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Financial Statement Analysis 2009

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   1 Table of Contents Course Description  ................................................................................................................... 6 Course Objectives  ..................................................................................................................... 6 Course Intended Learning Outcomes (CILOs)  ......................................................................... 6 Course Prerequisite  ................................................................................................................... 7 Required Textbook  ........................................................................................................................ 7  Reference Books  ....................................................................................................................... 7  Book for fun  .............................................................................................................................. 7 Course Materials  ....................................................................................................................... 7 COURSE REQUIREMENT  ..................................................................................................... 8 EVALUATION OF THE STUDENT PERFORMANCE  ........................................................ 8 COURSE DURATION  ............................................................................................................ 8 EVALUATION OF STUDENT PERFORMANCE  ................................................................ 8 HOME WORK AND ASSIGNMENT  ..................................................................................... 9 Teaching and Learning Activities (TLA)  ............................................................................... 10 Alignment Among Course Intended Learning Outcome, Teaching and Learning Activities and Assessment Tasks  ............................................................................................................ 10 Standards of Assessment  ........................................................................................................ 11 Assignments  ........................................................................................................................... 11 Financial Statement Analysis Package  ................................................................................... 12 Course Outline for Financial Statement Analysis  .................................................................. 12 Chapter 01: Overview Analysis of Financial Statements  ..................................................... 13 Learning Objectives ................................................................................................................ 13 A GOOD ANALYSIS REPORT CONSISTS OF 6 SECTIONS: .......................................... 13 Building Blocks of Analysis  ................................................................................................... 15 Framework for Financial Statement Analysis  ........................................................................ 16 Purpose:  .................................................................................................................................. 16 Business Survival:  .................................................................................................................. 17 Effective Financial Statement Analysis  .................................................................................. 17 Limitations of Financial Statement Analysis  .......................................................................... 17 Major Tools Include  ............................................................................................................... 17 Horizontal Analysis  ................................................................................................................ 18 Vertical Analysis  .................................................................................................................... 20 Common Size Statements  ....................................................................................................... 21 RATIO ANALYSIS  ............................................................................................................... 21   2 LIQUIDITY RATIOS  ............................................................................................................ 21 Liquidity and Efficiency  ......................................................................................................... 22 Solvency  ................................................................................................................................. 23 Profitability Ratios .................................................................................................................. 24 Market Strength Ratios  ........................................................................................................... 25 Essay Questions and Solution  ................................................................................................ 26 Solution  .................................................................................................................................. 27  Problems  ................................................................................................................................. 29 I) _ True/False Questions  ....................................................................................................... 29 II) Multiple Choice Questions  ................................................................................................ 29 P1-1)  ....................................................................................................................................... 32 P1-2)  ....................................................................................................................................... 32 P1-3)  ....................................................................................................................................... 32 P1-4)  ....................................................................................................................................... 33 P1-5)  ....................................................................................................................................... 33 P1-6)  ....................................................................................................................................... 34 P1-7)  ....................................................................................................................................... 35 P1-8)  ....................................................................................................................................... 36 P1-9)  ....................................................................................................................................... 36 P1-10)  ..................................................................................................................................... 37 P1-11)  ..................................................................................................................................... 37 P1-12)  ..................................................................................................................................... 38 P1-13)  ..................................................................................................................................... 39 PROBLEM 1-11B ...................................................................................................................... 40 PROBLEM 1-12B ...................................................................................................................... 41 PROBLEM 1-13B ...................................................................................................................... 43 PROBLEM 1-14B ...................................................................................................................... 44 PROBLEM 1-15B ...................................................................................................................... 45 PROBLEM 1-16B ...................................................................................................................... 48 PROBLEM 1-17B ...................................................................................................................... 49 Chapter 02: Earnings and Cash Flow Analysis  ..................................................................... 50 ANALYSIS OBJECTIVES (Cash =Lifeblood of Business)  .......................................... 50  Purpose of the Statement of Cash Flows  ............................................................................ 50 Classification of Cash Flows (Cash inflows and cash outflows.)  ....................................... 