FIN2004 Session 2 [Compatibility Mode]

8/14/2019 FIN2004 Session 2 [Compatibility Mode]

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FINANCE

FIN2004 Lecture 2: Financial Statement Analysis


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Example: Accounting FraudSatyam Scandal Needs Fast Probe as Stocks Slide

by Subramaniam Sharma

Jan. 9, 2009 (Bloomberg) -- India should actquickly to shore up investor confidence after

an alleged accounting fraud at SatyamComputer Services Ltd triggered a plunge instocks, a former regulator and executive said.

More than two days after chairman Ramalinga Raju claimedhed padded Satyams books by $1 billion, the companysauditors and interim management have yet to confirm any

irregularities.


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Example: Accounting FraudMadoff Scandal - Investors Left With $21.2 Billion In Cash

Losses We all know that Bernie will spend the rest of his life

in prison for orchestrating perhaps the biggestinvestment scam of all time, but his accountants andaides helped him do the dirty work. David Friehling,

Madoff's accountant, plead guilty last year to anumber of charges that he issued "rubber stamp"audits.

March 13, 2010: Huffingtonpost 2


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Example: Accounting Fraud WorldCom, the second-largest long-distance phone company in

the US, was found guilty of accounting fraud. The basis of thisfraud was very similar to that of Enron in that it used window-

dressing to inflate profit. However WorldCom's major sham was

that they disguised $3.8 billion in expenses over 15 months.

operating costs like basic network maintenance and line-costs

were booked as capital investments .

Q. How does capitalizing operating costs affect financial ratios?


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Financial Statements and the AnnualReport

An annual report is a report issued annually by acorporation to its stockholders. It contains basicfinancial statements as well as managements analysis ofthe firms past operations and future prospects.

Example: Berkshire Hathaways website: visit

www.berkshirehathaway.com for its annual reports forthe past decade.

In general, see also www.annualreportservice.com


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The Annual Report1. Balance sheet provides a snapshot of a firms financial

position at one point in time.

2. Income statement summarizes a firms revenues andexpenses over a given period of time .

3. Statement of retained earnings shows how much ofthe firms earnings were retained , rather than paid out as

dividends .4. Statement of cash flows reports the impact of a firms

activities on cash flows over a given period of time.


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Balance Sheet CharacteristicsASSETS = LIABILITIES + EQUITY

1. Resources must equal Claims

2. Order of Listing Highest to Lowest Liquidity3. Valuing of Items - Generally at original cost

(also known as Historical Cost) Exceptions: Marketable Securities and

Inventories


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Sample Balance Sheet

Assets LiabilitiesCash & Equivalents 3,171 Accounts Payable 313,286

Accounts Receivable 1,095,118 Notes Payable 227,848Inventory 388,947 Other CL 1,239,651

Other CA 314,454 Total CL 1,780,785

Total CA 1,801,690 LT Debt 1,389,615

Net FA 3,129,754 S/H EquityCommon Stock Retained Earnings

963,841797,203

Total Assets 4,931,444 Total Liab. & Equity 4,931,444

December 31, 20XX Numbers in thousands ($000s)


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Book Values and Market Values

Market Values are determined by current trading values in the market

NOTE: Market Value of Shareholders Equity = MarketCapitalization = Share Price x Number of Outstanding Shares

EXAMPLE: Market Value vs Book Value

According to GAAP, your firm has equity worth $6 billion, debt worth

$4 billion, assets worth $10 billion. The market values your firms 100million shares at $75 per share and the debt at $4 billion. What is themarket value of your assets?

Book Values (historical costs less accumulated deprecation) aredetermined by GAAP*

*Generally Accepted Accounting Principles


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Example: Market Value vs. Book Value

Market Value Balance Sheet

Assets = $11.5 bil = Debt = $4 bilEquity = $7.5 bil

Answer : Since (Assets = Liabilities + Equity), your assets

must have a market value of $11.5 billion.


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Enterprise Value The enterprise value of a firm assesses the value of the

underlying business assets (however financed), and separatefrom the value of any non-operating cash (i.e., excesscash) and marketable securities that the firm may have.

Generally,

In theory, the cost of a company if someone were to acquireit.

Enterprise Value = Market Value of Equity + Debt

Cash


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Example: Computing Enterprise Value Problem : In October 2007, H.J. Heinz Co. (HNZ) had a share priceof $46.78 , 319.1 million shares outstanding, a market-to-book ratio

of 8.00 , a book debt-equity ratio of 2.62 , and cash of $576 million.What was Heinzs market capitalization? What was its enterprisevalue?

