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Lecture 2: Financial Statement Analysis and Long-Term Planning (Ratio…
Lecture 2: Financial Statement Analysis and Long-Term Planning
Net Working Capital (NWC)
NWC = CA-CL
Important to ensure NWC is positive
Positive NWC = enough cash to pay off liabilities arising
Cash Flow (CF)
Most important item to take from FS
CF is not NWC
CF from asset = CF to creditors and equity investor
Total CF comes from operating, investing and finance activity
Ratio Analaysis
Financial Leverage
Turnover
Liquidity
Profitability
Market Value
ROE
Dupont Identity Proof
ROE = (Net Income/Sales) X (Sales/Asset) X (Asset/Total Equity)
Using FS information (Choosing Benchmark
Time Trend Analysis
Look at same ratio over number of yrs.
Peer Group Analysis
Compare Company ratio with the competitors.
Issues with FS Analaysis
Inappropriate peers
Some company operate in different industry
Different Accounting Standard
Aspirant Analysis
compare your firm with best in industry
Source of Information
Financial Website
Company Accounts