Please enable JavaScript.
Coggle requires JavaScript to display documents.
Lecture 5: Financial Analysis (1) - Coggle Diagram
Lecture 5: Financial Analysis (1)
Financial analysis
Ratio analysis
measure
relative performance
how various line items in financial statements
relate
to each other
evaluate the
effectiveness of firm policies
Cash flow analysis
evaluate
liquidity
evaluate the management of operating, investing, and financing
Compare ratios
cross- sectional
: different firms
to some absolute
benchmark
time- series
: for a firm over several years
ROE
how well the managers are employing the
funds invested by the firm's shareholders to generate returns
in the
long run
, value of the
firm's equity
is determined by relationship between its
ROE
and its
cost of equity
Decomposing ROE:
Traditional Approach
ROE = ROA x Financial leverage(Equity Multiplier)
how profitability the firm employs its assets (
ROA
)
how big the firm's asset base is relative to shareholders' investment (
financial leverage
)