10AnalysisofFinancialStatements投资分析与投

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AnalysisofFinancialStatementsQuestionstobeanswered:Whatarethemajorfinancialstatementsprovidedbyfirmsandwhatspecificinformationdoeseachofthemcontain?Whydoweusefinancialratiostoexaminetheperformanceofafirmandwhyisitimportanttoexamineperformancerelativetotheeconomyandafirm’sindustry?Chapter10

AnalysisofFinancialStatementsWhatarethemajorcategoriesforfinancialratiosandwhatquestionsareansweredbytheratiosinthesecategories?Whatspecificratioshelpdetermineafirm’sinternalliquidity,operatingperformance,riskprofile,growthpotential,andexternalliquidity?HowcantheDuPontanalysishelpevaluateafirm’sreturnonequityovertime?Chapter10

AnalysisofFinancialStatementsWhataresomeofthemajordifferencesbetweenU.S.andnon-U.S.financialstatementsandhowdothesedifferencesaffectthefinancialratios?Whatisa“quality”balancesheetorincomestatement?Whyisfinancialstatementanalysisdoneifmarketsareefficientandforward-looking?Chapter10

AnalysisofFinancialStatementsWhatmajorfinancialratioshelpanalystsinthefollowingareas:stockvaluation,estimatingandevaluatingsystematicrisk,predictingthecreditratingsonbonds,andpredictingbankruptcy?MajorFinancialStatementsCorporateshareholderannualandquarterlyreportsmustincludeMajorFinancialStatementsCorporateshareholderannualandquarterlyreportsmustincludeBalancesheetMajorFinancialStatementsCorporateshareholderannualandquarterlyreportsmustincludeBalancesheetIncomestatementMajorFinancialStatementsCorporateshareholderannualandquarterlyreportsmustincludeBalancesheetIncomestatementStatementofcashflowsMajorFinancialStatementsCorporateshareholderannualandquarterlyreportsmustincludeBalancesheetIncomestatementStatementofcashflowsReportsfiledwithSecuritiesandExchangeCommission(SEC)MajorFinancialStatementsCorporateshareholderannualandquarterlyreportsmustincludeBalancesheetIncomestatementStatementofcashflowsReportsfiledwithSecuritiesandExchangeCommission(SEC)10-Kand10-QGenerallyAcceptedAccountingPrinciples(GAAP)FormulatedbytheFinancialAccountingStandardsBoard(FASB)ProvidessomechoicesofaccountingprinciplesFinancialstatementsfootnotesmustdisclosewhichaccountingprinciplesareusedbythefirmBalanceSheetShowsresources(assets)ofthefirmandhowithasfinancedtheseresourcesIndicatescurrentandfixedassetsavailableatapointintimeFinancingisindicatedbyitsmixtureofcurrentliabilities,long-termliabilities,andowners’equityIncomeStatementContainsinformationontheprofitabilityofthefirmduringsomeperiodoftimeIndicatestheflowofsales,expenses,andearningsduringthetimeperiodStatementofCashFlowsIntegratestheinformationonthebalancesheetandincomestatementShowstheeffectsonthefirm’scashflowofincomeflowsandchangesinvariousitemsonthebalancesheetStatementofCashFlowsIthasthreesections:CashFlowfromOperatingActivities–thesourcesandusesofcashthatarisefromthenormaloperationsofafirmCashFlowfromInvestingactivities–changeingrossplantandequipmentplusthechangeintheinvestmentaccountCashFlowfromFinancingactivities–financingsourcesminusfinancingusesAlternativeMeasuresofCashFlowCashflowfromoperationsTraditionalcashflowequalsnetincomeplusdepreciationexpenseanddeferredtaxesAlsoadjustforchangesinoperatingassetsandliabilitiesthatuseorprovidecashFreecashflowrecognizesthatsomeinvestingandfinancingactivitiesarecriticaltoongoingsuccessofthefirmCapitalexpendituresanddividendsPurposeof

FinancialStatementAnalysisEvaluatemanagementperformanceinthreeareas:ProfitabilityEfficiencyRiskAnalysisofFinancialRatiosRatiosaremoreinformativethatrawnumbersRatiosprovidemeaningfulrelationshipsbetweenindividualvaluesinthefinancialstatementsImportanceof

RelativeFinancialRatiosComparetootherentitiesExamineafirm’sperformancerelativeto:TheaggregateeconomyItsindustryorindustriesItsmajorcompetitorswithintheindustryItspastperformance(time-seriesanalysis)Comparingto

TheAggregateEconomyMostfirmsareinfluencedbyeconomicexpansionsandcontractionsinthebusinesscycleAnalysishelpsyouestimatethefutureperformanceofthefirmduringsubsequentbusinesscyclesComparingto

