Chapter 10 - Financial Statement Analysis

Financial Statement
Analysis
Chapter 10
Technical Analysis vs Fundamental Analysis
TA FA
Using charts, indicators etc. to analyze the Fundamental analysis based on income
historical price changes and growth changes statements, balance sheets, and cash flow
to predict future movement statements.
Reviewing the historical price and volume Macroeconomic indicators like gross
data domestic product growth, inflation, and
unemployment rates to understand the
economic environment
Candlestick, Trend analysis, Support and News and events: Company news, such as
resistance earnings reports, new contracts, and
regulatory changes, affect stock prices.
An Uptrend Chart
A Downtrend Chart
Support and Resistance
Balance sheet (BS)
 A balance sheet is a snapshot of a business’s net worth at a

particular moment in time, normally the end of a financial year.
 It is a summary of everything that the business owns (its assets)
and owes (its liabilities. A balance sheet therefore states the value
of a business.
(VND bn) 2014A 2015A 2016F
Current Assets (1) 3,658 6,486 10,271
Cash and cash equivalent 469 1,462 5,134
Short term investment 629 928
Receivables 2,149 2,609 3,315
Short-term trade receivables 2,154 2,606 3,332
Short-term advances to suppliers 103 203 283
Other short-term receivables 86 112 -
Provision for doubtful debt (194) (312) (300)
Inventories 270 1,051 1,439
Other current assets 141 436 383
Non-current Assets (2) 1,205 1,329 1,179
Fixed assets 249 440 568
Long-term investments 781 493 187
Other non-current assets 175 396 424
TOTAL ASSET (1) + (2) 4,863 7,815 11,450
(VND bn) 2014A 2015A 2016F
Liabilities (1) 2,154 4,572 4,735
Current Liabilities 2,140 4,559 4,721
Short-term debt - - -
Trade accounts payable 976 1,962 1,439
Other payables 1,164 2,597 3,282
Short-term advances from customers 77 1,108 1,531
Short-term accrued expenses 768 1,098 1,401
Other payables 319 391 350
Non-current Liabilities 14 13 13
Long-term debt - - -
Others 14 13 13
Equity (2) 2,709 3,242 6,716
Charter Capital 422 469 800
Additional paid-in capital 869 1,385 3,753
Treasury shares (2.0) (2.0) (2.0)
Retained earnings & other Funds 1,420 1,391 2,164
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (1) + (2) 4,863 7,815 11,450
Income statement (IS)
 A profit and loss account is a summary of business transactions

for a given period - normally 12 months. By deducting total
expenditure from total income, it shows on the 'bottom line’
whether your business made a profit or loss at the end of that
period. (usually a year).
(VND bn) 2014A 2015A 2016F
Sales/ Revenues 7,634 13,669 19,137
COGS 7,078 12,557 17,510
Gross Profit 556 1,112 1,627
SG&A 215 363 440
Financial Income 119 126 150
Interest Expenses 0 2 -
Operating Profit 460 874 1,337
Other Income/(Expenses) 4 53 41
EBT 464 927 1,378
Corporate Income Tax (CIT) 107 194 273
EAT (Net Profit) 357 733 1,105
Cashflow statements (CF)
 The purpose of cash flows is to emphasize the critical nature of the

cash flow to the operations of the firm. Cash flow generally represents
cash or cash-equivalent items that can be converted into cash within
90 days.
 There are three primary sections of the statement of cash flow:
1. Cash flows from operating activities
2. Cash flows from investing activities
3. Cash flows from financing activities
Cashflow statements (CF)
CF from operating activities CF from investing activities CF from financing activities
EBT Purchases of fixed assets Share issuance
Depreciation and Amortization Disposals of fixed assets Proceeds of borrowing
Interest expenses Investment income Repayment of loan principal
Profit from investing activities Interest and dividend received Dividend paid
What is a ratio?
 A ratio compares the size of two numbers, example 2 : 1