Share Price $46.78

Shares outstanding 319.1 million

Market-to-book 8.00

Cash $576 million

Debt-to-equity (book) 2.62


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Heinz had a market capitalization of _____ shares x$___/share = $_______

Since Heinzs market-to-book ratio (= market value of equity / book value of equity) = 8.00

8.00 = $14.93 billion / book equitythen book equity =$ ______

Given that the book equity was $_____ and the book debt-to-equity ratio was 2.62 , the total value of Heinzs debt was $_____

Thus enterprise value was _____ + _____ - _____ = ______

Example: Computing Enterprise Value


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Sample Income Statement

Revenues $4,335,491

Cost of Goods Sold 1,762,721Operating Expenses 1,390,262

Depreciation 362,325

EBIT $820,183

Interest Expense 52,841

Taxable Income $767,342Taxes 295,426

Net Income $471,916

For Year Ending December 31, 20XX Numbers in thousands ($000s)

Shows (i) revenues , (ii) expenses and taxes associated with thoserevenues for some financial period, typically a month, a quarter or a year


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Retained Earnings, beginning of year 720,807

Add: Net Income 471,916

1,192,723

Less: Dividends -395,520

Retained Earnings, end of year 797,203

Numbers in thousands ($000s)

Sample Statement of Retained Earnings


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Basic Stock Concepts Nature/Composition of Contributed Capital

Authorized Capital Stock # shares can issue legally

Issued Capital Stock Unissued Capital Stock # shares issued to outsiders # shares not issued to outsiders

Outstanding Capital Stock Treasury Stock # shares held by outsiders # shares bought back

& held by company

.


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Profits vs. Cash FlowsDifferences Profits subtract depreciation (a non-cash expense)

Profits ignore cash expenditures on new fixed assets

(the expense is capitalized) Profits record income and expenses at the time of sales,

not when the cash exchanges actually occur

Profits do not consider changes in working capital


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The Importance of Cash Flows Cash is King: firms generate cash and they spend it .

Sources of cash (activities that bring in cash): decreases in assets (other than cash)

increases in equity and liabilities.

Uses of cash (activities that involve cash outflows):

increases in assets (other than cash)

decreases in equity & liabilities.


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Statement of Cash Flows This accounting statement summarizes the sources and

uses of cash over the period under consideration

Changes divided into 3 major categories:

1. Operating Activities includes net income and

changes in most current accounts (A/P A/R Inv)2. Investment Activities includes changes in fixed

assets

3. Financing Activities includes changes in notes payable, long-term debt and equity accounts as well as

dividends


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Understanding the Statement of Cash Flows:The Balance Sheet Identity

Assets = Liabilities + Equity

Current assets + net fixed assets = current liabilities+ long-term debt + common stock + retained earnings

Net working capital + net fixed assets = long-term debt + common stock + retainedearnings

Since net working capital = Cash + Other CA CL, and CL = non-interest bearing CL +

interest-bearing CL

Cash = retained earnings + current liabilities current assetsother than cash net fixed assets + long-term debt + commonstock


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How Does Retained Earnings Change?

Look at the Statement of Retained Earnings:

Add Net income

Less Dividends Retained Earnings

Retained Earnings, beginning of year 720,807

Add: Net Income 471,916

1,192,723

Less: Dividends -395,520

Retained Earnings, end of year 797,203


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Cash, beginning of year 6,489 Financing Activity

Operating Activity Increase in Notes Payable 141,217

Net Income 471,916 Increase in LT Debt 517,764Plus: Depreciation 362,325 Decrease in Common Stock -36,159

Increase in Other CL 141,049 Dividends Paid -395,520

Less: Increase in A/R -46,127 Net Cash from Financing 227,301

Increase in Inventory -93,692 Net Decrease in Cash -3,318

Increase in Other CA -82,150 Cash End of Year 3,171

Decrease in A/P -26,934

Net Cash from Operations 726,387

Investment Activity

Fixed Asset Acquisition -957,007

Net Cash from Investments -957,007

Numbers in thousands ($000s)

Sample Statement of Cash Flows

- (Change in net fixed assets+ depreciation for the year)

Refer to Slide 9


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Market information for asset details needed, is often not readilyavailable

Although accounting figures are often pale reflections of economicreality, they are frequently the best available.

