Introduction to Financial statement analysis

1. McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights
reserved.
Financial
Statement
Analysis
K R Subramanyam
John J Wild

2. 1
CHAPTER
Overview of Financial
Statement Analysis

4. Financial Analysis
Profitability analysis — Evaluate return
on investments
Risk analysis ——— Evaluate riskiness
& creditworthiness
Analysis of —
cash flows
Evaluate source &
deployment of funds
Common tools
Common tools
Ratio
analysis
Cash
flow
analysis
Proces
perfor
s to evalu
mance u
ate finan
sing fina
cial posit
cial state
ion and
ments
Process to evaluate financial position and
performance using financial statements

5. Business Activities
Financing
Financing activities
• Owner (equity)
• Nonowner (liabilities)
Financing activities
• Owner (equity)
• Nonowner (liabilities)

6. Investing activities
• Buying resources
• Selling resources
Investing activities
• Buying resources
• Selling resources
Investing = Financing
Investing = Financing
Business Activities
Financing
Investing

7. Operating Activities
Revenues and expenses from providing
goods and services
Operating Activities
Revenues and expenses from providing
goods and services
Business Activities

8. Financial Statements Reflect Business Activities

9. Financial Statements

11. Balance Sheet
Total Investing = Total Financing
= Creditor Financing + Owner Financing

13. Income Statement
Revenues – Cost of goods sold = Gross Profit
Gross profit – Operating expenses = Operating Profit
Colgate’s Profitability
(in $billions)
$12.238 - $5.536 = $6.701 Gross Profit
$6.701 - $4.5411 = $2.160 Operating profit

16. Statement of Cash Flows

17. Additional Information
(Beyond Financial Statements)