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Financial
Statement
Analysis
 
 
K.R. Subramanyam

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Business Analysis
Credit Analysis
Credit Analysis
Prospective Analysis
Accounting Analysis
Financial Analysis
Analysis Preview
Business Activities
Information Sources for Business Analysis
Financial Statements
Additional Information
(Beyond Financial Statements)
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Balance Sheets
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Balance Sheet

Total Investing = Total Financing

= Creditor Financing + Owner Financing

Colgate Financing
(in $billions)
$12.724 = $10.183 + $2.541
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Income Statement
Revenues – Cost of goods sold = Gross Profit
Gross profit – Operating expenses = Operating Profit

Colgate’s Profitability
(in $billions)

$16.734 - $7.144 = $9.590 Gross Profit

$9.590 - $5.749= $3.841 Operating profit
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Income Statement
Statement of Cash Flows
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Statement of Cash Flow

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Retained Earnings, Comprehensive Income,

and Changes in Capital Accounts
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Retained Earnings, Comprehensive Income,

and Changes in Capital Accounts
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In which of the previous financial

statements would an analyst find the
investing, financing and operating
activities reflected?
Analysis Preview
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Comparative Income Statements

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Common Size Balance Sheets

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Common Size Income Statements

Analysis Preview
Analysis in an Efficient Market
Book Organization
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Analysis Preview
Debt (Bond) Valuation

Btt is the value of the bond at time t

Itt +n
+n
is the interest payment in period t+n
F is the principal payment (usually the debt’s face value)
r is the investor’s required interest rate (yield to maturity)
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Analysis Preview
Equity Valuation

Vtt is the value of an equity security at time t

Dtt +n
+n
is the dividend in period t+n
k is the cost of capital
E refers to expected dividends
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Analysis Preview
Equity Valuation - Free Cash Flow to Equity
Model

FCFt+n
t+n
is the free cash flow in the period t + n [often
defined as cash flow from operations less capital
expenditures]
k is the cost of capital
E refers to an expectation
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Analysis Preview
Equity Valuation - Residual Income Model

BV is the book value at the end of period t

tt

Rit+n
t+n
is the residual income in period t + n [defined as
net income, NI, minus a charge on beginning
book value, BV, or RItt = NItt - (k x BVt-1
t-1
)]
k is the cost of capital
E refers to an expectation