Thus we have to rely on accounting figures as a starting point toextract the information we actually seek

Objectively determinable current values of many assets do not exist. Faced with a

trade-off between relevant, but subjective current values, and irrelevant, butobjective historical costs, accountants have opted for irrelevant, but objectivehistorical costs. This means that it is the users responsibility to makeadjustments

Robert Higgins of Highland Capital Partners

Accounting Statements & Market Value


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Quick Review

1. Net working capital is defined as:

A. Total liabilities minus shareholders equity.

B. Current liabilities minus shareholders equity.

C. Fixed assets minus shareholders equity.

D. Total assets minus total liabilities.

E. Current assets minus current liabilities.


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The Finance Concept of Cash Flow Cash flow is one of the most important pieces of information

that a financial manager can derive from financial statements.

We will look at how cash is generated from utilizing assets andhow it is paid to those that finance the purchase of the assets.

Cash is King in the study of finance. Finance professionalsare not concerned with accrual accounting, but rather whetherthere is enough cash generated to pay bills, investors, etc.

In finance, our concept of cash flow from assets is differentthan the accounting Statement of Cash Flows. We care aboutcash generated from operations over the period of interest.


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We are interested in Operating WorkingCapital: Business operations generally require investment in net operating

working capital. We may need operating cash on hand

Inventory

Accounts receivable

But we may also enjoy increases in Accounts Payable from oursuppliers

Funds are required for the above items to support sales although therelated cash has not yet been collected from any sale.

Note that we only consider operating working capital.


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We are interested in Operating WorkingCapital:

Operating working capital is working capital stemming from our operating policies (A/R, Inventory, A/P, etc.) and removed from our financingdecisions. (Thus we exclude non-operating working capital such as NotesPayable from our calculation of changes in Net Operating Working Capital) .

Recall that there are Two Types of Current Liabilities

Interest Bearing Liabilities (a result of financing activities )

Short Term Loans (less than 1 year maturity)

Notes Payables These are part of our financing choices , not our operating choices .

Non-Interest Bearing Liabilities (a result of operating activities ).

Accounts Payables (extended from our suppliers)


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Cash Flow Identity: Cash Flow From Assets*(CFFA)

Cash Flow From Assets =

Operating Cash Flow (OCF) Net Capital Spending (NCS)

Changes in NOWC (Net Operating Working Capital)

When there is no Interest Expense: Cash Flow From Assets (CFFA)* =Cash Flow to Creditors

+ Cash Flow to Stockholders

When there is Interest Expense: Cash Flow From Assets (CFFA)* +Interest Tax Shield = Cash Flow to Creditors

+ Cash Flow to Stockholders*also known as Free Cash Flows .


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Note: Interest is Tax Deductible Recall from the Income Statement that any interest payments are deducted

from EBIT (Earnings Before Interest and Tax) before the calculation ofTaxes. This means that interest payments function to reduce the amount of taxes

paid. Thus although interest payments are paid out in cash, they result inthe company paying less tax than it otherwise would. The reduction in the

amount of tax paid is referred to as the Interest Tax Shield . Dividend payments are not tax deductible and do not reduce the amount

of taxes paid. Thus dividend payments are paid out in cash, with nooffsetting tax shield.

When determining cash flow from assets we do not take intoaccount the interest tax shield. We separate operations from financing.Thus we consider the Interest Tax Shield separately . This Tax Shieldincreases the amount of cash flow available to Creditors and Shareholders.


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Example Info:


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Example Info Continued:

(34%)


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Example: US Corporation Part I OCF = EBIT + Depreciation (EBIT*Tax Rate) =

694 + 65 (694*0.34 = 236) = 523

NCS = Ending Net Fixed Assets Beginning NetFixed Assets + Depreciation = 1709 1644 + 65 =$130

Changes in NOWC = Ending NOWC Beginning

NOWC = (160 + 688 + 555 266) - (104 + 455 +553 -232) = $257

CFFA = 523 130 257 = $136


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Example: US Corporation Part IIInterest Tax Shield

= Cash generated from the reduction in theamount of taxes paid due to tax deductibility ofinterest

= $70 * 34% = $70 * 0.34= $24


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Example: US Corporation Part III Cash Flow to Creditors (B/S and I/S) = interest paid

net new borrowing (LT Debt and Notes Payable) =$70 [(123+454) (196+408)] = $70 -$27 = $97

