Financial

Statement
Analysis


K.R. Subramanyam

Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-26
Balance Sheets
1-27
Balance Sheet
Total Investing = Total Financing
= Creditor Financing + Owner Financing
Colgate Financing
(in $billions)
$12.724 = $10.183 + $2.541
1-28
Income Statement
Revenues Cost of goods sold = Gross Profit
Gross profit Operating expenses = Operating Profit
Colgates Profitability
(in $billions)
$16.734 - $7.144 = $9.590 Gross Profit
$9.590 - $5.749= $3.841 Operating profit
1-29
Income Statement
1-31
Statement of Cash Flow
1-32
Retained Earnings, Comprehensive Income,
and Changes in Capital Accounts
1-33
Retained Earnings, Comprehensive Income,
and Changes in Capital Accounts
1-34
In which of the previous financial
statements would an analyst find the
investing, financing and operating
activities reflected?
1-36
Comparative Income Statements
1-38
Common Size Balance Sheets

1-39
Common Size Income Statements

1-45
Analysis Preview
Debt (Bond) Valuation
B
t
is the value of the bond at time t
I
t +n
is the interest payment in period t+n
F is the principal payment (usually the debts face value)
r is the investors required interest rate (yield to maturity)

1-46
Analysis Preview
Equity Valuation
V
t
is the value of an equity security at time t
D
t +n
is the dividend in period t+n
k is the cost of capital
E refers to expected dividends

1-47
Analysis Preview
Equity Valuation - Free Cash Flow to Equity
Model
FCF
t+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

1-48
Analysis Preview
Equity Valuation - Residual Income Model
BVt is the book value at the end of period t
Ri
t+n
is the residual income in period t + n [defined as
net income, NI, minus a charge on beginning
book value, BV, or RI
t
= NI
t
- (k x BV
t-1
)]
k is the cost of capital
E refers to an expectation