MGMT310_lecture4

MGMT310_lecture4 - Last Lasttimewediscussed

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st time we discussed… Last time we discussed… How can we make informative comparisons? Common financial ratios (table 3.8, page 65) I. Short term solvency / liquidity ratios II. Long term solvency / financial leverage ratios III. Asset management / turnover ratios rofitability ratios IV. Profitability ratios V. Market value ratios u Pont Identity: Du Pont Identity: ROE = NI/Sales × Sales / Assets × Assets / TotalEquity (Profit Margin) (Asset Turnover) (Equity Multiplier)
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oogle snapshot on 1/22/2010 Google snapshot on 1/22/2010 08/19/2004: Google stock opened at $100.00 2/31/2004: Google stock closed at $192 79 with P/E ratio 93 135 12/31/2004: Google stock closed at $192.79, with P/E ratio 93.135
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mple financial statements Sample financial statements Publicly traded firms must file with the SEC and make their financial statements publicly available http://www.sec.gov/edgar/searchedgar/companysearch.html 10 K –provides annual snapshots E.g., Starbucks’ Form 10 K: http://www.sec.gov/Archives/edgar/data/829224/000095012309064772/v53 316e10vk.htm 10 Q –provides quarterly snapshots E.g., Starbucks’ Form 10 Q: http://www.sec.gov/Archives/edgar/data/829224/000095012309029843/v52 638e10vq.htm
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Earnings management to exceed thresholds Degeorge, Patel, and Zeckhauser ( Journal of Business , 1999)
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rnings Management Earnings Management Smooth earnings growth, meet analysts expectations Cookie jar reserves Capitalization practices Intangible assets, software capitalization, R&D “Big bath” charges Earnings before nonrecurring charges Operating activities ccelerate sales Accelerate sales Immaterial misapplication of accounting principles Misuse of mark to market (i.e., fair value) accounting
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nancial planning Financial planning Firm A is a restaurant chain in Indiana. It would like to expand to Illinois within the next five years. Some things Firm A needs to consider: 1. How much capital is needed for investment in new assets? 2. How should this expansion be financed (i.e., cash/debt/equity)? 3. How will this expansion affect net working capital needs? 4. What kind of sales/profit growth is expected? 5. How much is Firm A currently paying out in dividends, and how should this change in accordance with Firm A’s growth? g g 6. Is this expansion feasible, taking into account Firm A’s other goals/constraints? (e.g., debt capacity, dividend policy, etc.)
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t’s do a simple example together
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MGMT310_lecture4 - Last Lasttimewediscussed

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