AnalysisofFinancialStatements投資分析跟投課件

1、Lecture Presentation Software to accompanyInvestment Analysis and Portfolio ManagementSeventh Editionby Frank K. Reilly & Keith C. BrownChapter 10第1頁，共115頁。Chapter 10Analysis of Financial StatementsQuestions to be answered:What are the major financial statements provided by firms and what specific i

2、nformation does each of them contain?Why do we use financial ratios to examine the performance of a firm and why is it important to examine performance relative to the economy and a firms industry?第2頁，共115頁。Chapter 10Analysis of Financial StatementsWhat are the major categories for financial ratios

3、and what questions are answered by the ratios in these categories?What specific ratios help determine a firms internal liquidity, operating performance, risk profile, growth potential, and external liquidity?How can the DuPont analysis help evaluate a firms return on equity over time?第3頁，共115頁。Chapt

4、er 10Analysis of Financial StatementsWhat are some of the major differences between U.S. and non-U.S. financial statements and how do these differences affect the financial ratios?What is a “quality” balance sheet or income statement?Why is financial statement analysis done if markets are efficient

5、and forward-looking?第4頁，共115頁。Chapter 10Analysis of Financial StatementsWhat major financial ratios help analysts in the following areas: stock valuation, estimating and evaluating systematic risk, predicting the credit ratings on bonds, and predicting bankruptcy?第5頁，共115頁。Major Financial Statements

6、Corporate shareholder annual and quarterly reports must include第6頁，共115頁。Major Financial StatementsCorporate shareholder annual and quarterly reports must includeBalance sheet第7頁，共115頁。Major Financial StatementsCorporate shareholder annual and quarterly reports must includeBalance sheetIncome statem

7、ent第8頁，共115頁。Major Financial StatementsCorporate shareholder annual and quarterly reports must includeBalance sheetIncome statementStatement of cash flows第9頁，共115頁。Major Financial StatementsCorporate shareholder annual and quarterly reports must includeBalance sheetIncome statementStatement of cash

8、flowsReports filed with Securities and Exchange Commission (SEC)第10頁，共115頁。Major Financial StatementsCorporate shareholder annual and quarterly reports must includeBalance sheetIncome statementStatement of cash flowsReports filed with Securities and Exchange Commission (SEC)10-K and 10-Q第11頁，共115頁。G

9、enerally Accepted Accounting Principles (GAAP)Formulated by the Financial Accounting Standards Board (FASB)Provides some choices of accounting principlesFinancial statements footnotes must disclose which accounting principles are used by the firm第12頁，共115頁。Balance SheetShows resources (assets) of th

10、e firm and how it has financed these resourcesIndicates current and fixed assets available at a point in timeFinancing is indicated by its mixture of current liabilities, long-term liabilities, and owners equity第13頁，共115頁。Income StatementContains information on the profitability of the firm during s

11、ome period of timeIndicates the flow of sales, expenses, and earnings during the time period第14頁，共115頁。Statement of Cash FlowsIntegrates the information on the balance sheet and income statementShows the effects on the firms cash flow of income flows and changes in various items on the balance sheet

12、第15頁，共115頁。Statement of Cash FlowsIt has three sections:Cash Flow from Operating Activities the sources and uses of cash that arise from the normal operations of a firmCash Flow from Investing activities change in gross plant and equipment plus the change in the investment accountCash Flow from Fina

13、ncing activities financing sources minus financing uses第16頁，共115頁。Alternative Measures of Cash FlowCash flow from operationsTraditional cash flow equals net income plus depreciation expense and deferred taxesAlso adjust for changes in operating assets and liabilities that use or provide cashFree cas

14、h flow recognizes that some investing and financing activities are critical to ongoing success of the firmCapital expenditures and dividends第17頁，共115頁。Purpose of Financial Statement AnalysisEvaluate management performance in three areas:ProfitabilityEfficiencyRisk第18頁，共115頁。Analysis of Financial Rat

15、iosRatios are more informative that raw numbersRatios provide meaningful relationships between individual values in the financial statements第19頁，共115頁。Importance of Relative Financial RatiosCompare to other entitiesExamine a firms performance relative to:The aggregate economyIts industry or industri

