Class 5 Financial Analysis 6slides

Class 5 Financial Analysis 6slides - Financial Analysis...

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1 Financial Statement Analysis Class 5: Financial analysis Financial Statement Analysis Class 5: Financial Analysis Financial Analysis Financial Analysis To assess the performance of a firm Ratio analysis Cash flow analysis Ratio Analysis Time series analysis Cross-sectional analysis An example: Wal-Mart and Target A. Ratio Analysis 1 Two basic forms of comparison: Time series vs. cross-sectional Time series analysis Compares a firm’s ratios to their levels in prior years Examines how ratios vary over time Important to ensure that accounting policy is consistent Looks at the impact of Economic conditions Industry conditions Firm specific conditions Cross-sectional analysis Compares ratios with their levels in other firms Evaluates firm’s performance relative to its peers Important to find proper peers A. Ratio Analysis 2 Look for similar product, industry, strategy, age, size Or use industry averages A. Ratio Analysis: 3 Some Caveats There is no “standard” way to compute many ratios. Make sure you understand how the ratios are computed before interpreting them. Ratios do not provide answers; They just tell you where to look for answers. Accounting numbers used in ratios are subject to managerial discretion. It’s important to do accounting analysis Use standardized format of financial statements B: Ratios Ratio analysis relates financial numbers to the underlying business: Operating management – profitability ratios Investment management – turnover ratios Financing decisions liquidity & leverage Financing decisions – liquidity & leverage Dividend policy – payout ratios Ratios are sometimes used for valuation purpose
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This note was uploaded on 01/27/2012 for the course FINS 5511 taught by Professor Mike during the Three '11 term at South Australia.

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Class 5 Financial Analysis 6slides - Financial Analysis...

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