LECTURE “0” (SELF STUDY) Introduction to Financial Satement Analysis Berk, De Marzo Chapter 2.
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LECTURE “0” (SELF STUDY) Introduction to Financial Satement Analysis Berk, De Marzo Chapter 2
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Transcript of LECTURE “0” (SELF STUDY) Introduction to Financial Satement Analysis Berk, De Marzo Chapter 2.
LECTURE “0” (SELF STUDY)
Introduction to Financial Satement Analysis
Berk, De Marzo
Chapter 2
2
Types of Financial Statements
1. Balance Sheet: A snapshot in time of the firm’s financial position.
Assets= liabilities +equity
• Current Assets: Cash or expected to be turned into cash in the next year-Cash, Marketable Securities, Accounts Receivable, Inventories, Other Current Assets, Example: Pre-paid expenses.
• Long-Term Assets: Net Property, Plant, & Equipment: Depreciation (and Accumulated Depreciation)
• Book Value = Acquisition cost – Accumulated depreciation
• Goodwill and intangible assets: Amortization
• Other Long-Term Assets: Example: Investments in Long-term Securities• Liabilities
• Current Liabilities: Due to be paid within the next year
• Accounts Payable, Short-Term Debt/Notes Payable, Current Maturities of Long-Term Debt, Other Current Liabilities, Taxes Payable, Wages Payable
• Long-Term Liabilities: Long-Term Debt, Capital Leases, Deferred Taxes
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Global Conglomerate Corporation Balance Sheet for 2012 and 2011
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Global Conglomerate Corporation Balance Sheet for 2012 and 2011
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Financial Satement Analysis
• Stockholder’s Equity
• Book Value of Equity
• Book Value of Assets – Book Value of Liabilities• Could possibly be negative• Many of the firm’s valuable assets may not be captured on the balance sheet
• Market Value of Equity (Market Capitalization)
• Market Price per Share x Number of Shares Outstanding• Cannot be negative• Often differs substantially from book value
• Market Value Versus Book Value
Market Value of EquityMarket-to-Book Ratio
Book Value of Equity
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Financial Satement Analysis
2. Income Statement:• Total Sales/Revenues - Cost of Sales= Gross Profit• Gross Profit-Operating Expenses (Selling, General, and Administrative
Expenses, R&D, Depreciation & amortization)=Operating Income• Operating Income +/- Other Income/Other Expenses= Earnings Before
Interest and Taxes (EBIT)
• EBIT-/+Interest Income/Interest Expense=Pre-Tax Income-Taxes=Net Income.
EPS= Earnings Per Share
Net IncomeEPS
Shares Outstanding
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Global Conglomerate Corporation Income Statement Sheet for 2012 and 2011
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Financial Satement Analysis
• Statement of Cash Flows: applies the information from the income statement and balance sheet to determine how much cash the firm has generated and allocated during a set period.
• Three Sections
• Operating Activities: Adjusts net income by all non-cash items related to operating activities and changes in net working capital
• Investment Activities: Capital Expenditures and Buying or Selling Marketable Securities
• Financing Activities: Payment of Dividends• Retained Earnings = Net Income – Dividends
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Global Conglomerate Corporation Statement of Cash Flows for 2012 and 2011
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Financial Statement Analysis
• Profitability Ratios
Gross ProfitGross Margin=
Sales
Operating IncomeOperating Margin=
Sales
EBITEBIT
Sales
Net IncomeNet Profit Margin
Total Sales
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Financial Statement Analysis
• Liquidity Ratios
• Current Ratio• Current Assets / Current Liabilities
• Cash Ratio• Cash / Current Liabilities
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Financial Statement Analysis
• Working Capital Ratios• Accounts Receivable Days
• Accounts Payable Days
• Inventory Days
Accounts ReceivableAccounts Receivable Days
Average Daily Sales
Accounts PayableAccounts Payable Days
Average Daily Cost of Sales
InventoryInventory Days
Average Daily Cost of Sales
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Financial Statement Analysis
• Working Capital Ratios• Accounts Receivable Turnover
• Accounts Payable Turnover
• Inventory Turnover
Annual SalesAccounts Receivable Turnover
Accounts Receivable
Annual Cost of SalesAccounts Payable Turnover
Accounts Payable
Annual Cost of SalesInventory Turnover
Inventory
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Financial Statement Analysis
• Interest Coverage Ratios• EBIT/Interest
• EBITDA/Interest• EBITDA = EBIT + Depreciation and Amortization
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Financial Statement Analysis
• Leverage Ratios• Debt-Equity Ratio
• Debt-to-Capital Ratio
Total DebtDebt-Equity Ratio
Total Equity
Total DebtDebt-to-Capital Ratio
Total Equity + Total Debt
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Financial Statement Analysis
• Leverage Ratios• Net Debt
• Total Debt + Excess Cash & Short-Term Investments
• Debt-to-Enterprise Value
• Equity Multiplier• Total Assets / Book Value of Equity
Net DebtDebt-to-Enterprise Value Ratio
Market Value of Equity + Net Debt
17
Financial Statement Analysis
• Valuation Ratios– P/E Ratio
– Enterprise Value to EBIT
– Enterprise Value to Sales
Market Capitalization Share PriceP / E Ratio
Net Income Earnings per Share
Market Valueof Equity + Debt - CashEnterprise Value to EBIT=
EBIT
Market Valueof Equity + Debt - CashEnterprise Value toSales=
Sales