16、esIts major competitors within the industryIts past performance (time-series analysis)第20頁，共115頁。Comparing to The Aggregate EconomyMost firms are influenced by economic expansions and contractions in the business cycleAnalysis helps you estimate the future performance of the firm during subsequent b

17、usiness cycles第21頁，共115頁。Comparing to A Firms IndustryMost popular comparisonIndustries affect the firms within them differently, but the relationship is always significantThe industry effect is strongest for industries with homogenous productsExamine the industrys performance relative to aggregate

18、economic activity第22頁，共115頁。Comparing to A Firms Major CompetitorsIndustry averages may not be representativeSelect a subset of competitors to compare to using cross-sectional analysis, orConstruct a composite industry average from industries the firm operates in第23頁，共115頁。Comparing to A Firms Histo

19、rical PerformanceDetermine whether it is progressing or decliningHelpful for estimating future performanceConsider trends as well as averages over time第24頁，共115頁。Five Categories of Financial Ratios1. Internal liquidity (solvency)2. Operating performancea. Operating efficiencyb. Operating profitabili

20、ty3. Risk analysisa. Business riskb. Financial risk第25頁，共115頁。Six Categories of Financial Ratios4. Growth analysis第26頁，共115頁。Six Categories of Financial Ratios5. External liquidity (marketability)第27頁，共115頁。Common Size StatementsNormalize balance sheets and income statement items to allow easier com

21、parison of different size firmsA common size balance sheet expresses accounts as a percentage of total assetsA common size income statement expresses all items as a percentage of sales第28頁，共115頁。Evaluating Internal LiquidityInternal liquidity (solvency) ratios indicate the ability to meet future sho

22、rt-term financial obligationsCurrent Ratio examines current assets and current liabilities第29頁，共115頁。Evaluating Internal LiquidityQuick Ratio adjusts current assets by removing less liquid assets第30頁，共115頁。Evaluating Internal LiquidityCash Ratio is the most conservative liquidity ratio第31頁，共115頁。Eva

23、luating Internal LiquidityReceivables turnover examines the quality of accounts receivableReceivables turnover can be converted into an average collection period第32頁，共115頁。Evaluating Internal LiquidityInventory turnover relates inventory to sales or cost of goods sold (CGS)Given the turnover values,

24、 you can compute the average inventory processing timeAverage Inventory Processing Period = 365/Annual Turnover第33頁，共115頁。Evaluating Internal LiquidityCash conversion cycle combines information from the receivables turnover, inventory turnover, and accounts payable turnoverReceivable Days+Inventory

25、Processing Days-Payables Payment PeriodCash Conversion Cycle第34頁，共115頁。Evaluating Operating PerformanceRatios that measure how well management is operating a business(1) Operating efficiency ratiosExamine how the management uses its assets and capital, measured in terms of sales dollars generated by

26、 asset or capital categories(2) Operating profitability ratiosAnalyze profits as a percentage of sales and as a percentage of the assets and capital employed第35頁，共115頁。Operating Efficiency RatiosTotal asset turnover ratio indicates the effectiveness of a firms use of its total asset base (net assets

27、 equals gross assets minus depreciation on fixed assets)第36頁，共115頁。Operating Efficiency RatiosNet fixed asset turnover reflects utilization of fixed assets第37頁，共115頁。Operating Profitability RatiosOperating profitability ratios measure1. The rate of profit on sales (profit margin)2. The percentage re

28、turn on capital第38頁，共115頁。Operating Profitability RatiosGross profit margin measures the rate of profit on sales (gross profit equals net sales minus the cost of goods sold)第39頁，共115頁。Operating Profitability RatiosOperating profit margin measures the rate of profit on sales after operating expenses

29、(operating profit is gross profit minus sales, general and administrative (SG + A) expenses)第40頁，共115頁。Operating Profitability RatiosNet profit margin relates net income to sales第41頁，共115頁。Operating Profitability RatiosReturn on total capital relates the firms earnings to all capital in the enterpri

30、se第42頁，共115頁。Operating Profitability RatiosReturn on owners equity (ROE) indicates the rate of return earned on the capital provided by the stockholders after paying for all other capital used第43頁，共115頁。Operating Profitability RatiosReturn on owners equity (ROE) can be computed for the common- share

