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TagsCash Flow Statement Balance Sheet Debits And Credits Expense Depreciation
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Cash Flows and Financial Analysis


Overview and diagrams of cash flow ideas. Rules for analyzing changes in balance sheet


C. Constructing the Statement of Cash Flows

The mechanics of creating the statement from beginning and ending balance sheets and an

income statement.

D. Free Cash Flows

The cash left over after reinvestment needs are satisfied.


Description of the idea and process.

A. Comparisons

Ratios give the best information when compared with history, competitors, or budgeted


B. Common Size Statements

The income statement stated as percents of revenue facilitates comparisons over time and

between firms.

C. Ratios

The general concept of ratio analysis, average or ending values for balance sheet numbers,

and ratio categories.

D. Liquidity Ratios

Will the firm be able to pay its bills in the short run? The Current and Quick Ratios.

E. Asset Management Ratios

How well does the firm manage receivables, inventory, and fixed assets. A brief discussion

of the pitfalls of receivables and inventory.

F. Debt Management Ratios

The benefit and risk of leverage. Measurements to determine whether the firm has too

much debt.

Coverage and Leverage Ratios.

G. Profitability Ratios

Assessing the bottom line. Returns on sales - how well are costs and expenses controlled,

return on assets - includes a grade on asset management, return on equity - adds the effect

of using borrowed money.

H. Market Value Ratios

What does the market think of the firm. The price earnings ratio, and the market to book

value ratio.

I. Du Pont Equations

The relationships between ratios and their implications for running the business.

Development of the equations.

J. Using the Du Pont Equations

The equations used in comparisons give insights into where to put management attention to

improve performance.

K. Sources of Comparative Information

Where to get information on competitors and industry averages: D&B, Robert Morris

Associates, Value Line.

L. Limitations and Weaknesses of Ratio Analysis

The things that make ratio analysis less than perfect. Diversified companies, window

dressing, etc.


1. List the main user groups of financial information. What are the reasons for their interest?

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