Slides_Fundamentals of Investments - Chapter 7 pot

All rights reserved.McGraw Hill / Irwin Sources of Financial Information Š Company annual reports Š Internet Î The New York Stock Exchange at http://www.nyse.com Š Securities and Exchan

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Cash Flow is a Company’s Lifeblood.

Earnings and Cash Flow Analysis

Our goal in this chapter is to acquaint you with the financial accounting concepts necessary to understand basic financial

statements and perform earnings and cash flow analysis using these

financial statements

Goal

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Sources of Financial Information

Š Company annual reports

Š Internet

Î The New York Stock Exchange at

http://www.nyse.com

Š Securities and Exchange Commission (SEC)

Î Electronic Data gathering and Retrieval (EDGAR) archives (including 10Ks and 10Qs) accessible

through the Internet ( http://www.sec.gov )

Sources of Financial Information

Š SEC Regulation FD (Fair Disclosure) requires

companies making a public disclosure of material nonpublic information to do so fairly without preferential recipients

Î Most companies satisfy Regulation FD by distributing important announcements via e-mail alerts to those who register for the service.

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Financial Statements

Balance sheet

Accounting statement that provides a snapshot view of a company’s assets and liabilities on a particular date

Income statement

Summary statement of a firm’s revenues and expenses over a specific accounting period, usually a quarter or a year

Financial Statements

Cash flow statement

Analysis of a firm’s sources and uses of cash over the accounting period, summarizing

operating, investing, and financing cash flows

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Work the Web

 Look at the Investing Basics section

at:

http://www.thestreet.com

The Balance Sheet

Š Asset - Anything a company owns that has

value

Š Liability - A firm’s financial obligation.

Š Equity - An ownership interest in the

company

Š Fundamental accounting identity:

Assets = Liabilities + Equity

The Balance Sheet

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The Balance Sheet

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The Income Statement

Š Income - The difference between a company’s

revenues and expenses, used to pay dividends

to stockholders or kept as retained earnings within the company to finance future growth

Net income = Revenues – Expenses

= Dividends + Retained earnings

The Income Statement

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The Cash Flow Statement

Š Cash flow - Income realized in cash form,

whether from operations, investments, or financing activities

The Cash Flow Statement

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Performance Ratios and Price Ratios

Š Gross margin = Gross profit

Performance Ratios and Price Ratios

Š Book value = Stockholder equity

per share (BVPS) Shares outstanding

Š Earnings = Net income .

per share (EPS) Shares outstanding

Š Cash flow = Operating cash flow

per share (CFPS) Shares outstanding

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Performance Ratios and Price Ratios

Š Price-book (P/B) = Stock price

Work the Web

 Check out the security analysis

sections at:

http://www.uoutperform.com

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Financial Statement Forecasting

Pro forma financial statements

Statements prepared using certain assumptions about future income, cash flow, and other items Pro forma literally means according to prescribed form

The Pro Forma Income Statement

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The Pro Forma Cash Flow Statement

The Pro Forma Balance Sheet

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Projected Profitability and Price Ratios

Projected Profitability and Price Ratios

Borg Corporation

Projected Stock Prices Optimistic Pessimistic BVPS × P/B $45.81 $39.81 EPS × P/E $90.86 $8.36 CFPS × P/CF $47.76 $5.76

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Work the Web

 Visit the Education Center at:

http://www.investorsuniverse.com

Adolph Coors Company Case Study

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Adolph Coors Company Case Study

Adolph Coors Company Case Study

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Adolph Coors Company Case Study

Adolph Coors Company Case Study

Adolph Coors Company Case Study

Adolph Coors Company Case Study

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Adolph Coors Company Case Study

Projected Stock Prices + 10% – 10%

BVPS × P/B $58.27 $52.03 EPS × P/E $79.46 $22.54 CFPS × P/CF $69.19 $38.26

Chapter Review

Š Sources of Financial Information

Š Financial Statements

Î The Balance Sheet

Î The Income Statement

Î The Cash Flow Statement

Î Performance Ratios and Price Ratios

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Chapter Review

Š Financial Statement Forecasting

Î The Pro Forma Income Statement

Î The Pro Forma Cash Flow Statement

Î The Pro Forma Balance Sheet

Î Projected Profitability and Price Ratios

Š Adolph Coors Company Case Study