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© PHI Learning, 2008. All rights reserved.1 Financial Accounting: A Managerial Perspective Third Edition Prepared by R. Narayanaswamy Indian Institute of Management Bangalore
© PHI Learning, 2008. All rights reserved.2 Financial Statement Analysis Chapter 11
© PHI Learning, 2008. All rights reserved.3 Objectives of Financial Statement Analysis Evaluation of past performance and financial position Prediction of future performance Chapter 11
© PHI Learning, 2008. All rights reserved.4 Standards of Comparison Rule-of-thumb indicators Can be applied across firms and industries Too general to be of use in specific companies Past performance of the company Past is a useful indicator A firm’s competition is with other firms, not with own past Industry standards Getting comparable firms is difficult Chapter 11
© PHI Learning, 2008. All rights reserved.5 Sources of Information Company reports Stock exchanges Business periodicals Information services Chapter 11
© PHI Learning, 2008. All rights reserved.6 Quality of Earnings What is quality of earnings? Accounting methods and estimates used Extraordinary items Prior period adjustments Discontinuing operations Changes in accounting policies Income from non-operating sources Chapter 11
© PHI Learning, 2008. All rights reserved.7 Using Financial Ratios Profitability Liquidity Solvency Capital market standing Chapter 11
© PHI Learning, 2008. All rights reserved.8 Profitability Profit margin Asset turnover Return on assets or return on investment The Du Pont financial analysis Return on equity Effect of leveraging Earnings per share Chapter 11
© PHI Learning, 2008. All rights reserved.9 Liquidity Current ratio All current assets Quick ratio Excludes inventories Debtor turnover Average debt collection period Inventory turnover Operating cycle Chapter 11
© PHI Learning, 2008. All rights reserved.10 Solvency Debt-to-equity ratio Use of leverage Liabilities-to-equity ratio Interest coverage ratio Chapter 11
© PHI Learning, 2008. All rights reserved.11 Capital Market Standing Price-earnings ratio Dividend-yield Price-to-book ratio Beta Chapter 11
© PHI Learning, 2008. All rights reserved.12 Corporate Disclosure Policy Voluntary disclosure Why do firms provide voluntary disclosures? Factors that influence disclosure level Capital market Competitors Managerial reputation Shareholder litigation Disclosure level and the cost of capital Chapter 11
© PHI Learning, 2008. All rights reserved.13 Efficient Market Hypothesis and Financial Statement Analysis The efficient market hypothesis Accounting information affects stock prices, but... The market is not fooled by accounting method differences Mandatory disclosures do not evoke significant stock price reaction Chapter 11
© Prentice-Hall of India Private Limited, All rights reserved.1 Financial Accounting: A Managerial Perspective Second Edition Prepared by R. Narayanaswamy.
FINANCIAL STATEMENT ANALYSIS. Important Questions Managers, shareholders, creditors and other interested groups seek answers to the following important.
Chapter Thirteen Financial Statement Analysis McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Nine Financial Statement Analysis © 2015 McGraw-Hill Education.
FINANCIAL STATEMENT ANALYSIS UNIT 12 Analysing financial statements involves evaluating three characteristics of a company: 1. its liquidity 2. its profitability.
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved CHAPTER 3 Financial Statements Analysis and Long- Term Planning.
CHAPTER 13 PowerPoint Author: LuAnn Bean, Ph.D., CPA, CIA, CFE Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution.
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Fourth Edition 1 Financial Statement Analysis. Fourth Edition 2 Outline 1.Financial statements 1.Income statement and margin analysis 2.Ratio analysis.
McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Financial Statement Analysis CHAPTER 13.
Financial Statement Analysis Chapter 9. Liquidity and Solvency Solvency – the ability of a business to pay its debts Liquidity – the ability of a.
CF Winter Winter Corporate Finance 1.Capital Budgeting Long-term investments which ones? 2.Capital Structure Long-term financing.
