Appropriate Level compared to

Increase in Sales

Failure in Securing Raw Material due to Lack of Fund

In case of reduction in raw material

To assess company properly?? => “Find hidden meaning behind under the value of financial statement!!”

Evaluation Method of Stock Asset

Actual Cost Method

Method to evaluate certain stock with actual raw cost

Average Method Method to determine the raw cost of stock asset by dividing total sales amount by total sales quality in certain period

FIRST IN FIRST OUT Method where raw cost of purchased stock is granted to previously sold stock and raw cost of purchased item is granted to remaining stock asset

LAST IN FIRST OUTMethod where raw cost of recently purchased stock is granted to previously sold stock and raw cost of remaining stock asset is granted of the oldest raw cost of purchase

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(3)Fixed Asset and Investment Asset

Increase in Fixed Asset

Grasping appropriateness

of investment

Grasping the Speculative Asset

Grasping the Amount by Asset

Reevaluation

Grasping the AppropriatenessOf Procurement Fund Relevant to Investment

Decrease in Fixed Asset

Grasping the Reduction in Scale

Of Total Asset

Examination on Disposition of

Real-EstateDue to Lack of Fund

In case of Investment Asset

Examination on Financial Status

& Business Performance Of Investment

Company

Operation of Floating Money inInvestment for

Takeover ofOther Company

(4)Loan

Analysis on increase in sales through integrated examination on trend of industry, estimated sales, operating rate, growth potential and fund procurement capability, etc

Examination on appropriateness of facility investment and loan in conservative standpoint

Excessive Increase in Loan

Grasping the Composition of

Short-Term Loan& Long-Term Loan

Grasping the appropriateness in use and scale of loan including the lack of operating fund, purchase of real-estate other than use, investment, use of investment fund from company

Increase in Long-Term Loan

2. Analysis on Items of Income Statement(1)Sales

Increase in Sales

Window-DressingSettlement

Growing Industry

Success in Development of

New Product

Increase in unit price of sales andsales amount

Frequently used to increase profit.Sum of fictitious sale, fictitious stock asset, Trade Receivables, etc

Examination on sales by new industry and new product

Consideration of domestic and overseas trend in market

Increase in unit price of sales is difficult to be considered as actual increase

Ratio of break-even point exceeding 100%

Ratio of break-even point=(break-even point sales/sales) X 100Ratio of break-even point is less than 70% => Sound Level

High Rate of Increase in Trade Receivables or

Stock Asset Compared to

Increase in Sale

• Lowering of turnover with accumulation of bad bond and stock asset• Concern for aggravation in lack of fund• Cautions in assessing the limit of operating fund

Determination on profit creation capability

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Decrease in Sales

Decrease in PurchasingPower to Products with

Change in Market EnvironmentStagnation

Problem in Marketing Strategy

Sales leverage refers to the lever effect with dramatic change in operating profit compared to change in sales. It generally occurs since burden of depreciation caused by possession of tangible asset is the fixed cost generating steadily regardless of scale of sales. As burden of fixed cost is higher during reduction in sales of company, rate of reduction in operating profit increases.

“What is Operating Leverage?”

(2)Gross Profit

Company with (-) Gross Profit

Sales price of product<Purchase price of product

Sales price of product < raw cost of manufacturing

Examination on Constituents for Raw Cost of Sales

Increase in material cost is the cause for increase in raw cost. Examination on trend in price of raw material and diversity of transactions

Manufacturer Wholesale Industry

Material Cost

Labor CostLabor cost shall be examined considering the spirit of staff, productivity, relation with labor union, etc

“Competitiveness only springs from continuous reduction in raw cost”

Sales: Physical performance of management for sales activity of company,Although it can be considered that company lead active sales activity when sales is high, company cannot be determined with just sales

Business in deficit with increase in operating profit

Sales

Trade Receivables

Although sales increased in great deal,Trade Receivables has dramatically

increased correspondingly

Internal deficiency

Physical growth

Although it is growing dramatically from outside, risk in management occurs with aggravation in lack of fund without any income internally

Increase in raw cost

Increase in sales

Although sales is increasing in great deal,

deficit in management cannot be avoided

with the burden of raw cost of sales

increasing furthermore

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(3)Operating Profit

It shall be at least (+) just like gross profit. In case of (-) operating profit, existence is difficult

Examination on Importance of Constituents and each Item of Sales Cost and Management Cost

Examination on appropriateness in severance and retirement benefits and depreciation cost

Company with (-) Operating Profit

Examination on excessive increase and unnecessary items

(4)Ordinary Profit

Since the company with (-) ordinary profit does not have capability to pay interest expense, examine its constituents

Ordinary Profit – Operating Profit + Non-Operating Profit – Non-Operating Cost

Determination on level of the company by comparing the ratio of previous year and average rate of same industry

Company with (－ ) Ordinary Profit

Ratio of Liabilities

Ratio of Financing Expense To Sales

Ratio of InterestCompensation

(5)Net profit before reduction in corporate tax

Simultaneous Analysis on Performance of Net Profit and Ordinary Profit

Company shall create profit from sales activity.Doubt in perpetuity of company when profit is acquired with disposition of possessing fixed assets, etc

Determination on existence as company

Examination on Disposition of

Fixed Asset

Examination on Real-Estate for

Additional Disposition, Etc

Examination on Actual Management Status of Company