Chapter2b+notes

Chapter2b+notes - Chapter 2 (contd) Financial Statement...

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Financial Statement Analysis Chapter 2 (cont’d)
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1 Spring 2009 Profit vs. Cash Flow “You Can’t Deposit Net Income, Only Cash” A firm may be profitable as measured by net income but is short of cash. 1
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6 Spring 2009 Example: Income Statement
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3 Spring 2009 Profits vs. Cash Flow ± EBITDA ² Earnings before interest, taxes, depreciation and amortization ² Reflects the cash a firm has earned from its operation net of leverage effect ² How much cash is generated from utilizing the assets ± NI cash earned ± EBITDA of Global Conglomerates in 2005 = $10.4 + $1.2 = $11.6 mil
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4 Spring 2009 Outline Financial Statements Balance Sheet Income Statement Profits vs. Cash Flow Statement of Stockholders’ Equity Income Statement Analysis Balance Sheet Analysis Statement of Cash Flows
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5 Spring 2009 Learning Objectives 1. Compute various financial ratios from Income Statement of a firm in order to analyze its financial status. 2. Distinguish between cash flow and accrual-based income 3. Define and interpret a Statement of Cash Flows. 4. Define Statement of Stockholders’ Equity and other financial statement information.
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6 Spring 2009 Example: Income Statement
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7 Spring 2009 Income Statement Analysis ± Operating Margin ± Net Profit Margin Sales Total Income Operating = Profitability Ratios Sales Total Income Net = Operating Margin in 2005 = $10.4 / $186.7 = 5.57% ² affected by efficiency and pricing strategy Net Profit Margin in 2005 = $2.0 / $186.7 = 1.07% ² affected by leverage and efficiency
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8 Spring 2009 Income Statement Analysis ± Asset Turnover ± Fixed Asset Turnover Assets Total Sales = Asset Efficiency Assets Fixed Sales = a firm’s efficiency in generating revenues from its assets Asset Turnover in 2005 = $10.4 / $186.7 = 5.57% Fixed Asset Turnover in 2005 = $2.0 / $186.7 = 1.07%
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9 Spring 2009 Income Statement Analysis ±
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Chapter2b+notes - Chapter 2 (contd) Financial Statement...

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