Financial Statement Analysis

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Financial Statement Analysis
BOLD Managerial Accounting Chapter 5
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Objectives of Financial Statement Analysis

• Creditors, investors, and managers use it to
  judge
• Past performance and current position
• Future potential
• Creditors use the information gained from the
  analysis to make reliable loans (underwriters)
• Investors use the information to make investments
  that will provide a decent return given its risk

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Standards of Comparison

• Rule of thumb measures
• Ideal measures for key financial ratios
• Past performance of company
• Comparison of financial measures or ratios over a
  period of time - shows improvement or decline
• Industry Norms
• Shows how the company being analyzed compares
  with other companies in the same industry

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Sources of Information

• Reports published by the company
• Annual Report - Walt Disney Annual Report
• SEC Reports
• Form 10K, Form 10Q, Form 8K
• Business periodicals, credit and investment
  advisory services
• Moodys Investors Service, Inc. Standard
  Poors, Dunn Bradstreet
• Internet!

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Tools Techniques of Financial Analysis

• Horizontal Analysis
• Comparative financial statements that give the CY
  and PY financial information ( and )
• Trend Analysis
• changes are calculated for several successive
  years - Long run view
• Vertical Analysis
• are used to show the relationship of different
  parts to a total in a single statement
• Common-size statements

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Tools Techniques cont. Ratio Analysis

• Ratio analysis shows relationships between the
  components of the financial statements
• Evaluate Liquidity
• Evaluate profitability
• Evaluate LT Solvency
• Evaluate Cash Flow Adequacy
• Evaluate Market Ratios

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Liquidity Profitability Analysis

• Liquidity Analysis
• Current Ratio
• Quick Ratio
• Receivable Turnover
• Average days sales uncollected
• Inventory Turnover

• Profitability Analysis
• Profit Margin
• Asset Turnover
• Return on Assets
• Return on Equity