CHAPTER 9
FINANCIAL STATEMENT ANALYSIS
LEARNING OUTCOMES
After completing this chapter, you will be able to do the following:
- Interpret common-size balance sheets and common-size income statements and demonstrate their use by applying either vertical analysis or horizontal analysis.
- Calculate and interpret measures of a company’s operating efficiency, internal liquidity (liquidity ratios), solvency, and profitability, and demonstrate the use of these measures in company analysis.
- Calculate and interpret variations of the DuPont expression and demonstrate use of the DuPont approach in corporate analysis.
- Calculate and interpret basic earnings per share and diluted earnings per share.
- Calculate and interpret book value of equity per share, price-to-earnings ratio, dividends per share, dividend payout ratio, and plowback ratio.
- Demonstrate the use of pro forma income and balance sheet statements.
1. INTRODUCTION
The financial analysis of a company is a process of selecting, evaluating, and interpreting financial data, along with other pertinent information, in order to formulate an assessment of the company’s present and future financial condition and performance. We can use financial analysis to evaluate the efficiency of a company’s operations, its ability to manage expenses, the effectiveness of its credit policies, and its creditworthiness, among other things.
The analyst draws the data needed in financial analysis from ...
