Professional Documents
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Learning Objectives
1. EXPLAIN THE THREE PERSPECTIVES FROM WHICH FINANCIAL STATEMENTS CAN BE VIEWED. 2. DESCRIBE COMMON-SIZE FINANCIAL STATEMENTS, EXPLAIN WHY THEY ARE USED, AND BE ABLE TO PREPARE AND USE THEM TO ANALYZE THE HISTORICAL PERFORMANCE OF A FIRM.
Learning Objectives
3. DISCUSS HOW FINANCIAL RATIOS FACILITATE FINANCIAL ANALYSIS, AND BE ABLE TO COMPUTE AND USE THEM TO ANALYZE A FIRMS PERFORMANCE. 4. DESCRIBE THE DUPONT SYSTEM OF ANALYSIS AND BE ABLE TO USE IT TO EVALUATE A FIRMS PERFORMANCE AND IDENTIFY CORRECTIVE ACTIONS THAT MAY BE NECESSARY.
Learning Objectives
5. EXPLAIN WHAT BENCHMARKS ARE, DESCRIBE HOW THEY ARE PREPARED, AND DISCUSS WHY THEY ARE IMPORTANT IN FINANCIAL STATEMENT ANALYSIS. 6. IDENTIFY THE MAJOR LIMITATIONS IN USING FINANCIAL STATEMENT ANALYSIS.
(4.2)
(4.7)
Net Income (4.18) Total Assets Net Income Total Equity (4.19)
Shows that return-on-equity is driven by profitability, operating efficiency, and amount of leverage (debt)
Selecting a Benchmark
o BENCHMARK RELEVANCE
A ratio or ratio analysis is relevant only when compared to an appropriate benchmark
Trend Analysis comparison to the firms historical performance Peer Group Analysis comparison to a select group of firms in the same industry Industry Analysis comparison to the aggregate of firms in the same industry
Selecting a Benchmark
o BENCHMARK RELEVANCE
A ratio or a ratio analysis is relevant only when compared to the appropriate benchmark(s). Benchmarks may be used in combination.
Level and trend should be considered when evaluating a firms performance and its future.