Corporate Financial Statement Analysis

Introduction

• What is financial statement analysis?
• Common methods of analysis

1. A Review of the Financial Statements

• The accounting equation
• Reading the balance sheet
• Reading the income statement
• Evaluating the statement of cash flows

2. The DuPont Framework

• Determining return on equity
• Applying the DuPont framework
• Example: Ford vs. General Motors

3. Common-Size Financial Statements

• Common-size overview
• Common-size income statement
• Common-size balance sheet
• Example: Walmart vs. Target

4. Profitability Ratios

• The many ways to define income and profit
• Example: Nordstrom vs. Microsoft

5. Efficiency Ratios

• The operating cycle
• Days' sales of inventory (DSI)
• Average collection period
• Examples: Harley and McDonald's

6. Leverage Ratios

• Current ratio in theory and practice
• The many debt ratios
• Example: Comparing tech company debt ratios

7. Limitations of Financial Statement Analysis

• Limits to using past performance
• Pitfalls of financial statement analysis
• Avoid the temptation of a single reason

Conclusion

• What's next?