Financial Statement Analysis Chapter 19. Purpose Tools Used - Statements - Ratio Analysis Limitations Overview.
Managerial Accounting Wild and Shaw Third Edition Wild and Shaw Third Edition McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All.
McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19 Financial Statement Analysis.
FINANCIAL STATEMENT ANALYSIS. Statement Analysis - 2 FINANCIAL STATEMENT ANALYSIS Objectives Creditors Short term liquidity Long-term solvency Investors.
Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 1 Chapter 14.
Purpose of Analysis; Financial statement analysis helps users make better decisions Financial Statements Are Designed for Analysis Tools of Analysis –
WORKING WITH FINANCIAL STATEMENTS Chapter 3. Key Concepts and Skills Understand sources and uses of cash and the Statement of Cash Flows Know how.
Parts of a Financial Statement 1.Statement of Income 2.Balance Sheet 3.Statement of Cash Flow 4.Statement of Stockholders’ Equity.
Chapter 13 Financial Statement Analysis. Limitations and Considerations in Financial Statement Analysis Watch for alternative accounting principles.
12-1 Discontinued Operations Parts of a company’s operations that are eliminated A one-time occurrence Income/loss from discontinued operations separately.
© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Slide Financial Statements Analysis and Interpretation.
- Brijesh Pitroda. The analysis of a Business' Health starts with Financial Statement Analysis.
Chapter Thirteen Financial Statement Analysis Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
Chapter 18-1 LO 5 Identify and compute ratios used in analyzing a firm’s liquidity, profitability, and solvency. Ratio Analysis Illustration.
Chapter 14 Analyzing Financial Statements Taken from:
Chapter 9 Financial Statement Analysis. Learning Objectives After studying this chapter, you should be able to… Describe basic financial statement analytical.
Rhys Johnson Head of Education Asia Pacific
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Analyzing Financial Statements Chapter 14.
Chapter 2 Financial Ratio Analysis. 2-2 Example 2.1 Problem Rylan Enterprises has 5 million shares outstanding. The market price per share is $22.
BSAD 221 Introductory Financial Accounting Donna Gunn, CA.
The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 19-1 Financial Statement Analysis Chapter 19.
V. STOCKS. L. RATIO ANALYSIS 1.Ratios That Measure Liquidity (the firm’s ability to convert assets into cash) a.Current Ratio = Current Assets Current.
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Statement Analysis Chapter 14 McGraw-Hill/Irwin.
Chapter 13 Financial Analysis & Ratios. Comparative Analysis There are three types of comparisons to provide decision usefulness of financial information:
Chapter 14. To make informed decisions about a company Generally based on comparative financial data 2Copyright (c) 2009 Prentice Hall. All rights.
Financial Statement Analysis Learning Objective Describe the nature of the adjusting process. Learning Objective Describe.
Summary Of Previous Lecture basic financial statements and their contents. financial statement analysis and its importance to the firm and to outside.
Chapter 14 Financial Statement Analysis. Who and Why? To understand the economics of a firm and To help forecast its future profitability and risk.
© McGraw-Hill Ryerson Limited, 2003 McGraw-Hill Ryerson Chapter 14 Analyzing Financial Statements.
Steve Paulone Facilitator Things to consider concerning financial ratios: A ratio by itself means very little – you need to compare that result with:
© PHI Learning, All rights reserved.1 Financial Accounting: A Managerial Perspective Third Edition Prepared by R. Narayanaswamy Indian Institute.
Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fifth Edition Wild, Shaw, and Chiappetta Fifth Edition McGraw-Hill/Irwin Copyright © 2013.
Financial Statement Analysis. Common Financial Statements Balance Sheet Income Statement Statement of Retained Earnings Statement of Cash Flows.
© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Financial & Managerial Accounting The Basis for Business Decisions FOURTEENTH EDITION Williams.
© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Working With Financial Statements Chapter Three.
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