CHAPTER 9
FINANCIAL STATEMENT ANALYSIS: APPLICATIONS
Thomas R. Robinson, CFA CFA Institute Charlottesville, Virginia
Hennie van Greuning, CFA World Bank Washington, DC
Elaine Henry, CFA University of Miami Miami, Florida
Michael A. Broihahn, CFA Barry University Miami, Florida
LEARNING OUTCOMES
After completing this chapter, you will be able to do the following: • Evaluate a company’s past financial performance and explain how a company’s strategy is reflected in past financial performance.
• Prepare a basic projection of a company’s future net income and cash flow.
• Describe the role of financial statement analysis in assessing the credit quality of a potential debt investment.
• Discuss the use of financial statement analysis in screening for potential equity investments.
• Determine and justify appropriate analyst adjustments to a company’s financial statements to facilitate comparison with another company.
1. INTRODUCTION
This chapter presents several important applications of financial statement analysis. Among the issues we will address are the following:
• What are the key questions to address in evaluating a company’s past financial performance?
• How can an analyst approach forecasting a company’s future net income and cash flow?
• How can financial statement analysis be used to evaluate the credit quality of a potential fixed-income investment?
• How can financial statement analysis be used to screen for potential equity investments?
• How can differences in accounting ...