Financial Analysis
25
1 Financial & Accounting Analysis Financial Statement Financial Analysis Accounting Analysis Recasting Financial Statement: firms could adopt different classifications Unbiased Accounting
-
Upload
ellena98 -
Category
Economy & Finance
-
view
4.553 -
download
1
description
Transcript of Financial Analysis
1
Financial & Accounting Analysis
Financial Statement
Financial AnalysisAccounting Analysis
Recasting Financial Statement: firms could adopt different classifications
Unbiased Accounting
2
Financial Analysis
A valid instrument which the analyst uses to understand what has happened and what will happen to the business
Ratio Analysis
Cash Flow Analysis
It is useful for making forecasts of the firm’s future performance
It is useful to examine the firm’s liquidity
3
Financial Analysis
Financial tools
Time-series comparison
Ratio AnalysisCash Flow Analysis
Cross-sectional comparison
Two main comparisons
Purpose:
Understand Better the Business
4
Ratio Analysis
The value of a firm is based upon its profitability and growth
Product market strategy
Financial market strategy
Operating Management
Investment Management
Financing strategy
Dividend policies
5
Business Activities
Net Financial
Assets(NFA)
Financial Liabilities (Net Debt)
The firm Capital marketsShareholders
Equity
Financing Activities
Net Operating
Assets(NOA)
Operating Activities
Recasting Balance Sheet
ASSETS CAPITAL
Operating Liabilities
6
Net Operating
Assets(NOA)
Non-CurrentNet Assets
Net WorkingCapital
Non currentIntangible/Tangible
Assets
- Other non-currentliabilities
Inventories
Trade Receivables
Other current assets
Recasting Balance Sheet
Business Activities
- Trade Payables
- Current Liabilities
7
Business ActivitiesRecasting Income Statement
Operating Income
Financial Income
Income taxes
Earningto Shareholders
Gross Profit
Profit After Interests before
taxes
Profit after taxes
Net Profit
Ebitda/Ebit
SalesCost of sales
Other operating expenses
Amortisation,..
Interest income
Interest expense
Tax expense
Dividend, etc..
NOPAT
9
Business ActivitiesMeasuring Profitability
ROE
NET PROFIT
SHAREHOLDERS’ EQUITY
RETURN ON EQUITY
INCOME STATEMENT
BALANCE SHEET
?
10
Business Activities
The Main Meanings of ROE
Firm’s Performance
Managers’Behaviour
Abnormal Return
Good indicator, even if not sufficient, to explain the general
profitability of the business
Are Managers goodto employ financial
capitals in profitable investments??
Does the business generates profit
more than itscost of equity
capital ??
11
Business ActivitiesDecomposing Profitability
ROE ROA X Financial Leverage
Assets
Shareholders’ equity
Net Profit
Assets
12
Business ActivitiesDecomposing Profitability
ROA ROS X Asset Turnover
Sales
Assets
Net Profit
Sales
13
Business ActivitiesDecomposing Profitability
ROE Operating ROA + ( Spread x Net Financial Leverage)
(Operating ROA – Net Interest after tax/Net Debt)
NOPAT
Net assets
Net debt
Equity
14
Ratio Analysis
The value of a firm is based upon its profitability and growth
Product market strategy
Financial market strategy
Operating Management Investment Management Financing strategy Dividend policies
15
Business ActivitiesOperating Management
Product market strategy
Operating Management
ROSProfitability of operating management
Gross Profit Margin
NOPAT Margin
EBITDA Margin
Sales – Cost of sales
Sales
NOPAT
Sales
EBITDA
Sales
16
Business ActivitiesInvestment Management
Product market strategy
Investment Management
Asset turnover
Working Capital
Management
Non-current assets
Management
17
Business Activities
Working Capital
Management
Inventories Management
Receivables Management
Payables Management
Investment Management
(Operating current assets – Operating current liabilties)
18
Business Activities
Inventories Management
Inventories Turnover
Days’Inventories
Cost of sales
Inventories
Inventories
Average cost of sales x day
It is expected to have a high rotation of
inventories
Investment Management
19
Business Activities
Tradereceivables management
Trade Receivables Turnover
Days’Receivables
Sales
Trade receivables
Trade Receivables
Average sales x day
It is better to give less credit to your clients
Investment Management
20
Business Activities
Tradepayables
management
Trade Payables Turnover
Days’Payables
Purchases
Trade payables
Trade payables
Average cost of materials x day
It is better to receivemore credit fromyour suppliers
Investment Management
21
Business Activities
Net non-current assets
Management
It is defined as = (Total non current assets – Non-interest-bearing non-current liabilities)
Net non-currentassets turnover
PP&E turnover
SalesNet non-current
assets
SalesNet property, plant &
equipment
Investment Management
22
Business ActivitiesProduct Management
How well does the company manage its inventories? If inventories ratios are changing, what is the underlying
Management systems?Are new product being planned?
How well does the company manage its credit policies? Is the company artificially increasing sales by loading
distribution channels?Is the company take advantage of trade credit? Is it relying too
much on trade credit?
Are the company’s investment in plant and equipment consistent with its competitive strategy?
Answer these questions??
23
Business ActivitiesFinancial Management
Current liabilities& short-term liquidity
Financial market strategy
Financial Management
Financial Leverage
Debt & long-term solvency
24
Business Activities
Current liabilities& short-term liquidity
Current ratio
Quick ratio
Cash ratio
Operating cash flow ratio
Current assets
Current liabilities
Current assets - Inventory
Current liabilities
Cash & cash equivalents
Current liabilities
Cash Flow from operations
Current liabilities
Financial Management
25
Business Activities
Debt & long-term solvency
Liabilities to equity ratio
Total liabilities
Equity
(Current debt + Non-current debt)
Equity
Debt to equity ratio
Net Debt to equity ratio
Net Debt to capital ratio
(Net Financial Position )
Equity
(C.D. + Non-C.D.)
(C.D. + Non-C.D. + Equity)
Financial Management
Interest coverage ratio
26
Business ActivitiesSustainable Growth
Sustainable growth rate
ROE - ( 1- Dividend Payout ratio)
Cash dividends paid
Net ProfitDividend Policy
