Ch03 Show

Ch03 Show - CHAPTER 3 Analysis of Financial Statements 1...

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1 CHAPTER 3 Analysis of Financial  Statements
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2 Topics in Chapter n Ratio analysis n Du Pont system n Effects of improving ratios n Limitations of ratio analysis n Qualitative factors
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3 Value =                         +                         +     + FCF1 FCF2 FCF∞ (1 + WACC)1 (1 + WACC)∞ (1 + WACC)2 Free cash  flow (FCF) Market interest rates Firm’s business risk Market risk aversion Firm’s debt/equity mix Cost of debt Cost of equity Weighted  average cost of capital (WACC) Net operating profit after  taxes Required  investments in operating capital = Determinants of Intrinsic Value: Using Ratio Analysis ...
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4 Overview n Ratios facilitate comparison of: n One company over time n One company versus other companies n Ratios are used by: n Lenders to determine creditworthiness n Stockholders to estimate future cash flows and  risk n Managers to identify areas of weakness and  strength
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5 Income Statement 2010 2011E Sales $5,834,400  $7,035,600 COGS 4,980,000  5,800,000 Other expenses 720,000  612,960 Deprec. 116,960  120,000    Tot. op. costs 5,816,960  6,532,960    EBIT 17,440  502,640 Int. expense 176,000  80,000    EBT (158,560) 422,640 Taxes (40%) (63,424) 169,056
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6 Balance Sheets: Assets 2010 2011E Cash $      7,282  $     14,000 S-T invest. 20,000  71,632 AR 632,160  878,000 Inventories 1,287,360  1,716,480    Total CA 1,946,802  2,680,112    Net FA 939,790  836,840 Total assets $2,886,592   $3,516,952
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7 Equity 2010 2011E Accts. payable $    324,000  $    359,800 Notes payable 720,000  300,000 Accruals 284,960  380,000    Total CL 1,328,960  1,039,800 Long-term debt 1,000,000  500,000 Common stock 460,000  1,680,936 Ret. earnings 97,632  296,216    Total equity 557,632  1,977,152
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8 Other Data 2010 2011E Stock price $6.00 $12.17 # of shares 100,000  250,000 EPS -$0.95 $1.01 DPS $0.11 $0.22 Book val. per sh. $5.58 $7.91 Lease payments $40,000 $40,000 Tax rate 0.4 0.4
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9 Liquidity Ratios n Can the company meet its short-term  obligations using the resources it  currently has on hand?
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10 Forecasted Current and Quick  Ratios for 2011. CR10 =           =               = 2.58. QR10 = =                             = 0.93. CA CL $2,680 $1,040 $2,680 - $1,716 $1,040 CA - Inv. CL
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Comments on CR and QR 2011E 2010 2009 Ind. CR 2.58 1.46 2.3 2.7 QR 0.93 0.5 0.8 1.0 n Expected to improve but still below the  industry average. n
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Ch03 Show - CHAPTER 3 Analysis of Financial Statements 1...

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