Financial+Statement+Analysis

Financial+Statement+Analysis - Financial Statement Analysis...

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1 Financial Statement Analysis
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2 Evaluation of current and past financial conditions Estimated predictions about future financial conditions and performance
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3 Reasons for Analysis Investment decisions* Credit decisions* Performance* Valuation (investment) Unreasonable returns (performance)
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4 FSA Steps Identify the economic characteristics Identify the corporate strategies Understand the financial statements Assess the profitability and risk Value the particular firm
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5 Tools for Economic Analysis Porter’s Five Forces Economic Attributes Framework
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6 Porter’s Five Forces Buyer Power- (price sensitivity) Supplier Power Rivalry among Firms Threat of New Entrants Threat of Substitutes
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7 Economic Attributes Framework Demand i price sensitivity 2 demand growth 2 cyclical demand 2 seasonal demand Supply i number of suppliers 2 barriers to entry Manufacturing i capital intensity 2 process complexity Marketing i marketing channel--corporate or consumer 2 demand pull or demand creation Financing i Nature of assets 2 Asset risk 2 Source of cash flow--internal or external
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8 Strategic Analysis Framework Nature of product or service Degree of Integration Degree of Geographical Diversification Degree of Industry Diversification
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9 Financial Statements Balance Sheet Income Statement Statement of Cash Flows Footnotes Auditors Report Management Discussion and Analysis
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10 Income Statement Classification Operating income Other income and expense Income from continuing operations Income, gains & losses from discontinued operations Extraordinary gains and losses Changes in accounting principles
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11 Comprehensive Income Net income plus or minus the changes in shareholders’ equity from other than net income or transactions with owners. (we will look at this later)
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12 Other F/S Considerations Quality of Earnings Statement of Cash Flows Auditors Report
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13 Tools of Profit and Risk Analysis Common Size Financial Statements Percentage Change Statements Comparative Analysis Critical Financial Ratios
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14 Risks of Comparative Analysis Timing GAAP Application Degree of Conservatism- management’s attitude Size Geographic Diversification
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15 Critical Financial Ratios Profitability Ratios i EPS i ROCE Risk Ratios i Current ratio i CFO/Avg. Current Liabilities i Debt/Equity
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16 Valuation Price-Earnings Ratio Market value to Book value Ratio
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Role of FSA in Capital Markets One View: FSA has no impact The Other View i FSA is a catalyst i FSA identifies individual opportunities i Equity markets are not perfectly eff. i
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Financial+Statement+Analysis - Financial Statement Analysis...

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