311 ch3 - Evaluation of Financial Performance Chapter 3...

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Evaluation of Financial Performance Chapter 3
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Financial Analysis are used by Management for planning and evaluation Credit managers to estimate riskiness of potential borrowers Investors to evaluation corporate securities Managers to identify potential merger/acquisition candidates
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Financial Statement Analysis Ratio Analysis Comparison to Industry Norms Trend Analysis Quality Accounting Methods Cash Flow Analysis
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Ratio Analysis The number of potential ratios is very large Some ratios are meaningful only for certain industries Ratios are like warning signs Point to areas that need further examination There could be several possible explanations for a higher (lower) value
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Important Statements Balance Sheet Presents a snapshot of the firm’s assets and liabilities Assets and liabilities are listed in order of liquidity Recorded at historic cost Stockholders’ equity is the difference between assets and liabilities
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$81,890 Total Liabilities and Equity $34,367 Total Equity 11,367 Retained Earnings $23,000 Paid in Capital $47,523 Total Liabilities $22,000 Long Term Debt $25,523 Total Current Liabilities 7,302 Other Current Liabilities $ 9,721 8,500 Accounts Payable Notes Payable LIABILITIES and EQUITY $81,890 Total Assets $31,700 Net Fixed Assets 11,400 Less: Accumulated Depreciation $43,100 Plant and Equipment $50,190 Total Current Assets 27,530 Inventory 18,320 Accounts Receivable $ 4,340 Cash ASSETS Drake Manufacturing Balance Sheet December 31, 20X6
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Income Statement Total Revenues less Total Expenses Expenses are listed by order of relatedness to operations: Cost of Goods Sold Operating Expenses Interest Expense Taxes Also shows amounts paid to shareholders (dividends) and amount reinvested in company (addition to retained earnings) Important Statements
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$112,760 Cost of Goods Sold 85,300 Gross Margin $ 27,460 Operating Expenses: Selling $6,540 Depreciation General and Administrative 1,900 7,500 Total Operating Expenses 15,940 Earnings Before Interest and Taxes (EBIT) $ 11,520 Interest Expense 3,160 Taxable Income $ 8,360 Taxes (40% combined rate for
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This note was uploaded on 04/08/2008 for the course FINANCE fin taught by Professor Bradley during the Spring '08 term at Clemson.

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311 ch3 - Evaluation of Financial Performance Chapter 3...

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