Cash Flow to Stockholders (B/S and I/S) = dividends paid net new equity raised = $103 ($640 - $600) =$63

Cash flow to Creditors and Stockholders = $97 +$63 = $160 = CFFA + Interest Tax Shield = 136+24= $160


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Standardized Financial Statements Common-Size Balance Sheets

Compute all accounts as a percent of total assets Common-Size Income Statements

Compute all line items as a percent of sales

Standardized statements make it easier to compare financialinformation, particularly as the company grows

They are also useful for comparing companies of different sizes, particularly within the same industry


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Example: Common Size Balance Sheet

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Ratio Analysis Ratios are not very helpful by themselves; they need to be compared

to something

Time-Trend Analysis (over time)

Used to see how the firms performance is changing throughtime

Peer Group Analysis (with others)

Compare to similar companies or within industries

As we look at each ratio, ask yourself what the ratio is trying tomeasure and why that information is important

Ratios are used both internally and externally


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Things To Consider Concerning FinancialRatios:

1. What aspects of the firm are we attempting to analyze?2. What information goes into computing a particular ratio

and how does that information relate to the aspect of the

firm being analyzed?

3. What is the unit of measurement (times, days, percent )?

4. What are the benchmarks used for comparison? Whatmakes a ratio good or bad?


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1. Liquidity ratios (Short-Term Solvency) measure the firmsability to pay bills in the short run.

Can we make required payments as they fall due?

2. Long-Term Solvency (Financial Leverage) ratios show how

heavily the company is in debt. Do we have the right mix of debt and equity ?

3. Asset management (Turnover / Efficiency) ratios measure how productively the firm is using its assets

Do we have the right amount of assets for the level of sales?

The 5 Major Categories of Ratios


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4. Profitability ratios measure the firms return on its

investments: Do sales prices exceed unit costs, and are sales high

enough as reflected in PM, ROE, and ROA?

5. Market value ratios provides indications on thefirms prospects and how the market values the firm:

Do investors like what they see as reflected inPrice-Earning (P/E) and Market-to-Book (M/B)ratios?

The 5 Major Categories of Ratios


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1. Liquidity Ratios Liquidity is the ability to convert assets to cash quickly without a

significant loss in value .

Liquidity Ratios indicate a firms ability to meet its maturing shortterm obligations .

Is high liquidity always good? Kirk Kerkorians takeover bid forChrysler in April, 1995, is an example of investor dissatisfaction withexcess liquidity. At the time, Chryslers management had accumulated

$7.3 billion in cash and marketable securities as a cushion against aneconomic downturn. Mr. Kerkorian instigated a takeover bid becauseChryslers management refused to pay this cash to stockholders.


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Example: DLeons Financial StatementsBalance Sheet: Assets

CashA/R Inventories

Total CAGross FA

Less: Dep. Net FATotal Assets

2008

7,282632,160

1,287,3601,926,8021,202,950

263,160939,790

2,866,592

2009

85,632878,000

1,716,4802,680,1121,197,160

380,120817,040

3,497,152


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Accts payable Notes payableAccruals

Total CLLong-term debtCommon stock Retained earnings

Total Equity

Total L & E

2008524,160636,808489,600

1,650,568723,432460,000

32,592492,592

2,866,592

2009436,800300,000408,000

1,144,800400,000

1,721,176231,176

1,952,352

3,497,152

Example: DLeons Financial StatementsBalance Sheet: Liabilities and Stockholders Equity


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SalesCOGSOther expenses

EBITDA

Depr. & Amort.EBIT

Interest Exp.EBTTaxes

Net income

20086,034,0005,528,000

519,988(13,988)

116,960(130,948)

136,012(266,960)(106,784)

(160,176)

20097,035,6005,875,992

550,000609,608

116,960492,648

70,008422,640169,056

253,584

Example: DLeons Financial StatementsIncome Statement


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No. of shares

EPS

DPS

Stock price

2009

250,000

$1.014

$0.220

$12.17

2008

100,000

-$1.602

$0.110

$2.25

Example: DLeons Financial StatementsAdditional Data

DL C & Q i k R i f 2009


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DLeons Current & Quick Ratios for 2009:

Current ratio = Current assets / Current liabilities= $2,680 / $1,145 = 2.34x

Quick Ratio = (CA Inventory) / CL= ($2,680 - $1,716)/$1,145 = 0.84x

2009 2008 2007 Ind.

