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Ch01 - Overview of Financial Statement
Ch01 - Overview of Financial Statement
Statement
Analysis
K R Subramanyam
John J Wild
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Overview of Financial
1-2
Statement Analysis
1
CHAPTER
1-3
Business Analysis
Credit Analysis
1-7
Credit Analysis
Credit worthiness: Ability to honor credit obligations
(downside risk)
Liquidity Solvency
Ability to meet short- Ability to meet long-
term obligations term obligations
Focus: Focus:
• Current cash flows • Long-term profitability
• Make up of current • Capital structure
assets and liabilities
• Liquidity of assets
1-8
Equity Analysis
Assessment of downside risk and upside potential
Accounting Analysis
Process
Process to
to evaluate
evaluate and
and adjust
adjust financial
financial
statements
statements toto better
better reflect
reflect economic
economic reality
reality
Accounting
Risk
1-11
Financial Analysis
Process
Process to
to evaluate
evaluate financial
financial position
position and
and
performance
performance using
using financial
financial statements
statements
Prospective Analysis
Process to forecast future payoffs
Business Environment
& Strategy Analysis
Accounting Analysis
Financial Analysis
Intrinsic Value
1-13
Business Activities
1-15
Business Activities
Financing activities
• Owner (equity)
• Non-owner (liabilities)
Financing
1-16
Business Activities
Investing activities
• Buying resources
• Selling resources
Investing Financing
Investing = Financing
1-17
Business Activities
Operating Activities
Revenues and expenses from providing
goods and services
1-18
Financial Statements
1-20
1-21
Balance Sheet
Income Statement
Revenues – Cost of goods sold = Gross Profit
Gross profit – Operating expenses = Operating Profit
Colgate’s Profitability
(in $billions)
Additional Information
(Beyond Financial Statements)
1-28
Analysis Preview
Yr1 Yr2 Yr3
Comparative Analysis
Analysis Preview
1-30
Analysis Preview
Common-Size Analysis
Analysis Preview
1-32
Analysis Preview
1-33
Analysis Preview
Ratio Analysis
Analysis Preview
Valuation
Valuation - an important goal of many types
of business analysis
Analysis Preview
Debt (Bond) Valuation
Analysis Preview
Equity Valuation
Analysis Preview
Equity Valuation - Free Cash Flow to Equity
Model
Analysis Preview
Equity Valuation - Residual Income Model
Book Organization