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3BUSI408 - Financial Statements & Analysis1

3BUSI408 - Financial Statements & Analysis1 - BUSI...

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Chip Snively [email protected] Class 3 BUSI 408 Corporate Finance Fall 2011
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2 Reading Chapter 3 – Financial Statements & Analysis Homework Go to a financial website, Bloomberg, or the company website for the following: Intel Corp (INTC) CREE Research (CREE) Hanesbrands (HBI) Read about the business, and peruse the financial statements; we’ll review their financials via ratios in the next class Next Class
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3 Agenda Market Update Financial Statements Cash Flow Analysis Accounting vs Finance
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4 Balance Sheet Accounting view of a firm’s financial standing at a single point in time Income Statement Accounting view of a firm’s financial performance over a period of time Statement of Cash Flows Tracking of accounting cash over the period Financial Statements Typically companies do financial reporting quarterly and annually
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5 Financial standing of a firm at a given point in time Basic structure: Assets = Liabilities + Stockholders Equity Balance Sheet Let’s look at the textbook example: US Composite Corporation…….
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6 U.S. Composite Corp Balance Sheet 2010 2009 2010 2009 Current assets: Current Liabilities: Cash and equivalents $140 $107 Accounts payable $213 $197 Accounts receivable 294 270 Notes payable 50 53 Inventories 269 280 Accrued expenses 223 205 Other 58 50 Total current liabilities $486 $455 Total current assets $761 $707 Long-term liabilities: Fixed assets: Deferred taxes $117 $104 Property, plant, and equipment $1,423 $1,274 Long-term debt 471 458 Less accumulated depreciation (550) (460) Total long-term liabilities $588 $562 Net property, plant, and equipment 873 814 Intangible assets and other 245 221 Stockholder's equity: Total fixed assets $1,118 $1,035 Preferred stock $39 $39 Common stock ($1 par value) 55 32 Capital surplus 347 327 Accumulated retained earnings 390 347 Less treasury stock (26) (20) Total equity $805 $725 Total Assets $1,879 $1,742 Total Liabilities and Equity $1,879 $1,742
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7 Balance Sheet Analysis When analyzing a balance sheet, the Finance Manager should be aware of three concerns: 1. Liquidity 2. Debt versus equity 3. Value versus cost
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8 Liquidity The ease and quickness with which assets can be converted to cash key: without a significant loss in value The more liquid a firm’s assets, the less likely the firm is to experience problems meeting short-term obligations Current assets are the most liquid (think “cash”) and fixed assets the least (think “property”) Liquid assets frequently have lower rates of return than fixed assets
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9 Debt vs Equity Assets on the balance sheet are purchased (financed) with either debt or equity Creditors generally receive the first claim on the firm’s cash flow Shareholder’s equity is the residual difference between assets and liabilities
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10 Value vs Cost Under Generally Accepted Accounting Principles (GAAP), audited financial statements of firms in the U.S. carry assets at cost Market value is the price at which the assets, liabilities, and equity could actually be bought or sold, which is a completely different concept from historical cost
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