LN12-ch13-AFM101s11

LN12-ch13-AFM101s11 - Chapter 13 Analyzing Financial...

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Financial Accounting, Third Canadian Edition 13-1 Chapter 13 Analyzing Financial Statements
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Financial Accounting, Third Canadian Edition 13-2 FINANCIAL STATEMENT USERS . . . uses accounting data to make product pricing and expansion decisions. . . . use accounting data for investment, credit, tax, and public policy decisions. EXTERNAL DECISION MAKERS MANAGEMENT Understanding The Business
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Financial Accounting, Third Canadian Edition 13-3 THREE TYPES OF FINANCIAL STATEMENT INFORMATION Past Performance Present Condition Future Performance Income, sales volume, cash flows, return- on-investments, EPS. Assets, debt, inventory, various ratios. Sales and earnings trends are good indicators of future performance. Understanding The Business
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Financial Accounting, Third Canadian Edition 13-4 Investors Dividends Increase in share price Return on an equity security investment Understanding The Business
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Financial Accounting, Third Canadian Edition 13-5 Economy-wide Factors Industry Factors Individual Company Factors Invest? No Yes The Investment Decision
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Financial Accounting, Third Canadian Edition 13-6 Understanding a Company’s Strategy I need to know the company’s policies on product differentiation, pricing, and cost control to make my financial analysis more meaningful.
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Financial Accounting, Third Canadian Edition 13-7 ROE Profit Driver Analysis ROE Net Profit Margin Asset Turnover Financial Leverage = × × Net Income Average Shareholders’ Equity Net Income Net Sales Net Sales Average Total Assets Average Total Assets Average Shareholders’ Equity × × =
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Financial Accounting, Third Canadian Edition 13-8 Profit Drivers and Business Strategy High-value or product-differentiation. High-value or product-differentiation. Rely on R&D and product promotion to convince Rely on R&D and product promotion to convince customers of the superiority of your product. customers of the superiority of your product. High-value or product-differentiation. High-value or product-differentiation. Rely on R&D and product promotion to convince customers of the superiority of your product. Low-Cost. Low-Cost. Rely on efficient management of accounts receivable, Rely on efficient management of accounts receivable, inventory and productive assets to produce inventory and productive assets to produce high asset turnover. high asset turnover. Low-Cost. Low-Cost. Rely on efficient management of accounts receivable, inventory and productive assets to produce high asset turnover.
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Financial Accounting, Third Canadian Edition 13-9 Examines a single company to identify trends over time. Financial statement analysis is based on comparisons. Financial Statement Analysis Time series analysis Comparison with similar companies Company A Company B Provides insights concerning a company’s relative performance.
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Financial Accounting, Third Canadian Edition 13-10 Ratio and Percentage Analyses Ratio analysis, or percentage analysis, is used to express the proportionate relationship between two different amounts.
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