Econ 3A - Notes #3

Econ 3A - Notes #3 - b With competitors 8 Comparative...

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Econ 3A – Notes #3 Financial Statement Analysis 1. Financial statements provide information for decision making by investors and creditors 2. Historical financial statements useful for: a. Evaluation of management performance b. Prediction of future earnings and cash flows c. Confirmation of prior predictions 3. Focus is on “sustainable earnings” 4. Irregular items – three categories a. Discontinued operations b. Extraordinary items i. Must be unusual and infrequent – few things qualify (no examples) c. Cumulative effect of an accounting change i. New rule, so will no longer see after 2005 5. Non-GAAP financial measures 6. Comprehensive income a. Broader concept of income b. Net income +/- changes in balance sheet valuations which do enter into the computation of net income: i. Currency translation adjustments ii. Holding gains and losses on securities iii. Minimum pension liabilities 7. Comparison a. Across time
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Unformatted text preview: b. With competitors 8. Comparative analysis a. Horizontal analysis (percentage changes) – pg. 669 in textbook b. Vertical analysis (common-size) – pg. 671 in textbook 9. Ratio analysis a. Liquidity b. Solvency c. Profitability d. Market e. Summary of ratios – pg. 673-674 in textbook 10. In class, projects, and exams: use year-end numbers where a formula call for an average 11. WileyPLUS: Wiley rules; do as Wiley says 12. Cash-to-Cash Operating Cycle*** - not in the text 13. Solvency Ratios a. Debt to total assets ratio i. Total liabilities/Total assets b. Cash debt coverage ratio i. CFFO/Average total liabilities (use year-end) c. Times interest earned i. Net income + Interest expense + Tax expense / Interest expense 1. <2.0 – not good 2. >2.0 – healthy d. Free cash flow i. CFFO – Capital expenditures – Dividends paid...
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This note was uploaded on 03/15/2009 for the course ECON 3A taught by Professor Loster during the Spring '07 term at UCSB.

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Econ 3A - Notes #3 - b With competitors 8 Comparative...

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