chapter04analysis of financial statements(國際投資英文版) 課件

1、Slides by: Pamela L. Hall, Western Washington UniversityFrancis & IbbotsonChapter 4Francis & IbbotsonFinancial statements aid in the process of fundamental analysisFundamental analysts evaluate financial ratios as an aid to determine if a security is over- or under-pricedThe efficient market theory

2、suggests that publicly available financial statements offer nothing of value Professional security analysts have already discovered pertinent information and traded based on that informationFrancis & IbbotsonLarge public firms issue quarterly financial statementsSmall firms may only issue annual sta

3、tementsClosely-held corporations may not issue public financial statementsMain financial statements Balance sheet Income and expense statement Statement of cash flowsFrancis & IbbotsonRepresents historical value of firms assets, liabilities and stockholders equity on the day the accounting period en

4、dsAssets = Liability + Stockholders Equity Stockholders Equity represents firms net worth (Book value of owners equity)Most firms end the fiscal year on December 31Francis & IbbotsonFrancis & IbbotsonReport the flows that occurred during the accounting periodAKA profit and loss statementSales Total

5、Expenses = Income (Loss)Francis & IbbotsonFrancis & IbbotsonCash flows are the net cash remaining after all reinvestments have been deductedCash flow is not affected by Accelerated depreciation rules Arbitrary inventory valuation rules Accrual methods of accountingAccounting income is more ambiguous

6、 than a firms cash flowsFrancis & IbbotsonFrancis & IbbotsonFrancis & IbbotsonCash flows provided by (used in):199719981999Operations4,0333,4333,883Investment activities(1,082)(1,557)(1,551)Free cash flow2,9511,8762,332Cash flows used in:Financing Share repurchases(1,262)(1,563)(15) Other financing

7、activities(1,833)230(456)Exchange(134)(28)(28)Increase (Decrease) in cash304(89)(37)KO generates tremendous cash flows from operationsKO uses its large cash flows for reinvesting within the firm, joint ventures, stock repurchases and cash dividends.Francis & IbbotsonPublicly traded companies in the

8、U.S. are required to make full disclosure of their financial statements Usually a phone call or letter is all that is needed & firm will mail statements to you SECs Electronic Data Gathering Analysis and Retrieval (EDGAR) System has the information for free at Not user friendly EDGAR Online at and F

9、reeEDGAR at are more user friendly but not all the data is free Hoovers On-Line at , PR Newswire at and Yahoo!Finance at offer additional information Francis & IbbotsonExpress each item as a percentage of a common base number Such as Assets or SalesUseful when comparing A firm over time Different si

10、zed firms Firms from different countriesFrancis & IbbotsonFrancis & IbbotsonFrancis & IbbotsonKO manufactures syrups for the following products Coke Products (70% of total sales) Classic Coke Diet Coke Decaffeinated Diet Coke Cherry Coke Diet Cherry Coke Non-Coke soft drinks (21% of total sales) Spr

11、ite Fanta TAB Nestea Diet SpriteMr. PiBBFrescaPOWERaDEMello YelloLiftBarqsSpecialty local drinksFrancis & Ibbotson Food Sales Fruit juices generate 9% of total sales Minute Maid juice Hi-C FruitopiaIn the 1970s and 80s KO also sold Wines Straws Plastic cups Water conditioning equipmentDiscontinued t

12、hese product lines to focus on core business.Francis & IbbotsonKO products made up 18% of the non-alcoholic soft drinks purchased in the world in 1999Sales have grown at 6% annually for the last decadeEPS grew at 4.8% during the same periodFrancis & IbbotsonKO sells its products in 200 countriesOnly

13、 21% are made in the U.S. where KO is headquartered.Francis & IbbotsonCompany strengths Multinational diversification Differentiated product lineExecutives forecast a continuation of past growthMain competitor PepsiCoOnly weak line is the food products lineFrancis & IbbotsonA financial ratio combine

