Financial Statement : Applications

Introduction
Key issues to address past performance
Forecasting future cash flows and net income
Evaluate credit quality
Potential equity investment

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Evaluating past financial performance
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1. Profitability, efficiency, liquidity and solvency changed over time
2. Profitability, efficiency, liquidity and solvency changed compared to
other companies
3. What aspect of performance are critical for the companies
4. What are the companys business model and strategies and how did
they influence companys performance





Forecasting future cash flows and net income
Projecting performance: an input to
market based valuation.
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Cont.
Steps are:
1. Sales forecast
2. Forecasting income and cash flows


Projecting multiple prior performance

Thursday, August 21, 2014 DMA 6
Application: assessing credit risk

Thursday, August 21, 2014 DMA 7
Application: Screening potential
equity investment

Thursday, August 21, 2014 DMA 8