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Statement
Analysis
K R Subramanyam
John J Wild
Overview of Financial
Statement Analysis
1
CHAPTE
R
1-3
Business Analysis
Credit Analysis
1-7
Credit Analysis
Credit worthiness: Ability to honor credit obligations
(downside risk)
Liquidity Solvency
Ability to meet Ability to meet
short-term obligations long-term obligations
Focus: Focus:
• Current cash flows • Long-term profitability
• Make up of current • Capital structure
assets and liabilities
• Liquidity of assets
1-8
Equity Analysis
Assessment of downside risk and upside potential
Accounting Analysis
Acco
unting
Risk
1-11
Financial Analysis
Prospective Analysis
Business Environment
& Strategy Analysis
Accounting Analysis
Financial Analysis
Intrinsic Value
1-13
Business Activities
1-15
Business Activities
Financing activities
• Owner (equity)
• Nonowner (liabilities)
Financing
1-16
Business Activities
Investing activities
• Buying resources
• Selling resources
Investing Financing
Investing = Financing
1-17
Business Activities
Operating Activities
Revenues and expenses from providing
goods and services
1-18
Financial Statements
1-20
1-21
Balance Sheet
Income Statement
Revenues – Cost of goods sold = Gross Profit
Gross profit – Operating expenses = Operating Profit
Colgate’s Profitability
(in $billions)
Additional Information
(Beyond Financial Statements)
1-28
Analysis Preview
Yr1 Yr2 Yr3
Comparative
Analysis
Purpose: Evaluation of consecutive
financial statements
Output: Direction, speed, & extent of any
trend(s)
Types: ∙ Year-to-year Change Analysis
∙ Index-Number Trend Analysis
1-29
Analysis Preview
1-30
Analysis Preview
Common-Size Analysis
Analysis Preview
1-32
Analysis Preview
1-33
Analysis Preview
Ratio Analysis
Analysis Preview
Valuation
Valuation - an important goal of many types
of business analysis
Analysis Preview
Debt (Bond) Valuation
Analysis Preview
Equity Valuation
Analysis Preview
Equity Valuation - Free Cash Flow to
Equity
Model
Analysis Preview
Equity Valuation - Residual Income
Model
Book Organization