14、s multiple values to produce a new, meaningful value Used to quantify, summarize and interpret financial dataTypes of ratios Solvency or liquidity ratio Measure firms ability to meet short-term obligations Turnover ratios Measure rate of activity Coverage ratios Measure extent to which the firms ear

15、nings can cover debt-related expensesFrancis & Ibbotson Leverage ratios Measure extent to which firm has been financed by creditors Profitability ratios Measures productivity of money invested in firm Per share data Examines items that affect common stocks market price per share Growth ratios Measur

16、es contribution of various items to firms development Risk analysis ratios Measures variability Francis & IbbotsonCurrent Ratio Formula Current Assets Current Liabilities ValuesFor every $1 in current liabilities the firm had $0.66 in current assets. KO did not quite have enough current assets to pa

17、y its bills.If the firms inventory becomes worthless, KO does not have enough liquid current assets to pay its bills.Quick ratio is more discriminating than Current Ratioonly includes the most liquid assets.Quick RatioFormula(Current Assets Inventory) Current LiabilitiesValuesFrancis & IbbotsonEven

18、though KO has experienced huge cash flows, the firms current and quick ratios are quite lowThus, the solvency ratios did not tell the whole storyFrancis & IbbotsonInactive assets might not be generating earnings Turnover ratios help pinpoint the non-earning assetsReceivables Turnover Ratio Formula A

19、nnual credit sales Accounts receivable ValuesReceivables turn over slightly less than once a month. Is this too low/high? Cannot be determined without knowing firms credit policy and industry customs.Francis & IbbotsonInventory TurnoverFormulaAnnual sales (at cost) Average Inventory (at cost)ValuesC

20、ollection Period Formula Accounts receivable Average days sales Values 1997: 31.71 days 1998: 32.32 days 1999: 33.14 daysAcceptable value depends on product being sold and credit terms.Need more informationbefore we can evaluate these values.Francis & IbbotsonAsset Turnover Ratio Formula Annual Sale

21、s Total Assets ValuesNeeds to be compared to competitors values.Equity turns over faster than assets because firm uses financial leverage.Equity Turnover RatioFormulaAnnual Sales EquityValuesFrancis & IbbotsonTimes Interest Earned Formula Annual operating income Annual interest paymentSome financial

22、 analysts prefer to use the pre-tax gross income instead of operating incomeSome analysts use all debt-service charges, lease payment and cash dividends on preferred stock instead of interest payment alone.KOs income can fall98.07% (1 (1/51.7 times) before it will be insufficient to cover the firms

23、interest expense. ValuesFrancis & IbbotsonTwo values from the Income & Expense Statement can be used to define a companys cash flow Earnings before interest and taxes (EBIT) Depreciation/Amortization Allocates an assets cost over its useful life A non-cash expense deducted from revenue Reduces taxes

24、KOs 1999 cash flow is EBIT of $3,982 + Depreciation of $792 = $4,774Can now calculate the Cash flow-to-long-term-debt ratio 4,774 Francis & IbbotsonTotal Debt to Total Asset Ratio Formula Total debt Total assets ValuesTotal Debt to Total Equity Formula Total debt Total equity ValuesFrancis & Ibbotso

25、nLong-term Debt to Equity Formula Long-term debt Equity ValuesLong-term Debt to Capitalization Formula Long-term debt Capitalization ValuesSum of permanent current liabilities, long-term debt, preferred stock and stockholders equity.Francis & IbbotsonTotal Asset to Equity Ratio Formula Total assets

26、Equity Values 1997: 231.7% 1998: 227.8% 1999: 227.3%Financial ratios are sometimes calculated with market values rather than book values Often more realistic and relevantFrancis & IbbotsonNet Profit Margin Formula Net income Sales Values 1997: 0.22 or 22% 1998: 0.19 or 19% 1999: 0.12 or 12%An approp