AFirm’sIndustryMostpopularcomparisonIndustriesaffectthefirmswithinthemdifferently,buttherelationshipisalwayssignificantTheindustryeffectisstrongestforindustrieswithhomogenousproductsExaminetheindustry’sperformancerelativetoaggregateeconomicactivityComparingto

AFirm’sMajorCompetitorsIndustryaveragesmaynotberepresentativeSelectasubsetofcompetitorstocomparetousingcross-sectionalanalysis,orConstructacompositeindustryaveragefromindustriesthefirmoperatesinComparingto

AFirm’sHistoricalPerformanceDeterminewhetheritisprogressingordecliningHelpfulforestimatingfutureperformanceConsidertrendsaswellasaveragesovertimeFiveCategoriesofFinancialRatios1.Internalliquidity(solvency)2.Operatingperformancea.Operatingefficiencyb.Operatingprofitability3.Riskanalysisa.Businessriskb.FinancialriskSixCategoriesofFinancialRatios4.GrowthanalysisSixCategoriesofFinancialRatios5.Externalliquidity(marketability)CommonSizeStatementsNormalizebalancesheetsandincomestatementitemstoalloweasiercomparisonofdifferentsizefirmsAcommonsizebalancesheetexpressesaccountsasapercentageoftotalassetsAcommonsizeincomestatementexpressesallitemsasapercentageofsalesEvaluatingInternalLiquidityInternalliquidity(solvency)ratiosindicatetheabilitytomeetfutureshort-termfinancialobligationsCurrentRatioexaminescurrentassetsandcurrentliabilitiesEvaluatingInternalLiquidityQuickRatioadjustscurrentassetsbyremovinglessliquidassets

EvaluatingInternalLiquidityCashRatioisthemostconservativeliquidityratioEvaluatingInternalLiquidityReceivablesturnoverexaminesthequalityofaccountsreceivableReceivablesturnovercanbeconvertedintoanaveragecollectionperiodEvaluatingInternalLiquidityInventoryturnoverrelatesinventorytosalesorcostofgoodssold(CGS)Giventheturnovervalues,youcancomputetheaverageinventoryprocessingtimeAverageInventoryProcessingPeriod=365/AnnualTurnoverEvaluatingInternalLiquidityCashconversioncyclecombinesinformationfromthereceivablesturnover,inventoryturnover,andaccountspayableturnoverReceivableDays+InventoryProcessingDays-PayablesPaymentPeriodCashConversionCycleEvaluatingOperatingPerformanceRatiosthatmeasurehowwellmanagementisoperatingabusiness(1)OperatingefficiencyratiosExaminehowthemanagementusesitsassetsandcapital,measuredintermsofsalesdollarsgeneratedbyassetorcapitalcategories(2)OperatingprofitabilityratiosAnalyzeprofitsasapercentageofsalesandasapercentageoftheassetsandcapitalemployedOperatingEfficiencyRatiosTotalassetturnoverratioindicatestheeffectivenessofafirm’suseofitstotalassetbase(netassetsequalsgrossassetsminusdepreciationonfixedassets)OperatingEfficiencyRatiosNetfixedassetturnoverreflectsutilizationoffixedassetsOperatingProfitabilityRatiosOperatingprofitabilityratiosmeasure1.Therateofprofitonsales(profitmargin)2.ThepercentagereturnoncapitalOperatingProfitabilityRatiosGrossprofitmarginmeasurestherateofprofitonsales(grossprofitequalsnetsalesminusthecostofgoodssold)OperatingProfitabilityRatiosOperatingprofitmarginmeasurestherateofprofitonsalesafteroperatingexpenses(operatingprofitisgrossprofitminussales,generalandadministrative(SG+A)expenses)OperatingProfitabilityRatiosNetprofitmarginrelatesnetincometosalesOperatingProfitabilityRatiosReturnontotalcapitalrelatesthefirm’searningstoallcapitalintheenterpriseOperatingProfitabilityRatiosReturnonowner’sequity(ROE)indicatestherateofreturnearnedonthecapitalprovidedbythestockholdersafterpayingforallothercapitalusedOperatingProfitabilityRatiosReturnonowner’sequity(ROE)canbecomputedforthecommon-shareholder’sequityOperatingProfitabilityRatiosTheDuPontSystemdividestheratiointoseveralcomponentsthatprovideinsightsintothecausesofafirm’sROEandanychangesinitOperatingProfitabilityRatios

