ch1 Business environment

ch1 Business environment - Financial Statement Analysis...

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Financial Statement Analysis Business Analysis The objective of this class is to learn how assess the value of a business. The purpose of business analysis is wide in range (investment, creditworthiness, valuation of IPO, mergers, and divestitures. To assess the value of a business, we shall have to learn how to conduct business analyses . We shall see that the final product of the business analysis is the determination of the intrinsic value of a business. In other words, we shall have to perform a prospective and valuation analysis. This requires necessarily the carrying out of a business environment and strategies analysis and a financial analysis . Meditating on our goals, we shall perceive that accounting analysis is the principal ridgepole of the multifarious analysis required in order to arrive at our ultimate objective. The initial step in business analysis is to evaluate a company's business and strategies . This evaluation requires the application of analytical tools in order to make inferences about the value of a business by narrowing the uncertainty, which pervades any expert judgment. Business environment and strategic analysis Performing a business environment and strategic analysis, in order to determine the intrinsic value of a business, requires knowledge of the economic and industry forces surrounding the business. Interdisciplinarity is, then, the essential characteristic of this type of analysis. It can be segregated into: 1. Business environment analysis seeks to identify and assess the company's economic and industry circumstances. It involves the analysis of product, labor and capital markets within its economic and a regulatory setting. 2. Strategic analysis seeks to assess and identify the company's competitive strength and weaknesses along with its opportunities and threats. To conduct a business environment and strategic analysis, we have to perform 1. An industry analysis , in which we seek to assess the industry prospect and degree of actual and potential competition facing the company. 2. A strategy analysis , in which we seek to evaluate the company's business decisions and its success at establishing a competitive advantage (product mix and cost structure). Financial analysis Financial analysis seeks to assess the company's future financial performance. It focuses on the pillars of the company's future orientation and ability by scrutinizing issues like: Does the company have the necessary resources to succeed and grow, and to invest in projects? Which are its sources of sustainable profitability, i.e., the quality of it's earning power? What is its financial position? Does it fulfill expectations?
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It rests on: A profitability analysis : the analysis of return on investment (ROI) disaggregated into its components: the operating profit margin (OPM) and assets turnover. A
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ch1 Business environment - Financial Statement Analysis...

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