fundamentals - Fundamental Analysis and Stocks Economics...

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Fundamental Analysis and Stocks Economics 71a: Spring 2007 Mayo, Chapter 9 Lecture notes 3.3
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Why Read or Care? Investment strategies Growth Use accounting numbers to estimate growth Value Compare accounting numbers to price
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Goals Accounting statements Financial ratios Ratios and valuation
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Accounting Statements Income statement Balance sheet Statement of retained earnings Statement of cash flows
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Income Statement Flow variables Revenues – Cost of goods sold
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Income Statement Example Sales revenues $50 Cost of goods sold $-25 Advertising/Admininstrative expenses $-2 Depreciation $-5 Interest payments $-1 Taxes $-3 Earnings 50-25-2-5-1-3 = $14 EBIT = Earnings before interest and taxes = 50-25-7 = $18 (operating income)
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Extraordinary Items: One Time Income and Expenses “Below the line” Should come after other items Part of total earnings Left out of EBIT “core earnings”, “operating earnings” Definitions are blurry on this
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Examples Lawsuit settlements One time asset sales (patents/real estate) Pension fund adjustments Changing accounting systems
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Income Statement Example Total revenues $50 Cost of goods sold $-25 Advertising + Admin. expenses $-2 Depreciation $-5 Interest payments $-1 Taxes $-3 **Earnings 50-25-2-5-1-3 = $14 (“core earnings”) EBIT = Earnings before interest and taxes = 50-25-7 = $18 (operating income) Lawsuit settlement = $-8 Earnings 50-25-2-5-1-3-8= $6
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Balance Sheet Accounting Value of the Firm Assets (things firm owns) Liabilities (Loans) Stockholders’ equity (Assets - Liabilities) Also called Book value Net worth
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Assets Cash Accounts receivable Inventories Land Plant and equipment Less: Depreciation
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Liabilities Accounts payable Notes payable (short term debt) Long term debt
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This document was uploaded on 11/04/2011 for the course FIN 412 at North South University.

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fundamentals - Fundamental Analysis and Stocks Economics...

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