ProfitTotalAssetFinancialMarginTurnoverLeverage=xxOperatingProfitabilityRatiosAnextendedDuPontSystemprovidesadditionalinsightsintotheeffectoffinancialleverageonthefirmandpinpointstheeffectofincometaxesonROEOperatingProfitabilityRatiosAnextendedDuPontSystemprovidesadditionalinsightsintotheeffectoffinancialleverageonthefirmandpinpointstheeffectofincometaxesonROEWebeginwiththeoperatingprofitmargin(EBITdividedbysales)andintroduceadditionalratiostoderiveanROEvalueOperatingProfitabilityRatiosOperatingProfitabilityRatiosThisistheoperatingprofitreturnontotalassets.Toconsiderthenegativeeffectsoffinancialleverage,weexaminetheeffectofinterestexpenseasapercentageoftotalassetsOperatingProfitabilityRatiosOperatingProfitabilityRatiosWeconsiderthepositiveeffectoffinancialleveragewiththefinancialleveragemultiplierOperatingProfitabilityRatiosOperatingProfitabilityRatiosThisindicatesthepretaxreturnonequity.ToarriveatROEwemustconsiderthetaxrateeffect.OperatingProfitabilityRatiosOperatingProfitabilityRatiosInsummary,wehavethefollowingfivecomponentsofreturnonequity(ROE)OperatingProfitabilityRatiosOperatingProfitabilityRatiosOperatingProfitabilityRatiosOperatingProfitabilityRatiosOperatingProfitabilityRatiosRiskAnalysisRiskanalysisexaminestheuncertaintyofincomeflowsforthetotalfirmandfortheindividualsourcesofcapitalDebtPreferredstockCommonstockRiskAnalysisTotalriskofafirmhastwocomponents:BusinessriskTheuncertaintyofincomecausedbythefirm’sindustryGenerallymeasuredbythevariabilityofthefirm’soperatingincomeovertimeFinancialriskAdditionaluncertaintyofreturnstoequityholdersduetoafirm’suseoffixedobligationdebtsecuritiesTheacceptableleveloffinancialriskforafirmdependsonitsbusinessrisk

BusinessRiskVariabilityofthefirm’soperatingincomeovertimeBusinessRiskVariabilityofthefirm’soperatingincomeovertimeStandarddeviationofthehistoricaloperatingearningsseriesBusinessRiskTwofactorscontributetothevariabilityofoperatingearningsSalesvariabilityEarningsmustbeasvolatileassalesSomeindustriesarecyclicalOperatingleverageProductionhasfixedandvariablecostsFixedproductioncostscauseprofitvolatilitywithchangesinsalesFixedproductioncostsareoperatingleverageFinancialRiskBondsinterestpaymentscomebeforeearningsareavailabletostockholdersThesearefixedobligationsSimilartofixedproductioncosts,theseleadtolargerearningsduringgoodtimes,andlowerearningsduringabusinessdeclineThisdebtfinancingincreasesthefinancialriskandpossibilityofdefaultFinancialRiskTwosetsoffinancialratioshelpmeasurefinancialriskBalancesheetratiosEarningsorcashflowavailabletopayfixedfinancialchargesAcceptablelevelsoffinancialriskdependonbusinessriskFinancialRiskProportionofdebt(balancesheet)ratiosFinancialRiskProportionofdebt(balancesheet)ratiosFinancialRiskProportionofdebt(balancesheet)ratiosThismaybecomputedwithandwithoutdeferredtaxesFinancialRiskLong-termdebt/totalcapitalratioindicatestheproportionoflong-termcapitalderivedfromlong-termdebtcapitalFinancialRiskLong-termdebt/totalcapitalratioindicatestheproportionoflong-termcapitalderivedfromlong-termdebtcapitalFinancialRiskTotaldebtratioscomparetotaldebt(currentliabilitiespluslong-termliabilities)tototalcapital(totaldebtplustotalequity)FinancialRiskTotaldebtratioscomparetotaldebt(currentliabilitiespluslong-termliabilities)tototalcapital(totaldebtplustotalequity)FinancialRiskEarningsorCashFlowRatiosRelatetheflowofearningsCashavailabletomeetthepaymentsHigherratiomeanslowerriskFinancialRiskInterestCoverageFinancialRiskInterestCoverageFinancialRiskInterestCoverageFinancialRiskFirmsmayalsohavenon-interestfixedpaymentsdueforleaseobligationsTheriskeffectissimilartobondriskBond-ratingagenciestypicallyadd1/3leasepaymentsastheinterestcomponentoftheleaseobligationsFinancialRiskTotalfixedchargecoverageincludesanynoncancellableleasepaymentsandanypreferreddividendspaidoutofearningsaftertaxesFinancialRiskTotalfixedchargecoverageincludesanynoncancellableleasepaymentsandanypreferreddividendspaidoutofearningsaftertaxesFinancialRiskCashflowratiosrelatetheflowofcashavailablefromoperationstoeitherinterestexpense,totalfixedcharges,orthefacevalueofoutstandingdebtFinancialRiskFinancialRiskFinancialRiskExternalMarketLiquidityMarketLiquidityistheabilitytobuyorsellanassetquicklywithlittlepricechangefromapriortransactionassumingnonewinformationExternalmarketliquidityisasourceofrisktoinvestorsExternalMarketLiquidityDeterminantsofMarketLiquidityThedollarvalueofsharestradedThiscanbeestimatedfromthetotalmarketvalueofoutstandingsecuritiesItwillbeaffectedbythenumberofsecurityownersNumerousbuyersandsellersprovideliquidityExternalMarketLiquidityTradingturnover(percentageofoutstandingsharestradedduringaperiodoftime)ExternalMarketLiquidityAmeasureofmarketliquidityisthebid-askspreadAnalysisofGrowthPotentialCreditorsareinterestedinthefirm’sabilitytopayfutureobligationsValueofafirmdependsonitsfuturegrowthinearningsanddividendsDeterminantsofGrowthResourcesretainedandreinvestedintheentityRateofreturnearnedontheresourcesretained=RRxROEwhere:g=potentialgrowthrateRR=theretentionrateofearningsROE=thefirm’sreturnonequityDeterminantsofGrowthROEisafunctionofNetprofitmarginTotalassetturnoverFinancialleverage(totalassets/equity)ComparativeAnalysisofRatiosInternalliquidityCurrentratio,quickratio,andcashratioOperatingperformanceEfficiencyratiosandprofitabilityratiosFinancialriskGrowthanalysisAnalysisof

