Ch14 - Fin Stmt Analysis

Ch14 - Fin Stmt Analysis - Chapter 14 Financial Statement...

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Chapter 14 Financial Statement Analysis Overview of financial statement analysis Horizontal Analysis Component Percentages Ratios Limitations of Financial Analysis 14-1
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Overview of financial statement analysis 14-2
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Stockholders Creditors Management Will I be paid? How good is our investment? How are we performing? Uses and Users 14-3
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Factors in the Investment Decision Other Financial Information Company Strategy Invest in Netflix? No Yes 14-4
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Financial Information Past Performance Present Condition Future Performance Net income, sales, cash flows, EPS. (Annual Report) Assets, debt, inventory. (Annual Report) Past performance is an indicator of future performance. What is widely considered to be the single most important factor affecting a company’s stock appreciation over time? Generation of earnings 14-5
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Company Strategy Two basic strategies: 1. Product differentiation 2. Low cost provider Example: United and Southwest Airlines Sources of information: 1. Annual report 2. Media 3. Financial Analysts 14-6
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Other Those who use financial information for business and economic decisions need to combine information provided by financial reporting with pertinent information from other sources, for example, information about general economic conditions or expectations political events and political climate industry outlook FASB, Statement of Concepts #1 14-7
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How to Evaluate Companies? Companies differ in size so you can’t compare absolute numbers. Which of these companies has a stronger performance? 14-8 Fiscal Year ended 2008 ($mil) Home Dep % Lowe's % Net sales 71,288 $ 48,230 $ Net earnings 2,260 2,195
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Tools of Analyses You will learn how to use the financial statements to evaluate the financial position of the company. Analysis techniques include: Horizontal Analysis (Trends or Time Series Analysis) Component Percentages (Vertical Analysis) Ratio Analysis 14-9
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Horizontal analysis 14-10
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Horizontal Analysis Horizontal Analysis compares two or more years’ financial statements to identify trends. For Home Depot: 14-11
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Component percentages 14-12
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Component Percentages Example 14-13 2008 % 2007 % Net Sales 71,288 $ 77,349 $ Cost of merchandise sold 47,298 51,352 Gross profit 23,990 25,997 Operating expenses 19,846 18,570 Operating income 4,144 7,427 Add: Interest Income 18 74 Deduct: Interest expense 624 696 Earnings before income taxes 3,538 6,805 Income taxes 1,278 2,410 Net earnings 2,260 $ 4,395 $ Basic earnings per share 1.34 $ 2.38 $ Home Depot Income Statement Amounts in Millions Except Per Share Data
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2008 % 2007 % Net Sales 71,288 $ 100.0% 77,349 $ 100.0% Cost of merchandise sold 47,298 66.3% Gross profit 23,990 Operating expenses 19,846 Operating income 4,144 Add: Interest Income 18 Deduct: Interest expense 624 696 Earnings before income taxes 3,538 6,805 Income taxes 1,278 2,410 Net earnings 2,260 $ 4,395 $ Basic earnings per share 1.34 $ 2.38 $ Home Depot Income Statement Amounts in Millions Except Per Share Data Component Percentages Example Net sales is the base amount: Cost of merchandise sold ÷ Sales = Component % $47,298 ÷ $71,288 = 66.3% NB: Percentages are rounded to the nearest .1%.
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This note was uploaded on 11/24/2009 for the course UGBA 102A taught by Professor Udpa during the Fall '07 term at Berkeley.

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Ch14 - Fin Stmt Analysis - Chapter 14 Financial Statement...

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