Financial Statement Analysis K.R. Subramanyam Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

1-26 Balance Sheets

1-27 Balance Sheet Total Investing = Total Financing = Creditor Financing + Owner Financing Total Investing = Total Financing = Creditor Financing + Owner Financing

1-28 Income Statement Revenues – Cost of goods sold = Gross Profit Gross profit – Operating expenses = Operating Profit Revenues – Cost of goods sold = Gross Profit Gross profit – Operating expenses = Operating Profit Colgate’s Profitability (in $billions) $ $7.144 = $9.590 Gross Profit $ $5.749= $3.841 Operating profit

1-29 Income Statement

1-31 Statement of Cash Flow

1-32 Retained Earnings, Comprehensive Income, and Changes in Capital Accounts

1-33 Retained Earnings, Comprehensive Income, and Changes in Capital Accounts

1-34 In which of the previous financial statements would an analyst find the investing, financing and operating activities reflected?

1-36 Comparative Income Statements

1-38 Common Size Balance Sheets

1-39 Common Size Income Statements

1-45 Analysis Preview Debt (Bond) Valuation B t is the value of the bond at time t I t +n is the interest payment in period t+n F is the principal payment (usually the debt ’ s face value) r is the investor’s required interest rate (yield to maturity ) B t is the value of the bond at time t I t +n is the interest payment in period t+n F is the principal payment (usually the debt ’ s face value) r is the investor’s required interest rate (yield to maturity )

1-46 Analysis Preview Equity Valuation V t is the value of an equity security at time t D t +n is the dividend in period t+n k is the cost of capital E refers to expected dividends V t is the value of an equity security at time t D t +n is the dividend in period t+n k is the cost of capital E refers to expected dividends

1-47 Analysis Preview Equity Valuation - Free Cash Flow to Equity Model Equity Valuation - Free Cash Flow to Equity Model FCF t+n is the free cash flow in the period t + n [often defined as cash flow from operations less capital expenditures] k is the cost of capital E refers to an expectation FCF t+n is the free cash flow in the period t + n [often defined as cash flow from operations less capital expenditures] k is the cost of capital E refers to an expectation

1-48 Analysis Preview Equity Valuation - Residual Income Model BV t is the book value at the end of period t Ri t+n is the residual income in period t + n [defined as net income, NI, minus a charge on beginning book value, BV, or RI t = NI t - (k x BV t-1 )] k is the cost of capital E refers to an expectation BV t is the book value at the end of period t Ri t+n is the residual income in period t + n [defined as net income, NI, minus a charge on beginning book value, BV, or RI t = NI t - (k x BV t-1 )] k is the cost of capital E refers to an expectation