Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Module Topic
1
11
12
13
14
15
Focus
Exam
ANALYSIS:
Understanding and Evaluating
Financial Statements:
MID-TERM #1
Helps us answer:
1. Where does the firm
operate?
2. Where is the firm currently?
VALUATION:
Building Forecasting Models and
Determining Value:
Helps us answer:
1. Where is the firm going?
2. What is the firm worth?
MID-TERM #2
FINAL EXAM
Valuation
The
Value Chain
Industry competition
Bargaining power of buyers
Bargaining power of suppliers
Threat of substitution
Threat of entry
SWOT Analysis
Balance Sheet
Income Statement
Statement of Stockholders Equity
Statement of Cash Flows
I. Balance Sheet
Apples Assets
Book Value & Market Value differ for many reasons including:
GAAP generally reports assets and liabilities at historical costs whereas the market attempts to estimate fair
market value.
GAAP excludes resources that cannot be reliably measured (such as talented management, employee morale,
recent innovations or successful marketing, etc)
GAAP does not consider market differences such as competitive conditions, expected changes, etc.
GAAP does not usually report expected future performance whereas the market attempts to predict future
performance.
Currently, US Companys, book value, is, on average, about 66% of their market value.
Contributed capital
Retained earnings (including Other Comprehensive
Income or OCI)
Treasury stock
Apples
Statement of Stockholders Equity
Apples
Statement
of Cash
Flows
I. Return on Equity
For Target:
For Target
Targets NOA
(Arriving at NOA Step 2)
Profit Margin
Asset Turnover
Appendix 3B:
DuPont Disaggregation Analysis
Operating Return
Non-Operating Return
DuPont Disaggregation
for Target
Notice the results are slightly different from the results of the
formulas presented earlier in the chapter.
With the exception of ROE.
Supply of Credit
There are many
sources of credit to
meet companies
demand which
include:
Industry competition
Buyer power
A factor if suppliers have strong bargaining power and can demand higher prices
and early payments
Threat of substitution
Can be a credit risk if customers have the ability to have stronger price concessions
Supplier power
Involves the companys competitive position and the effect on its financial results
Occurs when a company has limitations on products such as to inhibit price increases
or pass costs to customers
Threat of entry
Tax
expense
Interest expense
plus other
non-operating
expenses
Statutory
tax rate
Coverage Analysis
Times Interest Earned Ratio
Times interest
=
earned
Coverage Analysis
EBITDA Coverage Ratio
EBITDA coverage =
Earnings before tax + Interest expense, net + Depreciation + Amortization
Interest expense
Coverage Analysis
Cash from Operations to Total Debt
Measures a companys ability to generate additional
cash to cover debt payments as they come due.
Cash from
operations to
total debt
Coverage Analysis
Free Operating Cash Flow to Total Debt
Considers excess operating cash flow after cash is
spent on capital expenditures
Free operating
cash flow to
total debt
Current Ratio
Current assets are those assets that a company
expects to convert into cash within the next
operating cycle, which is typically a year.
Current liabilities are those liabilities that come due
within the next year.
An excess of current assets over current liabilities
(Current assets Current liabilities), is known as net
working capital or simply working capital.
Quick Ratio
Solvency Ratios
Solvency refers to a companys ability to meet
its debt obligations.
Solvency is crucial since an insolvent company
is a failed company.
Two common solvency ratios:
limits
Collateral
Repayment terms
Covenants