FSA Chapter 6

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FSA Chapter 6

  1. 1. Financial Statement Analysis Chapter 6 Financial Statement Analysis Bonsón, E., Cortijo, V., Flores, F.   Content on this file is licensed under a Creative Commons Attribution Non-Commercial No Derivatives Works 3.0
  2. 2. Index <ul><li>Introduction </li></ul><ul><li>The role of the analyst </li></ul><ul><li>The process of analysis </li></ul><ul><li>Documents presenting the analysis </li></ul><ul><li>The techniques of analysis </li></ul><ul><li>Structural analysis </li></ul>
  3. 3. Index <ul><li>Introduction </li></ul><ul><li>The role of the analyst </li></ul><ul><li>The process of analysis </li></ul><ul><li>Documents presenting the analysis </li></ul><ul><li>The techniques of analysis </li></ul><ul><li>Structural analysis </li></ul>
  4. 4. Introduction <ul><li>Financial statement analysis is a process </li></ul><ul><li>It helps to understand the situation and activities of the company. </li></ul><ul><li>It uses the financial statements and other complementary information, evaluating the liquidity , solvency and profitability of the company, and it also considers the investor´s perspective </li></ul><ul><li>It implies transformations , graphic representations, ratios and others calculations, that forms an opinion </li></ul><ul><li>This opinion usually takes the form of an analysis report , reducing the uncertainty of the interested parties, </li></ul>
  5. 5. Introduction <ul><li>The analysis of the accounts is structured in three principal areas: </li></ul><ul><li>Liquidity : to determine the capacity of the company to meet its short-term debts. </li></ul><ul><li>Solvency : to check whether the company can meet its debts in the long-term. </li></ul><ul><li>Profitability : to measure both the yield from the assets of the company and from the financing provided by the shareholders. </li></ul>
  6. 6. Index <ul><li>Introduction </li></ul><ul><li>The role of the analyst </li></ul><ul><li>The process of analysis </li></ul><ul><li>Documents presenting the analysis </li></ul><ul><li>The techniques of analysis </li></ul><ul><li>Structural analysis </li></ul>
  7. 7. The role of the analyst <ul><li>The analyst is the specialized professional who </li></ul><ul><li>faces the complexity of the company information </li></ul><ul><li>takes into account the different interest of the information users </li></ul><ul><li>forecasts </li></ul><ul><li>Permits that good decisions can be made by non specialists </li></ul><ul><li>Definitively, is who offers a funded opinion </li></ul>
  8. 8. Index <ul><li>Introduction </li></ul><ul><li>The role of the analyst </li></ul><ul><li>The process of analysis </li></ul><ul><li>Documents presenting the analysis </li></ul><ul><li>The techniques of analysis </li></ul><ul><li>Structural analysis </li></ul>
  9. 9. The process of analysis <ul><li>Object identification </li></ul><ul><li>Interest identification </li></ul><ul><li>Data collection </li></ul><ul><li>Evaluation of reliability and validity of data </li></ul><ul><li>Data cleaning </li></ul><ul><li>Company and industry presentation report </li></ul><ul><li>Partial analysis (liquidity, solvency…) </li></ul><ul><li>Complementary searching </li></ul><ul><li>Conclusion: analysis report </li></ul>
  10. 10. Index <ul><li>Introduction </li></ul><ul><li>The role of the analyst </li></ul><ul><li>The process of analysis </li></ul><ul><li>Documents presenting the analysis </li></ul><ul><li>The techniques of analysis </li></ul><ul><li>Structural analysis </li></ul>
  11. 11. Documents presenting the analysis <ul><li>Company overview : describe the company and its context, the principal products and services offered, the main inputs and resources involved, interest groups, and the legal environment </li></ul><ul><li>Intermediate documentation : additional information, that has been considered relevant in the forming of the opinion. </li></ul><ul><li>These documents, as well as the report of presentation, should not be supplied finally to the client if this has not been previously agreed. </li></ul>
  12. 12. Index <ul><li>Introduction </li></ul><ul><li>The role of the analyst </li></ul><ul><li>The process of analysis </li></ul><ul><li>Documents presenting the analysis </li></ul><ul><li>The techniques of analysis </li></ul><ul><li>Structural analysis </li></ul>
  13. 13. The techniques of analysis <ul><li>Different approaches: </li></ul><ul><li>Temporal series </li></ul><ul><li>vs Pool analysis </li></ul><ul><li>Cross -sectional analysis </li></ul><ul><li>Detection of syndromes- patterns </li></ul>
  14. 14. The techniques of analysis <ul><li>Different approaches: </li></ul><ul><li>Structural analysis </li></ul><ul><ul><li>Horizontal and vertical analysis </li></ul></ul><ul><li>vs </li></ul><ul><li>Ratio analysis </li></ul><ul><ul><li>Liquidity, solvency, profitability and investor´s view </li></ul></ul><ul><li>Limitations of both approaches </li></ul><ul><li>Relative magnitudes, as ratios and percentages, are not always directly comparable and they sometimes presents a low predictive capacity </li></ul>
  15. 15. Index <ul><li>Introduction </li></ul><ul><li>The role of the analyst </li></ul><ul><li>The process of analysis </li></ul><ul><li>Documents presenting the analysis </li></ul><ul><li>The techniques of analysis </li></ul><ul><li>Structural analysis </li></ul>
  16. 16. Structural analysis <ul><li>It can be defined as the study of a company´s accounts in two or more consecutive accounting periods, considering </li></ul><ul><ul><li>the variations presented by each significant item from one accounting period to another (horizontal percentages), </li></ul></ul><ul><ul><li>and the relative importance of each item with respect of the total balance sheet (vertical percentages). </li></ul></ul>
  17. 17. Example of structural analysis

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