1 / 10

ANALYSIS, USING AND UNDERSTANDING FINANCIAL STATEMENTS OF THE FIRM 3/6

Learn how to analyze and understand financial statements of a firm to make informed decisions. Includes lectures, individual homework, and exams.

marker
Download Presentation

ANALYSIS, USING AND UNDERSTANDING FINANCIAL STATEMENTS OF THE FIRM 3/6

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. ANALYSIS, USING AND UNDERSTANDING FINANCIAL STATEMENTS OF THE FIRM3/6

  2. ANALYSIS, USING AND UNDERSTANDING FINANCIAL STATEMENTS OF THE FIRM • E-mail: GRZEGORZ.MICHALSKI@UE.WROC.PL • www: HTTP://MICHALSKIG.UE.WROC.PL/ • Mobile: +48503452860 • 5 lectures + 1 exam (individual homework sent via email + test) • Next lecture: 13th November. • Michalski G., Prediction cooperator future condition using financial statements (In Polish: Ocenakontrahenta na podstawie sprawozdań finansowych), ODDK, Gdańsk, 2008. • D.R.Harrington, B.D. Wilson, Corporate Financial Analysis, Irwin.

  3. Basic financial aim of the firm • Firm value maximization: Where: FCFn = free cash flows, CC = cost of capital financing the firm (WACC) n = period in which FCFn will be generated

  4. FCF – how to calculate? CC – cost of capital (cost of money), how to value?

  5. Wilcox-Gambler Model • Wilcox's Gambler's-Ruin Formula: This model can be used to estimate the liquidation value of a company. It's likely to be significantly less than the book value because of the "fire sale" nature. Most current assets are valued at 70% of their balance sheet values; fixed and other assets at 50% of book value. Real estate should generally be valued separately. Cash plus marketable securities at market value + Inventory, accounts receivable, prepaid expenses, at 70% of book value + Fixed and other assets at 50% of book value - Current liabilities - Long-term liabilities = Liquidation Value

  6. Example:Firm has assets with the following book values: • Cash on hand = $26,000 Accounts receivable = $80,000 Inventory = $20,000 Prepaid insurance = $5,000 Equipment, office furniture, and trucks = $150,000 Accounts payable and accrued expenses = $40,000 Long-term liabilites = $60,000 • Here's the computation: • Cash $26,000 • Accounts receivable $80,000 x .7 • Inventory $20,000 x .7 • Prepaid insurance $5,000 x .7 • Equipment, etc. $150,000 X .5 • Accounts payable and accruals -40,000 • Long-term liabilities -60,000 • Liquidation Value = ?

More Related