Current Ratio

Quick Ratio

2.34x

0.84x

1.20x

0.39x

2.30x

0.94X

2.70x

1.28x Seemingly improving but still below the industry average.

Liquidity position is weak.


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2. Long-term Solvency Also known as financial leverage ratios. Financial leverage relates to the

extent that a firm relies on debt financing rather than equity. Generally, themore debt a firm has, the more likely it is the firm will become unable to fulfillits contractual obligations.

Total Debt Ratio = Total Debt / Total Assets

VARIATIONS:

Debt/Equity Ratio = (total assets total equity) / total equity Equity Multiplier = total assets/total equity

= 1 + debt/equity ratio

Long-Term Debt Ratio = long-term debt / (long-term debt + total equity)COVERAGE RATIOS: Times Interest Earned Ratio = EBIT / interest

Cash Coverage Ratio = (EBIT + depreciation) / interest


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DLeons Long-Term Solvency Ratios

Total Debt Ratio = Total debt / Total assets

= ($1,145 + $400) / $3,497

= 0.442 or 44.2%

Times Interest Earned = EBIT / Interest expense

= $492.6 / $70 = 7.0x

2009 2008 2007 Ind.

D/A 44.2% 82.8% 54.8% 50.0%

TIE 7.0x -1.0x 4.3x 6.2x

At this point, D/A and TIE appear to be better than the industry average.


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3. Asset Management Ratios Also known as activity ratios , they measure how effectively

the firms assets are being managed: Inventory ratios measure how quickly inventory is

produced and sold

Receivable ratios provide information on the success ofthe firm in managing its collection from credit

customers Fixed asset and total asset turnover ratios show how

effective the firm is in using its assets to generate sales

f


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2009 2008 2007 Ind.

Inventory

Turnover 3.42x 4.30x 4.51x 4.82x

Inventory Turnover = COGS / Inventory = $5,876/$1,716 = 3.42x

DLeons Inventory turnover for 2009:

Inventory turnover below industry average. DLeon might have oldinventory, or its control might be poor.

Days Sales in Inventory = 365 / Inventory Turnover. For 2007,

Days Sales in Inventory = 365/3.42 = 106.7 days.2009 2008 2007 Ind.

Days Sales in

Inventory106.7 days 84.9 days 80.9 days 75.7 days

DL R i bl T f 2009


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2009 2008 2007 Ind.

Receivables

Turnover 8.01x 9.55x 9.76x 11.4x

Rec. turnover = Sales / Receivables = $7,036 / $878 = 8.01x

DLeons Receivables Turnover for 2009:

Days Sales Outstanding or Account Receivable Days or AverageCollection Period = The average number of days after making a sale

before receiving cashAccount Receivable

Average Daily SalesDSO =365

Sales

or

DSO = 365/Receivables Turnover


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DSO = Account Receivable/ Average Daily Sales

= Receivables / Sales/365

= $878 / ($7,036/365)

= $878/$19.277

= 45.6 (Days)

DLeons Days Sales Outstanding for 2009:

2009 2008 2007 Ind.

DSO 45.6 38.2 37.4 32.0

DLeon collects on sales too slowly, and is getting worse.

DLeon has a poor credit policy.


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DLeons Fixed Asset and Total Asset TurnoverRatios for 2009:

FA Turnover = Sales / Net fixed assets = $7,036 / $817 = 8.61x

TA Turnover = Sales / Total assets = $7,036 / $3,497 = 2.01x

2009 2008 2007 Ind.

FA TO 8.6x 6.4x 10.0x 7.0x

TA TO 2.0x 2.1x 2.3x 2.6x

FA turnover exceeded the industry average in 2009.

TA turnover below the industry average. Caused by excessivecurrents assets (A/R and Inv).

4 P fit bilit


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Measure how successfully a business earns a return on its investment Show the combined effects of liquidity, asset management, and debts on

operating results

4. Profitability

Profit margin = Net income / Sales = $253.6 / $7,036 = 3.6%BEP (Basic Earning Power) = EBIT/Total assets = $492.6 /$3,497 = 14.1%

2009 2008 2007 Ind.

PM 3.6% -2.7% 2.6% 3.5%

BEP 14.1% -4.6% 13.0% 19.1%

Profit margin improving. BEP removes the effects of taxes and financial leverage, and is useful for

comparison. BEP has improved substantially, but still below the industryaverage. Room for improvement.