27、riate standard is needed to interpret a profit margin.A dollars worth of assets yielded about 11 of after-tax earnings in 1999.Return on AssetFormulaNet income Total assetsValues1997: 0.24 or 24%1998: 0.18 or 18%1999: 0.11 or 11%Francis & IbbotsonReturn on Equity (ROE) Formula Net income Equity Valu

28、es 1997: 0.57 or 57% 1998: 0.42 or 42% 1999: 0.26 or 26%If a firm has zero debt, its ROA and ROE are equal.If the rate does not exceed current interest rates, the firm is not earning enough to pay its debts.Long-Term Capitals Pretax Rate of ReturnFormula(Interest + Pretax earnings) CapitalizationVal

29、ues1997: 0.75 or 75%1998: 0.58 or 58%1999: 0.37 or 37%Francis & IbbotsonEarnings Per Share (EPS) Formula Net income # of common shares outstanding ValuesCash Dividend Per Share Formula Total corporate dividend # of common shares outstanding ValuesFrancis & IbbotsonPayout Ratio Formula Cash dividends

30、 per share EPS Values 1997: 0.336 or 33.6% 1998: 0.419 or 41.9% 1999: 0.653 or 65.3%Measures the percentage of earnings the firm pays out as a dividend.Measures the percentage of earnings the firm retains.Retention RateFormulaRetained Earnings Net incomeValues1997: 0.664 or 66.4%1998: 0.581 or 58.1%

31、1999: 0.350 or 35.0% Francis & IbbotsonPrice-Earnings Ratio (P-E) Formula Market price per share EPS Values 1997: Low of 32 to high of 47 1998: Low of 36 to high of 56 1999: Low of 48 to high of 72Francis & IbbotsonDuPont Analysis Allows for a thorough analysis of ROE SalesincomeNet Equityassets Tot

32、al assets TotalSales SalesincomeNet EquitySales EquityincomeNet ROEmarginprofit Net ratio leverage Financialoverasset turn Totalmarginprofit Net TurnoverEquity Francis & IbbotsonYearAsset TurnoverFinancial LeverageProfit MarginROE19901.102.4113.50%35.91%19911.142.4013.98%38.17%19921.182.8412.73%42.8

33、0%19931.162.6215.58%47.47%19941.172.6515.78%48.79%19951.202.7916.57%55.38%19961.162.6318.70%56.73%19971.122.3221.88%56.76%19980.982.2818.78%42.04%19990.922.2712.27%25.52%Profit Margin rose and then fell over the decade.Asset Turnover rose and then fell over the decade.The increased use of financial

34、leverage increased ROE through 1996.Francis & IbbotsonCommon stock price appreciation depends on various factors Growth financed internally depends on the amount of retained earnings A corporations growth rate depends on the return on equity Growth rate = RR x ROE Substituting the three-part DuPont

35、ROE equation, we obtainSalesincomeNet Equityassets Total assets TotalSales RR rateGrowth Shows that multiple factors influence growthone factor can rise and another fall and growth can remain unchanged.Francis & IbbotsonAs a firms risk increases Investors demand higher interest rates (returns) Thus,

36、 the price of the firms bonds and stocks will drop (inverse relationship)How do you measure risk? Coefficient of variation Standard deviation average value Rescales different-size standard deviations to make them easily comparableFrancis & IbbotsonBusiness risk Determined by volatility of operating

37、income Arises from fluctuations in sales and production costsFinancial risk Arises due to the use of financial leverage (debt)Francis & IbbotsonCross-Sectional standards Compare a firms financial ratios to other firms or industry average Industry averages are published by companies such as Moodys St

38、andard & Poors Fitchs Value Line Duff and Phelps Dunn and Bradstreet Can reveal a firms strengths/weaknesses compared to other firmsFrancis & IbbotsonTime-Series standards Compare a firm to its own ratios from other years Helps highlight trends/changes that have occurredFrancis & IbbotsonInflation distortions Can be a serious problem with the balance sheet Some fixed assets are reported at th