31、holders equity第44頁，共115頁。Operating Profitability RatiosThe DuPont System divides the ratio into several components that provide insights into the causes of a firms ROE and any changes in it第45頁，共115頁。Operating Profitability Ratios Profit Total Asset Financial Margin Turnover Leverage=xx第46頁，共115頁。Op

32、erating Profitability RatiosAn extended DuPont System provides additional insights into the effect of financial leverage on the firm and pinpoints the effect of income taxes on ROE第47頁，共115頁。Operating Profitability RatiosAn extended DuPont System provides additional insights into the effect of finan

33、cial leverage on the firm and pinpoints the effect of income taxes on ROEWe begin with the operating profit margin (EBIT divided by sales) and introduce additional ratios to derive an ROE value第48頁，共115頁。Operating Profitability Ratios第49頁，共115頁。Operating Profitability RatiosThis is the operating pro

34、fit return on total assets. To consider the negative effects of financial leverage, we examine the effect of interest expense as a percentage of total assets第50頁，共115頁。Operating Profitability Ratios第51頁，共115頁。Operating Profitability RatiosWe consider the positive effect of financial leverage with th

35、e financial leverage multiplier第52頁，共115頁。Operating Profitability Ratios第53頁，共115頁。Operating Profitability RatiosThis indicates the pretax return on equity. To arrive at ROE we must consider the tax rate effect.第54頁，共115頁。Operating Profitability Ratios第55頁，共115頁。Operating Profitability RatiosIn summ

36、ary, we have the following five components of return on equity (ROE)第56頁，共115頁。Operating Profitability Ratios第57頁，共115頁。Operating Profitability Ratios第58頁，共115頁。Operating Profitability Ratios第59頁，共115頁。Operating Profitability Ratios第60頁，共115頁。Operating Profitability Ratios第61頁，共115頁。Risk AnalysisRis

37、k analysis examines the uncertainty of income flows for the total firm and for the individual sources of capitalDebtPreferred stockCommon stock第62頁，共115頁。Risk AnalysisTotal risk of a firm has two components:Business riskThe uncertainty of income caused by the firms industryGenerally measured by the

38、variability of the firms operating income over timeFinancial riskAdditional uncertainty of returns to equity holders due to a firms use of fixed obligation debt securitiesThe acceptable level of financial risk for a firm depends on its business risk 第63頁，共115頁。Business RiskVariability of the firms o

39、perating income over time第64頁，共115頁。Business RiskVariability of the firms operating income over timeStandard deviation of the historical operating earnings series第65頁，共115頁。Business RiskTwo factors contribute to the variability of operating earningsSales variabilityEarnings must be as volatile as sa

40、lesSome industries are cyclicalOperating leverageProduction has fixed and variable costsFixed production costs cause profit volatility with changes in salesFixed production costs are operating leverage第66頁，共115頁。Financial RiskBonds interest payments come before earnings are available to stockholders

41、These are fixed obligationsSimilar to fixed production costs, these lead to larger earnings during good times, and lower earnings during a business declineThis debt financing increases the financial risk and possibility of default第67頁，共115頁。Financial RiskTwo sets of financial ratios help measure fin

42、ancial riskBalance sheet ratiosEarnings or cash flow available to pay fixed financial chargesAcceptable levels of financial risk depend on business risk第68頁，共115頁。Financial RiskProportion of debt (balance sheet) ratios第69頁，共115頁。Financial RiskProportion of debt (balance sheet) ratios第70頁，共115頁。Finan

43、cial RiskProportion of debt (balance sheet) ratiosThis may be computed with and without deferred taxes第71頁，共115頁。Financial RiskLong-term debt/total capital ratio indicates the proportion of long-term capital derived from long-term debt capital第72頁，共115頁。Financial RiskLong-term debt/total capital rat

44、io indicates the proportion of long-term capital derived from long-term debt capital第73頁，共115頁。Financial RiskTotal debt ratios compare total debt (current liabilities plus long-term liabilities) to total capital (total debt plus total equity)第74頁，共115頁。Financial RiskTotal debt ratios compare total d

45、ebt (current liabilities plus long-term liabilities) to total capital (total debt plus total equity)第75頁，共115頁。Financial RiskEarnings or Cash Flow RatiosRelate the flow of earnings Cash available to meet the paymentsHigher ratio means lower risk第76頁，共115頁。Financial RiskInterest Coverage第77頁，共115頁。Fi