Ex: Current Assets £200,000 Current Liabilities £100,000  The ratio is 2 : 1
 Financial indicators can be written as ratios, but they are often also written as
percentages
 We will now explain the ratios which assess business profitability, liquidity and
efficiency.
The financial health of a business
 Ratios assess the financial health of business in four main areas:

 Profitability – this indicates the level of return and earning power of
the business
 Liquidity – this measures the resources the business has in the short-
term to meet its immediate debts
 Efficiency – this shows how well the business has managed it’s stock,
debtors and creditors
 Solvency – this show how well companies pay off debt and interest and
use assets to fund operations.
Who needs to know?
 Business managers and owners – looking at performance (e.g. Profit or Loss)

and making decisions (e.g. decide to cut costs or to increase selling price)
 Shareholders – investors in large companies to ensure they will get a good
and safe return on their money
 Lenders – banks, to make sure they will get their money back
 Employees – to make sure their job is safe in the future
Profitability Ratios
𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐩𝐫𝐨𝐟𝐢𝐭
O
𝐒𝐚𝐥𝐞𝐬
Liquidity Ratios
• The liquidity of a business is based on the short-term resources it has:

cash in the bank, money due from debtors, stock it can sell - these are
current assets
• Liquidity is needed to pay off short-term debts: short-term loans, tax
bills, money due to creditors - these are current liabilities
• The liquidity of a business = current assets minus current liabilities:
this is known as ‘working capital’ or ‘net current assets’
• A business that has little or no liquidity could easily fail, so it is
important to be able to measure the liquidity
Liquidity Ratios
Liquidity Ratios
Efficiency Ratios
• A financial tool that measures the effectiveness in using assets and

managing debt during a period of a business.
• There are several types of performance indicators, but they all have
the common feature of directly or indirectly measuring the time it
takes for a business to convert resources (assets, capital, etc.) into
cash or revenue.
• A business's revenue source can come from selling products and
services to customers, or liquidating its own inventory.
Efficiency Ratios
𝐂𝐎𝐆𝐒 𝟑𝟔𝟓
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 = 𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐡𝐨𝐥𝐝𝐢𝐧𝐠 𝐩𝐞𝐫𝐢𝐨𝐝 =
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫
𝐒𝐚𝐥𝐞𝐬 𝟑𝟔𝟓
𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞 𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫
𝐂𝐎𝐆𝐒 𝟑𝟔𝟓
𝐏𝐚𝐲𝐚𝐛𝐥𝐞 𝐏𝐚𝐲𝐚𝐛𝐥𝐞 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫
𝐒𝐚𝐥𝐞𝐬
𝐓𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬
Solvency Ratios
• Solvency is an important indicator of a company's long-term financial

health. Measuring solvency ratios gives professionals insight into how
efficiently companies pay off debt and interest and use assets to fund
operations.
• If you're interested in developing cost-reduction strategies and
achieving profitable outcomes, it might be helpful to learn more
about solvency ratios and how to measure them.
• There are four primary solvency ratios, including the interest coverage
ratio, the debt-to-asset ratio, the equity ratio and the debt-to-equity
ratio.
Solvency Ratios

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Chapter 10 - Financial Statement Analysis

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Financial Statement

 A balance sheet is a snapshot of a business’s net worth at a

 A profit and loss account is a summary of business transactions

 The purpose of cash flows is to emphasize the critical nature of the

CF from operating activities CF from investing activities CF from financing activities

EBT Purchases of fixed assets Share issuance

Depreciation and Amortization Disposals of fixed assets Proceeds of borrowing

Interest expenses Investment income Repayment of loan principal

 A ratio compares the size of two numbers, example 2 : 1

 Ratios assess the financial health of business in four main areas:

 Business managers and owners – looking at performance (e.g. Profit or Loss)

• The liquidity of a business is based on the short-term resources it has:

• A financial tool that measures the effectiveness in using assets and

• Solvency is an important indicator of a company's long-term financial

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