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    Financial Statement Analysis: K R Subramanyam John J Wild

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    Financial Statement Analysis: K R Subramanyam John J Wild

    Uploaded by

    Emma Suryani
    348 views40 pages
    subramanyam

    Original Title

    Chapter 01

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    subramanyam

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    348 views40 pages

    Financial Statement Analysis: K R Subramanyam John J Wild

    Uploaded by

    Emma Suryani
    subramanyam

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 40

    Financial

    Statement
    Analysis
    K R Subramanyam
    John J Wild

    McGraw-Hill/Irwin

    Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

    Overview of Financial
    Statement Analysis

    CHAPTER

    1-2

    1-3

    Business Analysis
    Evaluate
    EvaluateProspects
    Prospects

    Evaluate
    EvaluateRisks
    Risks

    1-4

    Information Sources for Business


    Analysis

    1-5

    1-6

    Credit Analysis

    1-7

    Credit Analysis
    Credit
    Creditworthiness:
    worthiness:Ability
    Abilityto
    tohonor
    honorcredit
    creditobligations
    obligations
    (downside
    (downsiderisk)
    risk)

    Liquidity
    Liquidity
    Ability
    Abilityto
    tomeet
    meetshortshortterm
    termobligations
    obligations
    Focus:
    Focus:
    Current
    Currentcash
    cashflows
    flows
    Make
    Makeup
    upof
    ofcurrent
    current
    assets
    assetsand
    andliabilities
    liabilities
    Liquidity
    Liquidityof
    ofassets
    assets

    Solvency
    Solvency
    Ability
    Abilityto
    tomeet
    meetlonglongterm
    termobligations
    obligations
    Focus:
    Focus:
    Long-term
    Long-termprofitability
    profitability
    Capital
    Capitalstructure
    structure

    1-8

    Equity Analysis
    Assessment
    Assessmentof
    ofdownside
    downsiderisk
    riskand
    andupside
    upsidepotential
    potential

    Technical
    Technicalanalysis
    analysis/ /
    Charting
    Charting
    Patterns
    Patternsin
    inprice
    priceor
    or
    volume
    volumehistory
    historyof
    ofaa
    stock
    stock
    Predict
    Predictfuture
    futureprice
    price
    movements
    movements

    Fundamental
    FundamentalAnalysis
    Analysis
    Determine
    DetermineIntrinsic
    Intrinsicvalue
    value
    without
    withoutreference
    referenceto
    to
    price
    price
    Analyze
    Analyzeand
    andinterpret
    interpret
    key
    keyfactors
    factors
    Economy
    Economy
    Industry
    Industry
    Company
    Company

    1-9

    1-10

    Accounting Analysis
    Process to evaluate and adjust financial
    statements to better reflect economic reality

    Accounting
    Risk

    1-11

    Financial Analysis
    Process to evaluate financial position and
    performance using financial statements
    Profitability analysis Evaluate return
    on investments
    Risk analysis Evaluate riskiness
    & creditworthiness
    Analysis of
    cash flows

    Evaluate source &


    deployment of funds

    Common tools

    Ratio
    analysis

    Cash
    flow
    analysis

    1-12

    Prospective Analysis
    Process
    Processto
    toforecast
    forecastfuture
    futurepayoffs
    payoffs
    Business
    BusinessEnvironment
    Environment
    &&Strategy
    StrategyAnalysis
    Analysis
    Accounting
    AccountingAnalysis
    Analysis
    Financial
    FinancialAnalysis
    Analysis

    Intrinsic
    IntrinsicValue
    Value

    1-13

    Dynamics of Business Activities


    Business
    BusinessActivities
    Activities

    Time
    Time

    1-14

    Business Activities

    1-15

    Business Activities

    Financing
    Financingactivities
    activities
    Owner
    Owner(equity)
    (equity)
    Nonowner
    Nonowner(liabilities)
    (liabilities)

    1-16

    Business Activities

    Investing
    Investingactivities
    activities
    Buying
    Buyingresources
    resources
    Selling
    Sellingresources
    resources

    Investing
    Investing==Financing
    Financing

    1-17

    Business Activities

    Operating
    OperatingActivities
    Activities

    Revenues
    Revenuesand
    andexpenses
    expensesfrom
    fromproviding
    providing
    goods
    goodsand
    andservices
    services

    1-18

    Financial Statements Reflect Business Activities

    1-19

    Financial Statements

    1-20

    1-21

    Balance Sheet
    Total Investing = Total Financing
    = Creditor Financing + Owner Financing

    1-22

    1-23

    Income Statement
    Revenues Cost of goods sold = Gross Profit
    Gross profit Operating expenses = Operating Profit

    Colgates Profitability
    (in $billions)
    $12.238 - $5.536 = $6.701 Gross Profit
    $6.701 - $4.5411 = $2.160 Operating profit

    1-24

    1-25

    Statement of Cash Flows

    1-26

    1-27

    Additional Information
    (Beyond Financial Statements)

    1-28

    Analysis Preview
    Comparative Analysis
    Purpose: Evaluation of consecutive
    financial statements
    Output: Direction, speed, & extent of any
    trend(s)
    Types:
    Year-to-year Change Analysis

    Index-Number Trend Analysis

    1-29

    Analysis Preview

    1-30

    Analysis Preview
    Common-Size Analysis
    Purpose : Evaluation of internal makeup
    of financial statements
    Evaluation of financial statement
    accounts across companies
    Output: Proportionate size of assets,
    liabilities, equity, revenues, &
    expenses

    1-31

    Analysis Preview

    1-32

    Analysis Preview

    1-33

    Analysis Preview
    Ratio Analysis
    Purpose :

    Evaluate relation between two or more


    economically important items (one
    starting point for further analysis)
    Output:
    Mathematical expression of relation
    between two or more items
    Cautions: Prior Accounting analysis is important
    Interpretation is key - long vs short
    term & benchmarking

    1-34

    Analysis Preview
    Valuation
    Valuation - an important goal of many types
    of business analysis

    Purpose: Estimate intrinsic value of a


    company (or stock)
    Basis:
    Present value theory (time value of
    money)

    1-35

    Analysis Preview
    Debt (Bond) Valuation

    Bt is the value of the bond at time t


    It +n is the interest payment in period t+n
    F is the principal payment (usually the debts face value)
    r is the investors required interest rate (yield to maturity)

    1-36

    Analysis Preview
    Equity Valuation

    Vt is the value of an equity security at time t


    Dt +n is the dividend in period t+n
    k is the cost of capital
    E refers to expected dividends

    1-37

    Analysis Preview
    Equity Valuation - Free Cash Flow to Equity
    Model

    FCFt+n is the free cash flow in the period t + n [often


    defined as cash flow from operations less capital
    expenditures]
    k is the cost of capital
    E refers to an expectation

    1-38

    Analysis Preview
    Equity Valuation - Residual Income Model

    BV is the book value at the end of period t


    Rit+n is the residual income in period t + n [defined as
    net income, NI, minus a charge on beginning
    book value, BV, or RIt = NIt - (k x BVt-1)]
    k is the cost of capital
    E refers to an expectation
    t

    1-39

    Analysis in an Efficient Market


    Three assumed forms of market efficiency
    Weak Form - prices reflect information in
    past prices
    Semi-strong - prices reflect all public
    Form
    information
    Strong Form - prices reflect all public and
    private information

    1-40

    Book Organization

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