Chapter_cc - Applying Financial Statement Analysis CC...

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Unformatted text preview: Applying Financial Statement Analysis CC CHAPTER Prelude to Comprehensive Analysis Steps in Analyzing Financial Statements • E xplicitly define the analysis objectives • F ormulate specific questions and criteria consistent with the analysis objectives • I dentify the most effective and efficient tools of analysis • I nterpret the evidence Building Blocks of Analysis Prelude to Comprehensive Analysis Analysis emphasizes six areas of inquiry—with varying degrees of importance • Short‑term liquidity--Ability to meet short-term obligations. • Capital structure and solvency--Ability to generate future revenues and meet long-term obligations. • Return on invested capital--Ability to provide financial rewards sufficient to attract and retain financing. • Asset turnover--Asset intensity in generating revenues to reach a sufficient profitability level. • Operating performance and profitability--Success at maximizing revenues and minimizing expenses from operating activities over the long run. • Forecasting and valuation – ability to generate sufficient cash flows fund investment needs and create shareholder value. Reporting on Financial Statement Analysis Prelude to Comprehensive Analysis Analysis report typically contains at least six distinct sections: 1. Executive Summary--Brief summary focuses on important analysis results. 2. Analysis overview-- Background material on the company, its industry, and its economic environment. 3. Evidential matter-- Financial statements and information used in the analysis. This includes ratios, trends, statistics, and all analytical measures assembled. 4. Assumptions-- Identification of important assumptions regarding a company’s industry and economic environment, and other important assumptions for estimates or forecasts. 5. Crucial factors-- Listing of important favorable and unfavorable factors, both quantitative and qualitative, for company performance—usually listed by areas of analysis. 6. Inferences-- Includes forecasts, estimates, interpretations, and conclusions drawing on all four prior sections of the report. Case: Campbell Soup Co. Preliminary Financial Analysis Exhibit CC.1 CAMPBELL SOUP COMPANY Sales Contribution and Percent of Sales by Division ($ mil.) Year 11 Year 10 Year 9 Year 8 Year 7 Year 6 Sales Contribution: Campbell North America: Campbell U.S.A $ 3,911.8 $ 3,932.7 $ 3,666.9 $3,094.1 $ 2,881.4 $ 2,910.1 Campbell Canada 352.0 384.0 313.4 313.1 312.8 255.1 $ 4,263.8 $ 4,316.7 $ 3,980.3 $3,407.2 $ 3,194.2 $ 3,165.2 Campbell Biscuit and Bakery: Pepperidge Farm $ 569.0 $ 582.0 $ 548.4 $ 495.0 $ 458.5 $ 420.1 International Biscuit 219.4 195.3 178.0 — — — $ 788.4 $ 777.3 $ 726.4 $ 495.0 $ 458.5 $ 420.1 Campbell International $ 1,222.9 $ 1,189.8 $ 1,030.3 $1,036.5 $ 897.8 $ 766.2 Interdivision (71.0) (78.0) (64.9) (69.8) (60.1) (64.7) Total sales $ 6,204.1 $ 6,205.8 $ 5,672.1 $4,868.9 $ 4,490.4 $ 4,286.8 Percent of Sales: Campbell North America: Campbell U.S.A. 63.0%63....
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This note was uploaded on 08/06/2010 for the course FI575 FI575 taught by Professor Srinivasan during the Spring '08 term at Keller Graduate School of Management.

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Chapter_cc - Applying Financial Statement Analysis CC...

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