Professional Documents
Culture Documents
Increase
Increasein inliabilities
liabilities
Liabilities Decrease
Decreasein inliabilities
liabilities
cash
cashsavings;
savings;
and or
orSHE
SHEshows
shows
increase
increaseininSHE
SHEcashcash
Shareholders’ cash
cashpaid;
paid;
received;
received;
equity so
socash
cashoutflow
outflow
so
socash
cashinflow
inflow
Estimating CFO (Indirect Method)
Cash flow from operating activities
Profit before Income tax (PBT)
Adjustments to reconcile net profit to net cash flow from operating activities
Depreciation and amortization
Provision for doubtful debts
Foreign exchange Gains and losses
Interest/Dividend Income
Gain and loss on sale of fixed assets/investments
Operating profit before working capital changes
Adjustments for changes in working capital
Trade receivables/bills receivables
Inventories
Prepaid Expenses
Trade payables/Bills payables
Cash generated from operations
Income tax paid
Net Cash flow from operating activities
Estimating CFO (Direct Method)
Cash flow from operating activities
Cash received from customers xxxx
• Company reports
Directors’ report, MD&A Financial
statements
Schedules and notes
Auditor’s report
• Stock exchanges
Business periodicals and television
Standards of Comparison
• Rule-of-thumb indicators
• Past performance
• Internal standards
• Industry standards
Techniques of Financial Statement
Analysis
• Horizontal analysis
• Trend analysis
• Vertical analysis
• Ratio analysis
Profitability Analysis
• Profit margin
• Asset turnover
• Return on assets
• Return on equity
Earnings per share
Liquidity Analysis
• Current ratio
• Quick ratio
• Receivable turnover
Average collection period
• Inventory turnover
Inventory holding period
• Operating cycle
Solvency Analysis
• Debt-to-equity ratio
• Liabilities-to-equity ratio
• Interest cover
Corporate Disclosure Policy
• Why disclosure regulation?
• Mandatory vs. voluntary disclosure
• Forces that drive voluntary disclosure
– Capital market
– Product market
– Managerial labour market
– Shareholder litigation