Essentials_of_FSA_slides.pptx - Essentials of Financial Statement Analysis Essentials of Financial Statement Analysis Step 1 Environmental analysis

Essentials_of_FSA_slides.pptx - Essentials of Financial...

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Essentials of Financial Statement Analysis
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Essentials of Financial Statement Analysis Step 1: Environmental analysis. Examine industry, risks, competitive environment, business strategy, operations, and the macro environment. Step 2: Accounting analysis. Learn about accounting policy and estimate choices that may require analytical adjustments to make financials comparable across firms and time
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Essentials of Financial Statement Analysis Step 3: Financial ratio analysis and forecasting. Financial ratios and common- size statements Forecasted balance sheet, income statement, statement of cash flows Economic decision making. Equity valuation (e.g., DCF) Credit risk assessment
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Step 1: Environmental Analysis Macroeconomy Industry Region Firm Strategy Operations Marketing Finance HR IT R&D Where do investors get this information? Form 10-K: Item 1 “Business,” Item 7 “MD&A.” Product description in the annual report to shareholders. Company home page. Industry publications. Governmental and other websites for macro-economic data.
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Quick Analysis of Ruby Tuesday Strategy Read “Operations” section of Item 1 “Business” (pages 4 – 6). Get into groups and answer the following questions: Around 2011/2012, RT started changing it’s strategy. What changes did RT’s managers make? What impact would you expect these choices to have on its revenues, expenses, assets, liabilities and equity? How about cash flows? What impact would you expect these choices to have on ratios such as cost of goods sold percentage, asset turnover, debt to equity? How might this impact your forecasts of future revenues and expenses? 15 minutes Step 1: Environmental Analysis
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How do you think this turned out for RT? Step 1: Environmental Analysis
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Step 2: Accounting Analysis Two Objectives: 1. Understanding how the economic consequences of business activities are reflected in the financial statements. 2.
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