garrison_bonus_chapter_15 - BONUS CHAPTER 15 LEARNING...

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15 After studying Chapter 15, you should be able to: 1. Explain the need for and limitations of financial statement analysis. 2. Prepare a trend and common-size balance sheet and income statement. 3. Compute and interpret the financial ratios used by the common shareholder. 4. Explain what is meant by the term financial leverage and show how financial leverage is measured. 5. Compute and interpret the financial ratios used by the short-term creditor. 6. Compute and interpret the financial ratios used by the long-term creditor. BONUS CHAPTER LEARNING OBJECTIVES “HOW WELL AM I DOING?” FINANCIAL STATEMENT ANALYSIS BUSINESS FOCUS Telus Corporation is one of Canada’s leading providers of data, Internet Proto- col (IP), voice, and wireless communications services.They provide a full range of communication products and services that serve to provide the opportunities of the Internet for Canadians at home, at work and on the move. In 2003, they state revenues of more than $7 billion and that they were a global telecom leader in the growth of their operating earnings and cash flow. Specifically, net income increased from a loss of $229 million to a profit of $332 million in 2003 resulting from a 2% increase in revenue, a 12.9 % increase in EBITDA while decreasing their asset pool by 4.1%. Large increases in wire- less subscribers and high-speed Internet subscribers accounted for most of the business growth. Their strategic targets for 2004 include a commitment to customer service, improved wireless growth, Internet growth, improved operational efficiency, and a competitive labour agreement. Telus Corporation usually releases its annual financial statements in Feb- ruary for the previous December 31 year end. The annual reports are more detailed than the quarterly financial statements. Also they are audited by Char- tered Accountants whereas the quarterly ones are not audited but the quarterly ones are more timely. The question addressed in the upcoming chapter is how can investors and creditors make sense of the hundred plus pages in the annual report. For man- agement, the questions are: have we satisfied the reporting regulations, how will we be viewed by our investors, and how do we compare to other telecom companies? Source: TELUS 2003 Annual Report. EBITDA: Earnings before interest, taxes, depreciation, and amortization, where earnings exclude restructuring costs. TELUS CORPORATION 2003 ANNUAL REPORT: EXCERPTS*
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BC15-2 Chapter 15 “How Well Am I Doing?” Financial Statement Analysis A ll financial statements are essentially historical documents. They tell what has happened during a particular period of time. However, most users of financial statements are concerned about what will happen in the future. Shareholders are concerned with future earnings and dividends. Creditors are concerned with the company’s future ability to repay its debts. Managers are concerned with the company’s ability to finance future expansion and how users will view their performance.
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garrison_bonus_chapter_15 - BONUS CHAPTER 15 LEARNING...

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