Financial Statements And Cash Flow Analysis

Financial Statements And Cash Flow Analysis

Chapter 2 Financial Statements And Cash Flow Analysis Professor XXXXX Course Name / Number 2007 Thomson South-Western Financial Statements Balance Sheet Income Statement

Managers and Analysts Use Financial Statements to Conduct: - Cash Flow Analysis - Performance (Ratio) Analysis 2 Four Key Financial Statements 1. Balance sheet 2. Income statement 3. Statement of retained earnings 4. Statement of cash flows 3

Global Petroleums Balance Sheet 4 Global Petroleums Income Statement 5 The Sources and Uses of Corporate Cash Sources

Decrease in any asset Increase in any liability Net profits after taxes Depreciation and other non-cash charges Sale of stock

Uses Increase in any asset Decrease in any liability Net loss Dividends paid Repurchase or retirement of stock 6 Global Petroleums Statement of Retained Earnings

7 Global Petroleums Statement Of Cash Flows 8 Accounting Profit vs. Cash Flow Accounting Profit based on accrual accountingfocus on past periods Finance emphasizes the importance of timin

You cant deposit net income, only cash Timing of cash flow matters. Accrual accounting may obscure timing. What are key measures of cash flow? 9 Key Measures of Cash Flow Cash Flow from Operations Total Cash Generated

Operating Cash Flow Cash Flow Before Repaying Lenders Free Cash Flow Cash Flow Firm Could Distribute to Investors 10

Types Of Financial Ratios Liquidity Ratios Current Ratio Quick Ratio Activity Ratios Turnover Ratios Collection/Payment Period Debt Ratios

Debt-to-Equity Ratio Times Interest Earned Ratio Profitability Ratios Gross Margin EPS Market Ratios P/E Ratio Market-to-Book Ratio 11

Liquidity Ratios current assets Current ratio = current liabilities current assets- inventory Quick ratio = current liabilities 12 Activity Ratios

cost of goods sold Inventory turnover = inventory sales Fixed asset turnover = net fixed assets 13 Profitability Ratios Gross profit margin =

Gross profits sales Earnings before interest & taxes Operating profit margin = sales Net income Net profit margin = sales 14

Profitability Ratios Earnings per share = Net income number of shares of common stock outstanding Net income Return on total assets = Total assets Net income Return on common equity = Stockholders' equity

15 Market Ratios Price/earnings (P/E) ratio = market price per share of common stock earnings per share Book value per share = common stock equity number of shares of common stock outstandin g Market/book (M/B) ratio Market value per share of common stock Book value per share of common stock

16 Financial Ratios For CrossSectional and Trend Analysis Cross-Sectional Analysis: Comparing Different Firms Financial Ratios at the Same Point in Time Compared to firms in same industry Benchmarking - compares a companys

ratio values to those of competitors that company wishes to emulate Trend Analysis - Performance Evaluation Over Time Developing trends can be seen using multiyear comparison 17 Financial Statements and

Financial Ratios Balance Sheet Income Statement Liquidity Ratios Activity Ratios Debt Ratios Profitability Ratios Market Ratios 18

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