Financial

Statement
Analysis

K.R. Subramanyam

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Balance Sheets
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Balance Sheet

Total Investing = Total Financing

= Creditor Financing + Owner Financing

Colgate Financing
(in $billions)
$12.724 = $10.183 + $2.541
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Income Statement
Revenues – Cost of goods sold = Gross Profit
Gross profit – Operating expenses = Operating Profit

Colgate’s Profitability
(in $billions)

$16.734 - $7.144 = $9.590 Gross Profit

$9.590 - $5.749= $3.841 Operating profit
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Income Statement
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Statement of Cash Flow

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Retained Earnings, Comprehensive Income,

and Changes in Capital Accounts
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Retained Earnings, Comprehensive Income,

and Changes in Capital Accounts
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In which of the previous financial

statements would an analyst find the
investing, financing and operating
activities reflected?
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Comparative Income Statements

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Common Size Balance Sheets

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Common Size Income Statements

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Analysis Preview
Debt (Bond) Valuation

Bt is the value of the bond at time t

It +n is the interest payment in period t+n
F is the principal payment (usually the debt’s face value)
r is the investor’s required interest rate (yield to maturity)
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Analysis Preview
Equity Valuation

Vt is the value of an equity security at time t

Dt +n is the dividend in period t+n
k is the cost of capital
E refers to expected dividends
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Analysis Preview
Equity Valuation - Free Cash Flow to Equity
Model

FCFt+n is the free cash flow in the period t + n [often

defined as cash flow from operations less capital
expenditures]
k is the cost of capital
E refers to an expectation
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Analysis Preview
Equity Valuation - Residual Income Model

BV is the book value at the end of period t

t

Rit+n is the residual income in period t + n [defined as

net income, NI, minus a charge on beginning
book value, BV, or RIt = NIt - (k x BVt-1)]
k is the cost of capital
E refers to an expectation