50   3  Format of the Statement of Cash Flows  ................................................................................. 52  Reporting Cash Flows from Operations  ................................................................................. 52 Schedule of Cash Flows from Operating Activities ( Indirect Method)  ................................. 52 THE DIRECT METHOD OF PREPARING THE STATEMENT OF CASH   .......................... 53  ANALYZING THE STATEMT OF CASH FLOWS   ................................................................. 56 Cash-generating efficiency  ..................................................................................................... 56 Cash flow yield  ....................................................................................................................... 56 Cash flows to sales  ................................................................................................................. 57 Cash flows to assets  ................................................................................................................ 57 Free Cash Flow  ....................................................................................................................... 57 Balance Sheet  ......................................................................................................................... 58 Income Statement  ................................................................................................................... 59 Cash Flow Statement  .............................................................................................................. 59 Profitability Ratios .................................................................................................................. 60 Per Share Calculations  ............................................................................................................ 60 Market Value Ratios  ............................................................................................................... 60 Market Value Ratios for Borg Corporation  ............................................................................ 60 Financial Statement Forecasting  ............................................................................................. 60 Problem 7-18 Market Value Ratios  ........................................................................................ 62 Pro Forma per Share Measures  ............................................................................................... 63 Price Projections  ..................................................................................................................... 63  Notes:  ...................................................................................................................................... 64 Review Problem and Solution  ................................................................................................ 65 Solution  .................................................................................................................................. 66 Operating activities: ................................................................................................................ 66 Problems  ................................................................................................................................. 67 I.True/False Questions  ............................................................................................................ 67 II. Multiple Choice Questions  ................................................................................................ 67 P2-113)  ................................................................................................................................... 71 P2-114.  ................................................................................................................................... 71 P2-115.  ................................................................................................................................... 72 P2-116.  ................................................................................................................................... 73 P2-121.  ................................................................................................................................... 74 P2-122.  ................................................................................................................................... 75   4 P2-Needles1)  .......................................................................................................................... 76 P2-cj1)  .................................................................................................................................... 77 P2-cj2)  .................................................................................................................................... 78 P2-cj3)  .................................................................................................................................... 78 Chapter 03: Credit Analysis  ................................................................................................... 83 ANALYSIS OBJECTIVES  ............................................................................................ 83 Credit Analysis  ....................................................................................................................... 84    Credit Information  ......................................................................................................... 85    Credit Scoring:  ................................................................................................................ 85 Liquidity and Working Capital  ............................................................................................... 85 Current Ratio  .......................................................................................................................... 86 Operating Activity Analysis of Liquidity  ............................................................................... 88 Interpretation of Receivables Liquidity Measures  .................................................................. 88  Interpreting Inventory Turnover   ............................................................................................. 89  Liquidity of Current Liabilities  ............................................................................................... 89 Basics of Solvency  ................................................................................................................. 90 Motivation for Debt  ................................................................................................................ 90 Capital Structure Composition and Solvency  ......................................................................... 91 Capital Structure Ratios  .......................................................................................................... 92 Interpretation of Capital Structure Measures  .......................................................................... 92 Asset-Based Measures of Solvency  ........................................................................................ 92 What is Financial Distress?  .................................................................................................... 93 Valuation ................................................................................................................................ 94 Options for Relieving Financial Distress ................................................................................. 94 Insolvency  .............................................................................................................................. 94 Largest U.S. Bankruptcies  ...................................................................................................... 95 What Happens in Financial Distress?  ..................................................................................... 96 Predicting Corporate Bankruptcy: The Z-Score Model .......................................................... 96 The Z-Score Model for Private Firms  .................................................................................... 97 Chapter 04: Financial Reporting Template (FRT) for Small and Medium Sized Enterprises (SMEs)  .................................................................................................................................... 99 Phnom Penh, 16 June 2006  .................................................................................................... 99 - Forward  ........................................................................................................................ 101 Overview of Financial Reporting Template for SMEs  ......................................................... 102 Overview  .............................................................................................................................. 102
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