chapter 19 investments financial statement analysis slides by richard d. johnson copyright © 2008...
TRANSCRIPT
CHAPTER 19CHAPTER 19
InvestmentsInvestments
Financial Statement Financial Statement AnalysisAnalysis
Slides bySlides by
Richard D. JohnsonRichard D. Johnson
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reservedCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/IrwinMcGraw-Hill/Irwin
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Purpose Tools Used
– Statement analysis
– Ratio analysis
Limitations
Overview
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Balance Sheet– Common Sized
– Trend or Indexed
Income Statement– Common Sized
– Trend or Indexed
Statement of Cash Flows
Financial Statements
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Table 19.1 Consolidated Statement of Income for Hewlett-Packard, 2005
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Table 19.2 Consolidated Balance Sheet for Hewlett-Packard, 2005
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Table 19.3 Statement of Cash Flows for Hewlett-Packard, 2005
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Profitability Measures
ROE: measures the profitability for contributors of equity capital
ROA: measures the profitability for all contributors of capital
Leverage has a significant effect on profitability measures
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Table 19.4 Nodett’s Profitability over the Business Cycle
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Table 19.5 Impact of Financial Leverage on ROE
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ROE = Net Profit
Pretax Profit
x
Pretax Profit
EBITx
EBIT
Sales
Sales
Assetsx x
Assets
Equity
(1) x (2) x (3) x (4) x (5)
x Margin x Turnover x Leverage Tax
Burden
Interest
Burden
Decomposition of ROE
x
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Table 19.6 Ratio Decomposition Analysis for Nodett and Somdett
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Table 19.7 Differences between Profit Margin and Asset Turnover across Industries
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Table 19.8 Growth Industries Financial Statements, 2004 – 2007 ($ thousands)
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Table 19.9 Effect of ROE and Plowback Ratio on P/B
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Table 19.10 Summary of Key Financial Ratios
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Table 19.10 Summary of Key Financial Ratios
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Table 19.10 Summary of Key Financial Ratios
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Table 19.10 Summary of Key Financial Ratios
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Table 19.10 Summary of Key Financial Ratios
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Figure 19.1 Financial Ratios for Hewlett-Packard
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Table 19.11 Financial Ratios for Major Industry Groups
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Economic Value Added
Difference between return on assets (ROA) and the opportunity cost of capital (k)
EVA = above difference time the invested capital
EVA can be positive or negative for firms that have positive earnings
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Table 19.12 Economic Value Added, Year Ending January 2006
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Table 19.13 Key Financial Ratios of Growth Industries, Inc
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Table 19.14 Grow Industries Statement of Cash Flows ($ thousands)
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Accounting Differences– Inventory Valuation
– Depreciation
InflationInternational Accounting Conventions
Comparability Problems
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International Accounting Differences
Reserves – many other countries allow more flexibility in use of reserves.
Depreciation – US allows separate tax and reporting presentations.
Intangibles – treatment varies widely.
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Figure 19.2 Comparative Accounting Rules
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Figure 19.3 Adjusted versus Reported Price-Earnings Ratios