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Financial Statement Analysis

K.R. Subramanyam

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Balance Sheets

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Balance Sheet

Total Investing = Total Financing = Creditor Financing + Owner Financing

Income Statement

Revenues – Cost of goods sold = Gross Profit Gross profit – Operating expenses = Operating Profit

Colgate Financing (in $billions) $12.724 = $10.183 + $2.541

Colgate’s Profitability (in $billions) $16.734 - $7.144 = $9.590 Gross Profit $9.590 - $5.749= $3.841 Operating profit

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Income Statement

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Statement of Cash Flow

Retained Earnings, Comprehensive Income, and Changes in Capital Accounts

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Retained Earnings, Comprehensive Income, and Changes in Capital Accounts

In which of the previous financial statements would an analyst find the investing, financing and operating activities reflected?

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Comparative Income Statements

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Common Size Balance Sheets

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Common Size Income Statements

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Analysis Preview

Debt (Bond) Valuation

Analysis Preview

Equity Valuation

Bt is the value of the bond at time t It +n is the interest payment in period t+n F is the principal payment (usually the debt’s face value) r is the investor’s required interest rate (yield to maturity)

Vt is the value of an equity security at time t Dt +n is the dividend in period t+n k is the cost of capital E refers to expected dividends

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Analysis Preview

Equity Valuation - Free Cash Flow to Equity Model

Analysis Preview

Equity Valuation - Residual Income Model

FCFt+n is the free cash flow in the period t + n [often defined as cash flow from operations less capital expenditures] k is the cost of capital E refers to an expectation

BV is the book value at the end of period t Rit+n is the residual income in period t...