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Financial Analysis
- 1. Gulf Analytica (www.gulfanalytica.com) © 2016 Presentation for Emirates Foundation April 27, 2016 Financial Analysis David Gibson-Moore President Gulf Analytica
- 2. Gulf Analytica (www.gulfanalytica.com) © 2016 Outline Basic concepts - “what are we talking about” Financial statements - “what is this business” Financial ratio analysis - “what’s happening” Sources of finance - “how to make the business grow” Investment decisions - “how to make money not lose money”
- 3. Gulf Analytica (www.gulfanalytica.com) © 2016 The Entrepreneur
- 4. Gulf Analytica (www.gulfanalytica.com) © 2016 The Investor and/or Banker
- 5. Gulf Analytica (www.gulfanalytica.com) © 2016 Financial Management Cycle Planning and budgeting Resource allocation Operating and monitoring Evaluating and reporting
- 6. Gulf Analytica (www.gulfanalytica.com) © 2016 Just Six Terms … plus One! •Assets •Liabilities •Capital (Equity) Balance Sheet •Sales •Expenses •Income Income Statement We will look at these six plus …. the cash flow
- 7. Gulf Analytica (www.gulfanalytica.com) © 2016 Balance Sheet The Balance Sheet is built on the fundamental accounting equation: Assets = Liabilities + Capital (Owner’s Equity) Assets - Liabilities Capital(Equity ) ALWAYS!
- 8. Gulf Analytica (www.gulfanalytica.com) © 2016 Income Statement The Income Statement is built on the fundamental accounting equation: Net income (profit) = Revenues - Expenses Revenues - Expenses Net income ALWAYS!
- 9. Gulf Analytica (www.gulfanalytica.com) © 2016 Income Statement (multi-step) Total revenues Cost of sales Gross income Other expenses Net income (A) Total revenues from goods sold (B) Total direct costs of the goods sold (C) Gross income = (A) – (B) (D) Other indirect expenses Net income = (C) – (D)
- 10. Gulf Analytica (www.gulfanalytica.com) © 2016 Bank Income Statement What does a bank income statement look like?
- 11. Gulf Analytica (www.gulfanalytica.com) © 2016 Activity during the Year Beginning balance sheet + or - Profit or loss from income statement + or - Equity contribution or distribution = Ending balance sheet
- 12. Gulf Analytica (www.gulfanalytica.com) © 2016 Cash Flow Statement High Wire Elecronics Inc Statement of Cash Flows for year ended December 31, 2015
- 13. Gulf Analytica (www.gulfanalytica.com) © 2016 Ratio Analysis The analysis of a company’s financial performance can be undertaken by calculating the relationship between two accounting elements
- 14. Gulf Analytica (www.gulfanalytica.com) © 2016 Liquidity Ratios Liquidity Ratios: tell whether a business will be able to meet its short-term obligations as they come due
- 15. Gulf Analytica (www.gulfanalytica.com) © 2016 Leverage Ratios Leverage Ratios: measure the extent of exposure to external debt
- 16. Gulf Analytica (www.gulfanalytica.com) © 2016 Profitability Ratios Profitability Ratios: show how efficiently a company is being managed
- 17. Gulf Analytica (www.gulfanalytica.com) © 2016 Conclusion Basic concepts - “what are we talking about” Financial statements - “what is this business” Financial ratio analysis - “what’s happening” Sources of finance - “how to make the business grow” Investment decisions - “how to make money not lose money”
Editor's Notes
- Multi-step statement separates expense accounts into more relevant and usable accounts based on their function. Cost of goods sold, operating and non-operating expenses are separated out and used to calculate gross profit, operating income, and net income.