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Ch 10 Tool Kit12/30/2001Chapter 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 otherfirms 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 theone 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 historicaldata, then plan changes in operations, and then forecast what results will be under the new operating plan. This iswhere spreadsheets become REALLY useful, as we can make changes in assumptions and instantly see the results ofthose changes. Thus, the Chapter 10 model is really a lead-in to the one for Chapter 11, where we get into forecasting.Input Data:20022001Year-end common stock price$23.00$26.00Year-end shares outstanding (in millions)5050Tax rate40%40%After-tax cost of capital11.0%10.8%Lease payments$28$28Required sinking fund payments$20$20Balance Sheets(in millions of dollars)Assets20022001Cash and equivalents$10$15Short-term investments$0$65Accounts receivable$375$315Inventories$615$415Total current assets$1,000$810Net plant and equipment$1,000$870Total assets$2,000$1,680Liabilities and equityAccounts payable$60$30Notes payable$110$60Accruals$140$130Total current liabilities$310$220Long-term bonds$754$580Total debt$1,064$800Preferred stock (400,000 shares)$40$40Common stock (50,000,000 shares)$130$130Retained earnings$766$710Total common equity$896$840Total liabilities and equity$2,000$1,680Income Statements(in millions of dollars)20022001Net sales$3,000.0$2,850.0Operating costs$2,616.2$2,497.0Earnings before interest, taxes, & depr. (EBITDA)$383.8$353.0
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Balance Sheet, Net Income, Financial Ratio, Generally Accepted Accounting Principles, Earnings before Interest