chap04 - Chapter 4 Analysis of Financial Statements 1...

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Chapter 4 Analysis of Financial Statements 1
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Learning Objectives Measure and interpret financial ratios. Analyze trends in financial ratios. Manipulate financial ratios to find another ratio. 2
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Ratio Analysis Examines firm’s management of various facets of the company’s business through its financial statements. Scales balance sheet and income statement information for easy comparison across time or to other companies. 3
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Two common approaches Trend Analysis - looks at changes in one company’s ratios over time. Benchmarking: Comparison or Industry Analysis - compares company’s ratios against a similar company or against industry-wide ratios. To illustrate trend analysis, we will compare Best Buy’s Feb. 2006 and Feb. 2005 ratios. To illustrate benchmarking, we will calculate Best Buy’s Feb. 2006 ratios and will compare to Circuit City’s Feb. 2006 ratios. 4
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Areas Examined by Ratio Analysis Liquidity - measures the ability to meet short-term obligations
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chap04 - Chapter 4 Analysis of Financial Statements 1...

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