FIN 301 1st Edition Lecture 6Notes are based off of power pointsFinance Statement AnalysisI. Financial statementsa. Growth ratei. Why do people want to see growth? Because of higher prices or products or servicesii. Notice the impact of the recession was much greater on the bottom line than the top line iii. Strategic Objective:1. Grow net income faster than sales (bottom line faster than top line)2. Grow EPS faster than net income (buy back shares)b. Common size financial statementi. Purpose: detect trends and make comparisons ii. Simple to do by expressing their income statements and balance sheets c. Activity ratiosi. A reason its going up is because they’re done building stores their concern is online.d. Profitability ratioi. Same as Common Size income statementII. Profit Margins are at all time higha. Today its at 9% b. A big factor III. Basic financial analysisa. Use: to detect trends over time and make comparisons IV. Valuation ratiosa. Look at the company’s market value and determine different majorsb. P/E Ration is the best known valuation ratio c. Multiple of earnings investors are willing to pay for stock; companies want them high, investors are looking for cheap stocksV. Measuring corporate performance: the strategic profit modela. Brings together different ratios so they can compare companies and look at performanceover timeb. Why big difference in asset turnover?i. Big difference on what’s on the balance sheetVI. Economic and strategic forces in ROAa. Exon: Capital intensity creates a barrier to entry b. Walmart: Grocery stores are the lowest market because of all the commoditiesThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.c. If you’re selling a Lamborghini profit margin is high, but if you’re selling a Kia profit margin will be low and you’ll sell more