I recently finished reading Benjamin Graham’s 1937 classic The Interpretation of Financial Statements. Graham explains the financial statement concepts in clear English. At the end of the book he walks the reader through the analysis of a balance sheet and income statement using the ratio method. His example was Bethlehem Steel Corporation.
I will do the same with Safe Bulkers (SB).
A number of the ratios used in the analysis of an industrial company’s income account and balance sheet are presented herewith by the use of a single example – namely the financial statements of the Safe Bulkers corporation for 2011. Various items in the Balance Sheet and Income account are numbered. This will facilitate the explanation as to the method of computing ratios. For example margin of profit, the first ratio computed in this study, is operating income divided by sales. On the Income Account operating income is item No. 4 and sales is item No. 1. The method of computing margin of profit is expressed at (4) ÷
SAFE BULKERS
Income Account Year Ended December 31, 2011
(1) | Revenues | $172,036,000 |
Commissions | (3,128,000) | |
(2) | Voyage, vessel operating, general and administrative expenses | (36,542,000) |
Early redelivery income | 207,000 | |
(3) | Depreciation | (23,637,000) |
(4) | Operating Income | $108,936,000 |
Add – interest, dividends, and other misc income | 0 | |
(5) | Total Income | $108,936,000 |
(6) | Deduct-Interest charges | (19,202,000) |
(7) | Net Income | $89,734,000 |
(8) | Deduct-Dividends on Preferred Stock | 0 |
(9) | Net for Common Stock | $89,734,000 |
Deduct-Dividends on Common Stock | $42,536,652 | |
(10) | Transferred to Surplus | $47,197,348 |
BALANCE SHEET
SAFE BULKERS
December 31st, 2011
ASSETS
Current Assets: | |||
(11) | Cash, time deposits | $28,121,000 | |
(12) | Other current assets | 9,838,000 | |
(13) | Accounts and notes receivable | 0 | |
(14) | Inventories | 0 | |
(15) | Total Current Assets | $37,959,000 | |
Advances for vessel acquisition and vessels under construction | $122,307,000 | ||
Restricted cash non-current | 5,423,000 | ||
Long-term investment | 50,000,000 | ||
Other non-current assets | 6,226,000 | ||
(16) | Vessels | ? | |
(17) | Less reserve for depreciation and depletion | 0 | |
(18) | Vessels, net | $655,356,000 | |
Total Long Term Assets | $ 839,312,000 | ||
Total Assets | $877,271,000 |
LIABILITIES
Current Liabilities: | |||
Current portion of long-term debt | $18,486,000 | ||
Other current liabilities | $33,187,000 | ||
(19) | Total Current Liabilities | $ 51,673,000 | |
(20) | Long-term debts, net of current portion | $465,805,000 | |
(21) | Other non-current liabilities | $27,951,000 | |
Total Non-current Liabilities | $493,756,000 | ||
(22) | Common stock 70,894,420 shares, no par value? | 0 | |
(23) | Shareholder equity (Surplus) | $331,842,000 | |
Total Shareholder Equity | $331,842,000 | ||
Total Liabilities | $877,271,000 |
Margin of Profit
Operating income divided by Sales.
Formula: (4) ÷
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