AU FIN 614 - Topic 4: Analysis of Financial Statements (36 pages)

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Topic 4: Analysis of Financial Statements



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Topic 4: Analysis of Financial Statements

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Pages:
36
School:
American University
Course:
Fin 614 - Financial Management
Financial Management Documents

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FIN 614 Financial Management Topic 4 Analysis of Financial Statements Larry Schrenk Instructor 11 03 PM 1 of 36 Today s Outline The Ratios DuPont Equation Uses of Ratios Website D B Key Business Ratios 11 03 PM 2 of 36 The Ratios 11 03 PM 3 of 36 My Principles 1 2 3 4 5 6 7 Consider the Perspective Toolbox Approach Annualization Anomalies Accounting Numbers Red Flags Customized Ratios No Rules 11 03 PM 4 of 36 Classification 1 2 3 4 5 Short Term Solvency Liquidity Long Term Solvency Leverage Efficiency Profitability Market Value 11 03 PM 5 of 36 1 Short Term Solvency 11 03 PM 6 of 36 Short Term Solvency Analysis Form Measure of Short Term C ash Inflow Measure of Short Term C ash Outflow Purpose Short Term Liquidity Can the Firm Meet Current Obligations 11 03 PM 7 of 36 Short Term Solvency The Ratios Cash Ratio C ash C urrent Liabilities Quick Ratio C urrent Assets Inventory C urrent Liabilities Current Ratio C urrent Assets C urrent Liabilities 11 03 PM 8 of 36 Liquidity Ratio Analysis Liquidity Ability to Convert Assets to Cash with Significant Loss of Value Differing Time Horizons for Liquidity Cash Ratio Quick Ratio Current Ratio 11 03 PM 9 of 36 A Custom Ratio Example A New Coverage Ratio C ash Interest Application 11 03 PM 10 of 2 Long Term Solvency 11 03 PM 11 of Long Term Solvency Measures of the Long Term Viability of the Firm Two Metrics Degree of Leverage Coverage 11 03 PM 12 of Long Term Solvency Degree of Leverage Analysis Form Measure of Debt Measure Asset Base Purpose Long Term Liquidity Is the Total Amount of Debt Reasonable Can the Firm Remain Solvent 11 03 PM 13 of Long Term Solvency Degree of Leverage Ratios Total Debt Ratio Total Assets Total Equity Total Assets Debt Equity Ratio Total Debt Total Equity Equity Multiplier Total Assets Debt 1 Total Equity Equity 11 03 PM 14 of Long Term Solvency Coverage Analysis Form Measure of Short Term C ash Inflow Interest Payment Purpose Short Term Liquidity Can the Firm Service its Long Term Obligations Is



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