Financial Analysis and Planning

1
Financial Analysis and Planning

• Chapter 29

2
Financial Statement Analysis

• Involves
• Comparing firms performance with others in same
  industry
• Evaluating trends in the firms financial
  position over-time
• Managers want to estimate effect of actions
• Accounting
• Keeps score
• Does not address stock price impact
• INTERPRET not make
• Why do we use ratios?
• Remember BENCHMARK

3
Ratio Categories and Purposes

• Leverage
• Liquidity
• Efficiency
• Profitability
• Market Value

4
BUD Leverage Ratios

• What is meant by leverage?

5
BUD Liquidity Ratios
6
BUD Efficiency Ratios
7
BUD Profitability Ratios
8
BUD Market Value Ratios
9
Ratio Analysis

• Who uses?
• Internal
• Creditors
• Potential investors/analysts
• Must have benchmark
• Time series
• Peer group

10
Ratio Analysis

• Problems
• Defining peers/benchmarks
• Average performance is not necessarily good
• Conglomerates
• Accounting practices
• Historical data
• Seasonal variation/one-time events
• Window dressing
• Mixed signals

11
Times Series for Anheuser-Busch

• Ratio definitions from Compustat PC Plus
• Examine/compare/look for trends
• Leverage
• Liquidity
• Efficiency
• Profitability
• Market Value

12
Times Series for Anheuser-Busch
Ratio Category _____________
Strengths
Weaknesses
Interesting
13
Cross-Sectional Analysis

• Peer group
• Strengths?
• Weaknesses?
• Compare
• Liquidity
• Turnover
• Profitability
• Leverage
• Market

14
Cross-Sectional Analysis
Ratio Category _____________
Strengths
Weaknesses
Interesting
15
Financial Statement Analysis

• Would you invest in one or more of them?
• Would you loan to them?
• What should Petes do differently?

16
Market Efficiency and Financial Statement Analysis

• What does Efficient Market Hypothesis imply
  regarding the validity of financial statement
  analysis?
• Does ratio analysis provide any value?
• Standardize numbers?
• Facilitate comparison?
• Highlight strengths and weaknesses?
• Anticipate future?
• Planning starting point?