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
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
1-39
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
1-48
Analysis Preview
Equity Valuation - Residual Income Model
BV is the book value at the end of period 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
t