DLeons Other Profitability Ratios for 2009:


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D Leon s Other Profitability Ratios for 2009:

Return on Assets and Return on EquityROA = Net income / Total assets = $253.6 / $3,497 = 7.3%

ROE = Net income* / Total common equity = $253.6 / $1,952 = 13.0%

*If there is preferred dividend, you should deduct it from net income

2009 2008 2007 Ind.

ROA 7.3% -5.6% 6.0% 9.1%

ROE 13.0% -32.5% 13.3% 18.2%

Both ratios rebounded from the previous year, but are still below the

industry average. More improvement needed. Wide variations in ROE illustrate the effect that leverage can have on

profitability.

Eff t f D bt ROA d ROE


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ROA is lowered by debt - interest expense lowers net income, which alsolowers ROA.

However, the use of debt lowers equity, and if equity is lowered more thannet income, ROE would increase.

Effects of Debt on ROA and ROE

Problems with ROE

ROE and shareholder wealth are correlated, but problems can arise when ROEis the sole measure of performance ROE does not consider risk ROE does not consider the amount of capital invested Might encourage managers to make investment decisions that do not

benefit shareholders ROE focuses only on return. A better measure is one that considers both risk

and return.

5 M k V l R i


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5. Market Value Ratios A set of ratios that relate the firm's stock price to its earnings, cash flows and

book value per share:

1. P/E: How much investors are willing to pay for $1 of earnings.

2. M/B: How much investors are willing to pay for $1 of book value equity.

For each ratio, the higher the number, the better.

DLeons P/E = Price / Earnings per share = $12.17 / $1.014 = 12.0x M/B = Mkt price per share / Book value per share = $12.17 / ($1,952 / 250) = 1.56x

2009 2008 2007 Ind.P/E 12.0x -1.4x 9.7x 14.2x

M/B 1.56x 0.5x 1.3x 2.4x


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The Three Ratios of the Dupont Identity

1. Profit margin (PM) is a measure of the firms operatingefficiency how well does it control costs

2. Total asset turnover (TA TO) is a measure of the firmsasset use efficiency how well does it manage its assets

3. Equity multiplier (EM) is a measure of the firms financial leverage

ROE = PM * TA TO * EM


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DLeons Extended DuPont Equation:Breaking down Return on Equity

ROE = (Profit margin) x (TA turnover) x (Equity multiplier)= 3.6% x 2 x 1.8

= 13.0%

PM TA TO EM ROE

2007 2.6% 2.3 2.2 13.3%

2008 -2.7% 2.1 5.8 -32.5%

2009 3.6% 2.0 1.8 13.0%

Ind. 3.5% 2.6 2.0 18.2%

S


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Summary Financial Statements are used for

1. Credit Decisions2. Risk Analysis

3. Financial Distress Prediction4. Management Evaluations

5. Investment Selection Du Pont Identity: ROE = PM * TA TO * EM

Lesson Review


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Lesson Review What are the main financial statements found in the

annual report?

Market value and book value are often very different.Why? Which is more important to the decision-making

process?

What are the major categories of ratios and how do youcompute the specific ratios within each category?

What are some of the problems associated withfinancial statement analysis?

MCQ Review


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MCQ Review

1. Financial leverage refers to:

A. The amount of debt used in a firms capital structure.

B. The ratio of retained earnings to shareholders equity.

C. The ratio of paid-in surplus to shareholders equity.D. The ratio of cost-of-goods-sold to total sales.

E. The amount of receivables present in the firms assetstructure.

MCQ Review


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2. The balance sheet identity states that:

A. Current assets + Fixed assets = Total assetsB. Assets = Liabilities + Shareholders equity

C. Current liabilities + Long-term debt = Total liabilitiesD. Common stock + Paid-in surplus + Retained earnings

= Shareholders equity

E. Cash flow = Market value Book value

MCQ Review


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MCQ Review


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4. Ratios that measure how efficiently a firmsmanagement uses its assets in operations togenerate bottom line net income are known as:

A. Asset management ratios.

B. Leverage ratios.

C. Liquidity ratios.

D. Market value ratios.

E. Profitability ratios.

MCQ Review


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Some Qualitative FactorsAnalysts should consider when evaluating a companyslikely future financial performance:

Are the companys revenues tied to a single customer?

To what extent are the companys revenues tied to a single product?

To what extent does the company rely on a single supplier?

What percentage of the companys business is generated overseas?

What is the competitive situation? What is the companys legal and regulatory environment?

FIN2004 Session 2 [Compatibility Mode]

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