Chapter 1 - Overview of financial statement analysis. This chapter begin the analysis of financial statements by considering their relevance to business decisions. This leads to a focus on users, including what they need and how analysis serves them. This chapter also describe business activities and how they are reflected in financial statements. | Financial Statement Analysis . 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) Balance Sheets Balance Sheet Total Investing = Total Financing = Creditor Financing + Owner Financing Colgate Financing (in $billions) $ = $ + $ 27 27 Income Statement Revenues – Cost of goods sold = Gross Profit Gross profit – Operating expenses = Operating Profit Colgate’s Profitability (in $billions) $ - $ = $ Gross Profit $ - $ $ Operating profit 28 28 Income Statement Statement of Cash Flows Statement of Cash Flow Retained Earnings, Comprehensive Income, and Changes in Capital Accounts Retained Earnings, Comprehensive Income, and Changes in Capital Accounts In which of the previous financial statements would an analyst find the investing, financing and operating activities reflected? Analysis Preview Comparative Income Statements Common Size Balance Sheets Common Size Income Statements Analysis Preview Analysis in an Efficient Market Book Organization Analysis Preview Debt (Bond) Valuation Bt is the value of the bond at time t It +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) 45 45 Analysis Preview Equity Valuation Vt is the value of an equity security at time t Dt +n is the dividend in period t+n k is the cost of capital E refers to expected dividends 46 46 Analysis Preview Equity Valuation - Free Cash Flow to Equity Model FCFt+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 47 47 Analysis Preview Equity Valuation - Residual Income Model BVt is the book value at the end of period t Rit+n is the residual income in period t + n [defined as net income, NI, minus a charge on beginning book value, BV, or RIt = NIt - (k x BVt-1)] k is the cost of capital E refers to an expectation 48 48 | Financial Statement Analysis . 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) Balance Sheets Balance Sheet Total Investing = Total Financing = Creditor Financing + Owner Financing Colgate Financing (in $billions) $ = $ + $ 27 27 Income Statement Revenues – Cost of goods sold = Gross Profit Gross profit – Operating expenses = Operating Profit Colgate’s Profitability (in $billions) $ - $ = $ Gross Profit $ - $ $ Operating profit 28 28 Income Statement Statement of Cash Flows Statement of Cash Flow Retained Earnings, Comprehensive Income, and Changes in .
