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Ch 10 Tool Kit 12/30/2001 Chapter 10. Tool Kit for Analysis of Financial Statements Financial statements are analyzed by calculating certain key ratios and then comparing them with the ratios of other firms and by examining the trends in ratios over time. We can also combine ratios to make the analysis more revealing, as is done with the DuPont analysis, and graphs can be used to facilitate trend analysis. Spreadsheet models such as the one below are exceptionally useful for this type of analysis. Note that financial analysis is generally the starting point for a forecast of future performance. We analyze historical data, then plan changes in operations, and then forecast what results will be under the new operating plan. This is where spreadsheets become REALLY useful, as we can make changes in assumptions and instantly see the results of those changes. Thus, the Chapter 10 model is really a lead-in to the one for Chapter 11, where we get into forecasting. Input Data: 2002 2001 Year-end common stock price $23.00 $26.00 Year-end shares outstanding (in millions) 50 50 Tax rate 40% 40% After-tax cost of capital 11.0% 10.8% Lease payments $28 $28 Required sinking fund payments $20 $20 Balance Sheets (in millions of dollars) Assets 2002 2001 Cash and equivalents $10 $15 Short-term investments $0 $65 Accounts receivable $375 $315 Inventories $615 $415 Total current assets $1,000 $810 Net plant and equipment $1,000 $870 Total assets $2,000 $1,680 Liabilities and equity Accounts payable $60 $30 Notes payable $110 $60 Accruals $140 $130 Total current liabilities $310 $220 Long-term bonds $754 $580 Total debt $1,064 $800 Preferred stock (400,000 shares) $40 $40 Common stock (50,000,000 shares) $130 $130 Retained earnings $766 $710 Total common equity $896 $840 Total liabilities and equity $2,000 $1,680 Income Statements (in millions of dollars) 2002 2001 Net sales $3,000.0 $2,850.0 Operating costs $2,616.2 $2,497.0 Earnings before interest, taxes, & depr. (EBITDA) $383.8 $353.0
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