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Financial Statement Analysis

Financial Statement Analysis. Acct 592 July 8, 2003. Nike Case Continued…. Statement of Cash Flows Grid. ► Sign (+ or -) indicated in grid is the adjustment to net income for the year in the operating section on the SCFs. Chapter 3. Introduction to Profitability and Risk Analysis.

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Financial Statement Analysis

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  1. Financial Statement Analysis Acct 592 July 8, 2003

  2. Nike Case Continued…

  3. Statement of Cash Flows Grid ► Sign (+ or -) indicated in grid is the adjustment to net income for the year in the operating section on the SCFs

  4. Chapter 3 Introduction to Profitability and Risk Analysis

  5. Using ROA and its components • Return on Assets ROA = • Profit Margin πM = • Asset Turnover ATO =

  6. MultiStep Income Statement Net Sales - COGS Gross Profit - Operating Expenses (SG&A) Operating Income +/- Other Revenues and Expenses Income before Taxes - Provision for Taxes Net Income (Income from Cont. Operations)

  7. MultiStep IS – Cont. ….. - Provision for taxes Income from Continuing Operations +/- Discontinued operations (net of tax) +/- Extraordinary items (net of tax) +/- Changes in acct. principles (net of tax) Net Income

  8. Liquidity • Accounts receivable turnover • Inventory turnover • Accounts payable turnover • Current ratio • Quick ratio

  9. Solvency • Long-term Debt Ratio • Debt to Equity Ratio • Liabilities to Assets Ratio • Interest Coverage Ratio (accrual and cash flow) • Operating Cash Flows to Liabilities

  10. Profitability & the B/S • ROA → • ROC • ROPS • ROCE • Note that this is not an equality but rather an allocation to each source of capital

  11. Now, decompose ROCE Common Capital ROCE = ROA x Earnings x Structure Leverage Leverage

  12. EPS, Appendix 3.1 • Basic vs. Diluted (Complex) EPS

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