Non-U.S.FinancialStatementsStatementformatswillbedifferentDifferencesinaccountingprinciplesRatioanalysiswillreflectlocalaccountingpracticesTheQualityofFinancialStatementsReflectrealityratherthanuseaccountingtricksorone-timeadjustmentstomakethingslookbetterthantheyareTheQualityofFinancialStatementsHigh-qualitybalancesheetstypicallyhaveConservativeuseofdebtAssetswithmarketvaluegreaterthanbookNoliabilitiesoffthebalancesheetTheQualityofFinancialStatementsHigh-qualityincomestatementsreflectrepeatableearningsGainsfromnonrecurringitemsshouldbeignoredwhenexaminingearningsHigh-qualityearningsresultfromtheuseofconservativeaccountingprinciplesthatdonotoverstaterevenuesorunderstatecostsTheValueof

FinancialStatementAnalysisFinancialstatements,bytheirnature,arebackward-lookingAnefficientmarketwillhavealreadyincorporatedthesepastresultsintosecurityprices,sowhyanalyzethestatements?Analysisprovidesknowledgeofafirm’soperatingandfinancialstructureThisaidsinestimatingfuturereturnsSpecificUsesofFinancialRatios1.Stockvaluation2.Identificationofcorporatevariablesaffectingastock’ssystematicrisk(beta)3.Assigningcreditqualityratingsonbonds4.Predictinginsolvency(bankruptcy)offirmsStockValuationModelsValuationmodelsattempttoderiveavaluebasedupononeofseveralcashfloworrelativevaluationmodelsAllvaluationmodelsareinfluencedby:Expectedgrowthrateofearnings,cashflows,ordividendsRequiredrateofreturnonthestockFinancialratioscanhelpinestimatingthesecriticalinputsStockValuationModelsFinancialRatios1.Averagedebt/equity2.Averageinterestcoverage3.Averagedividendpayout4.Averagereturnonequity5.Averageretentionrate6.Averagemarketpricetobookvalue7.Averagemarketpricetocashflow8.AveragemarketpricetosalesStockValuationModelsVariabilityMeasures1.Coefficientofvariationofoperatingearnings2.Coefficientofvariationofsales3.Coefficientofvariationofnetincome4.Systematicrisk(beta)NonratioVariables1.AveragegrowthrateofearningsFinancialRatiosandSystematicRiskFinancialRatios1.Dividendpayout2.Totaldebt/totalassets3.Cashflow/totaldebt4.Interestcoverage5.Workingcapital/totalassets6.CurrentRatioFinancialRatiosandSystematicRiskVariabilityMeasures1.Varianceofoperatingearnings2.Coefficientofvariationofoperatingearnings3.Coefficientofvariationofoperatingprofitmargins4.Operatingearningsbeta(companyearningsrelatedt