46、nancial RiskInterest Coverage第78頁，共115頁。Financial RiskInterest Coverage第79頁，共115頁。Financial RiskFirms may also have non-interest fixed payments due for lease obligationsThe risk effect is similar to bond riskBond-rating agencies typically add 1/3 lease payments as the interest component of the lease

47、 obligations第80頁，共115頁。Financial RiskTotal fixed charge coverage includes any noncancellable lease payments and any preferred dividends paid out of earnings after taxes第81頁，共115頁。Financial RiskTotal fixed charge coverage includes any noncancellable lease payments and any preferred dividends paid out

48、 of earnings after taxes第82頁，共115頁。Financial RiskCash flow ratios relate the flow of cash available from operations to either interest expense, total fixed charges, or the face value of outstanding debt第83頁，共115頁。Financial Risk第84頁，共115頁。Financial Risk第85頁，共115頁。Financial Risk第86頁，共115頁。External Mar

49、ket LiquidityMarket Liquidity is the ability to buy or sell an asset quickly with little price change from a prior transaction assuming no new informationExternal market liquidity is a source of risk to investors第87頁，共115頁。External Market LiquidityDeterminants of Market LiquidityThe dollar value of

50、shares tradedThis can be estimated from the total market value of outstanding securitiesIt will be affected by the number of security ownersNumerous buyers and sellers provide liquidity第88頁，共115頁。External Market LiquidityTrading turnover (percentage of outstanding shares traded during a period of ti

51、me) 第89頁，共115頁。External Market LiquidityA measure of market liquidity is the bid-ask spread第90頁，共115頁。Analysis of Growth PotentialCreditors are interested in the firms ability to pay future obligationsValue of a firm depends on its future growth in earnings and dividends第91頁，共115頁。Determinants of Gr

52、owthResources retained and reinvested in the entityRate of return earned on the resources retained= RR x ROEwhere:g = potential growth rateRR = the retention rate of earningsROE = the firms return on equity第92頁，共115頁。Determinants of GrowthROE is a function ofNet profit marginTotal asset turnoverFina

53、ncial leverage (total assets/equity)第93頁，共115頁。Comparative Analysis of RatiosInternal liquidityCurrent ratio, quick ratio, and cash ratioOperating performanceEfficiency ratios and profitability ratiosFinancial riskGrowth analysis第94頁，共115頁。Analysis of Non-U.S. Financial StatementsStatement formats w

54、ill be differentDifferences in accounting principlesRatio analysis will reflect local accounting practices第95頁，共115頁。The Quality of Financial StatementsReflect reality rather than use accounting tricks or one-time adjustments to make things look better than they are第96頁，共115頁。The Quality of Financia

55、l StatementsHigh-quality balance sheets typically have Conservative use of debtAssets with market value greater than bookNo liabilities off the balance sheet第97頁，共115頁。The Quality of Financial StatementsHigh-quality income statements reflect repeatable earningsGains from nonrecurring items should be

56、 ignored when examining earningsHigh-quality earnings result from the use of conservative accounting principles that do not overstate revenues or understate costs第98頁，共115頁。The Value of Financial Statement AnalysisFinancial statements, by their nature, are backward-lookingAn efficient market will ha

57、ve already incorporated these past results into security prices, so why analyze the statements?Analysis provides knowledge of a firms operating and financial structureThis aids in estimating future returns第99頁，共115頁。Specific Uses of Financial Ratios1. Stock valuation2. Identification of corporate va

58、riables affecting a stocks systematic risk (beta)3. Assigning credit quality ratings on bonds4. Predicting insolvency (bankruptcy) of firms第100頁，共115頁。Stock Valuation ModelsValuation models attempt to derive a value based upon one of several cash flow or relative valuation modelsAll valuation models

59、 are influenced by:Expected growth rate of earnings, cash flows, or dividendsRequired rate of return on the stockFinancial ratios can help in estimating these critical inputs第101頁，共115頁。Stock Valuation ModelsFinancial Ratios1. Average debt/equity2. Average interest coverage3. Average dividend payout

60、4. Average return on equity5. Average retention rate6. Average market price to book value7. Average market price to cash flow8. Average market price to sales第102頁，共115頁。Stock Valuation ModelsVariability Measures1. Coefficient of variation of operating earnings2. Coefficient of variation of sales3. C