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Understanding and Using Financial Statements: Mini-MBA Robert P. Magee 8 September 2008
Understanding and Using Financial Statements: Mini-MBA Robert P. Magee 8 September 2008
Agenda
Review of financial statement relationships
Plumbing Reporting conventions
Producing reports
Financial analysis
Ratios Reverse engineering
Robert Magee, Kellogg School of Management 2008
Revenues reflect inflows of resources Expenses reflect outflows of resources Try to separate ongoing amounts from infrequent amounts
SCF
I/S
Income Statement
Revenue Expenses: Cost of goods sold 1,800 Salaries and wages 700 Rent 200 Depreciation 150 Operating income Interest expense Income before taxes Tax expense Net income $ 3,800
Net profit to common equals net income minus any dividends to outstanding preferred stock.
Robert Magee, Kellogg School of Management 2008
1 Year-end Cash Receivables Inventory Other current assets Total current assets Net plant and equip Goodw ill Other Total assets Accts payable Short-term debt Other Total current liabilities Long-term debt Other Total liabilities Preferred stock Com m on Stock Treasury stock Retained earnings Total ow ners' equity Total liab. and equity Return on sales Asset turnover Return on assets Financial leverage Return on equity Current ratio Receivable collection Inventory turnover Gross m argin Dividend payout Revenue grow th R&D ratio Dec 2.4 2.2 17.6 1.3 23.5 57.7 15.2 3.5 100.0 13.7 4.5 8.9 27.1 35.6 6.1 68.8 -22.0 -24.7 33.9 31.2 100.0 1.5% 2.44 3.6% 3.20 11.4% 0.87 3 9.9 28.9% 8.0% 7.2% NA
2 Jun 69.7 7.1 -5.5 82.3 4.3 4.9 8.6 100.0 1.7 -18.0 19.7 -3.9 23.6 -55.3 -95.2 116.3 76.4 100.0 30.7% 0.81 24.7% 1.31 32.3% 0.04 32 NA 95.3% 0.5% 17.9% 18.6%
3 Dec 14.2 4.5 2.0 2.1 22.9 63.0 -14.1 100.0 2.6 0.6 18.1 21.3 64.9 54.6 140.9 2.1 11.4 -7.7 -46.7 -40.9 100.0 -20.8% 0.94 -19.5% NA NA 1.07 18 NA NA NA 8.9% NA
4 Dec 34.7 34.2 -8.2 77.1 8.4 12.6 1.9 100.0 6.7 0.1 18.7 25.5 0.2 0.6 26.4 -66.4 -7.2 73.6 100.0 7.1% 2.53 18.0% 1.36 24.5% 0.03 49 NA 41.1% 20.2% 24.7% NA
5 Dec 3.8 3.8 9.5 20.1 37.2 35.2 0.9 26.7 100.0 7.2 18.1 17.5 42.8 22.0 17.0 81.9 -5.4 -12.7 18.1 100.0 1.9% 0.74 1.4% 5.53 7.8% 0.87 19 6.4 17.9% 55.3% 5.4% 3.8%
6 Jan 4.6 1.4 24.5 1.5 32.0 57.0 9.0 2.0 100.0 18.0 6.5 11.2 35.7 19.7 3.6 58.9 -2.4 -38.7 41.1 100.0 3.6% 2.40 8.5% 2.43 20.8% 0.90 2 7.5 22.9% 21.6% 11.3% NA
7 Dec 54.1 7.4 15.3 2.4 79.2 9.4 4.3 7.0 100.0 37.0 0.1 15.2 52.2 41.2 -93.3 -61.4 --54.7 6.7 100.0 4.2% 2.30 9.7% 15.02 145.9% 1.52 12 11.4 24.0% 0.0% 22.7% NA
8 Oct 18.2 15.6 9.1 13.0 55.8 9.1 20.8 14.3 100.0 13.0 2.6 24.7 40.3 3.9 6.5 50.6 -28.6 -20.8 49.4 100.0 2.3% 1.13 2.6% 2.03 5.3% 1.39 50 7.6 23.2% 50.0% 8.8% 4.0%
9 Dec 35.9 6.7 3.6 2.2 48.0 4.0 31.4 4.5 15.7 2.2 6.7 20.0 28.9 11.1 20.0 60.0 -15.8 -60.2 84.4 40.0 100.0 22.7% 0.49 11.2% 2.48 27.8% 1.66 50 3.1 77.3% 60.0% -4.3% 17.5%
10 Feb 7.4 7.5 16.4 2.6 33.9 35.1 25.9 5.1 100.0 17.7 1.6 6.7 26.0 25.2 8.9 60.0 -4.2 -4.9 40.7 40.0 100.0 2.0% 3.11 6.1% 2.50 15.4% 1.30 9 16.2 14.6% 20.7% -3.3% NA
11 Dec 25.6 65.7 0.0 0.5 91.9 1.8 2.1 4.3 100.0 64.1 4.0 7.1 75.2 14.5 1.3 91.0 -3.0 -1.2 7.2 9.0 100.0 31.0% 0.05 1.5% 11.14 16.4% 1.22 5055 NA NA 51.3% 21.4% NA
12 Jan 11.4 4.4 1.8 4.4 22.0 67.6 3.8 6.7 100.0 5.5 0.3 11.2 16.9 17.9 5.3 40.2 -12.2 -8.7 56.3 59.8 100.0 5.9% 1.10 6.5% 1.67 1.1% 1.30 14 31.8 33.9% 29.5% 4.1% NA
13
Dec
0.3
5.2
1.5
4.2
11.2
72.2
--
16.6
100.0
4.8
2.5
5.1
12.4
28.8
27.4
68.6
1.0
11.0
-4.5
23.9
31.4
100.0
7.5%
0.44
3.3%
3.18
10.4%
0.91
44
15.4
47.6%
54.8%
15.8%
NA
Net income much higher than operating cash flow Big differences between tax income and book income Unsustainable sales Reserves Asset overstatements (a.k.a. Deferred expenses) Purchased profits Growing inventory and/or receivables Write-offs Cutbacks in soft investments
G. Morgensen. When a Rosy Picture Should Raise a Red Flag New York Times July 18, 1999.
Robert Magee, Kellogg School of Management 2008