tailieunhanh - Lecture Investments (8th edition): Chapter 19 - Zvi Bodie, Alex Kane, Alan J. Marcus

Chapter 19 - Financial statement analysis. The chapter has been updated to address current issues in fair value accounting. It also contains additional discussion of the proper interpretation of market-to-book ratios. | CHAPTER 19 Financial Statement Analysis Purpose Tools Used Statement analysis Ratio analysis Limitations Overview Balance Sheet Common Sized Trend or Indexed Income Statement Common Sized Trend or Indexed Statement of Cash Flows Financial Statements Table Consolidated Statement of Income for Hewlett-Packard, 2006 Table Consolidated Balance Sheet for Hewlett-Packard, 2006 Table Statement of Cash Flows for Hewlett-Packard, 2006 Accounting Versus Economic Earnings Economic earnings Sustainable cash flow that can be paid to stockholders without impairing productive capacity of the firm Accounting earnings Affected by conventions regarding the valuation of assets Profitability Measures ROE: measures the profitability for contributors of equity capital ROA: measures the profitability for all contributors of capital Leverage has a significant effect on profitability measures Table Nodett’s Profitability over the Business Cycle Table Impact of Financial Leverage on ROE ROE, ROA and Leverage ROE = Net Profit Pretax Profit x Pretax Profit EBIT x EBIT Sales Sales Assets x x Assets Equity (1) x (2) x (3) x (4) x (5) x Margin x Turnover x Leverage Tax Burden Interest Burden Decomposition of ROE x Table Ratio Decomposition Analysis for Nodett and Somdett Table Differences between Profit Margin and Asset Turnover across Industries Table Growth Industries Financial Statements, 2004 – 2007 ($ thousands) Table Summary of Key Financial Ratios: Leverage, Asset Utilization, Liquidity, Profitability and Market Price Figure DuPont Decomposition for Hewlett-Packard Table Financial Ratios for Major Industry Groups Economic Value Added Difference between return on assets (ROA) and the opportunity cost of capital (k) EVA is also called residual income EVA can be positive or negative for firms that have positive earnings Table Economic Value Added, 2007 Table Key Financial Ratios of Growth Industries, Inc Table Growth Industries Statement of Cash Flows ($ thousands) Accounting Differences Inventory Valuation Depreciation Inflation and Interest Expense Fair Value Accounting Quality of Earnings International Accounting Conventions Comparability Problems International Accounting Differences Reserves – many other countries allow more flexibility in use of reserves Depreciation – US allows separate tax and reporting presentations Intangibles – treatment varies widely Figure Adjusted Versus Reported Price-Earnings Ratios The Graham Technique Careful analysis of a firm’s financial statements could turn up bargain stocks Purchase common stocks at less then their working-capital value Give no weight to plant or other fixed assets Deduct all liabilities in full from assets | CHAPTER 19 Financial Statement Analysis Purpose Tools Used Statement analysis Ratio analysis Limitations Overview Balance Sheet Common Sized Trend or Indexed Income Statement Common Sized Trend or Indexed Statement of Cash Flows Financial Statements Table Consolidated Statement of Income for Hewlett-Packard, 2006 Table Consolidated Balance Sheet for Hewlett-Packard, 2006 Table Statement of Cash Flows for Hewlett-Packard, 2006 Accounting Versus Economic Earnings Economic earnings Sustainable cash flow that can be paid to stockholders without impairing productive capacity of the firm Accounting earnings Affected by conventions regarding the valuation of assets Profitability Measures ROE: measures the profitability for contributors of equity capital ROA: measures the profitability for all contributors of capital Leverage has a significant effect on profitability measures Table Nodett’s Profitability over the Business Cycle Table Impact of Financial Leverage on .