Home > Slide 1
Copyright
© 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Financial
Statement Analysis
K R Subramanyam
John J Wild
6-2
1
CHAPTER
Overview
of Financial
Statement Analysis
6-3
Information Sources for Analysis
6-4
Operating Activities
Revenues and expenses from providing
goods and services
Business Activities
6-5
Financial Statements Reflect Business Activities
6-6
Major aspects of financial statement
analysis
Special analysis topics
Basic analysis
Prospective analysis
6-7
Analysis Process
6-8
Comparative analysis
A1
A0
x 100 (%)
8
6-9
Time
To
compare a company’s financial position and performance between periods.
Horizontal analysis
6-10
10
Trend analysis is
used for comparison of the same item over a significantly long period
to detect general pattern of a relationship between associated factors
and project the future direction of this pattern.
Trend analysis
6-11
11
Trend analysis
6-12
Technique for identifying relationship
between items in the same financial statement by expressing all amounts
as the percentage of the total amount taken as 100 (a
common-size financial statement).
Vertical analysis
6-13
Common-size graph
13
6-14
Common-size Balance sheets
6-15
Common-size balance sheets
6-16
In mil. US$
2000
2001
2002
2003
2004
…
2010
2011
2012
Account receivables
17.301
28.155
30.759
1.956
1.239
689
695
635
Inventories
5.618
4.912.
5.115
5.335
5.549
8.951
8.407
7.558
Total assets
36.889
44.317
50.409
27.723
22.474
24.360
21.381
19.340
6-17
6-18
Ratio analysis
6-19
Equity Valuation
Purpose: Estimate intrinsic value of a
company (or stock)
Basis: Present value theory (time value of
money)
Valuation - an important goal of many types
of business analysis
6-20
(1 + r)n
P = Fn
1
Present value theory
P = A x
x 1 -
(1 + r)n
1
r
1
P: Present value
Fn: Future value at period n
A: Annual cash flows (from period 1 to period n)
r: discounted rate
6-21
Equity valuation
–
Residual Income Model
Expected Income = Required rate of equity x Book value of equity
Residual Income = Actual
Income – Expected Income
Fair value of Equity = Book value of Equity +
PV{Expected Residual Incomes}
Investors should pay more than book value if actual income is higher than expected and less than book value if actual income is lower than expected.
6-22
Equity valuation –
Residual Income Model
BVt is the book value at the end of period t
Rit+n is the residual income in period t + n [defined as net income, NI, minus a charge on beginning book value, BV, or RIt = NIt - (k x BVt-1)]
k is the cost of capital
E refers to an expectation
6-23
23
Example
In VND mil.
2013
2014
2015
2016
2017
2018
Net income
609
628
639
702
773
773
Dividends
357
433
370
407
448
448
Beginning book value of equity
2917
3169
3364
3633
3928
4253
Cost of equity 13%
6-24
24
Example
2013
2014
2015
2016
2017
2018
1. Beginning book value of equity BVE
2. Required Income
(rE= 13%)
3. Projected Income
4. Residual Income
5. Discounted factor (rE =
13%)
6. PV {RI2013→2018}
Fair value of equity VE =
6-25
Equity valuation –
Dividend model
Vt is the value of an equity security at time t
Dt +n is the dividend in period t+n
k is the cost of capital
E refers to expected dividends
6-26
Equity Valuation –
Free cash flow to equity model
FCFEt+n is the free cash flow to equity 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
All Rights Reserved Powered by Free Document Search and Download
Copyright © 2011