Chapter 14. Financial Analysis and Long-Term Financial Planning

Chapter Learning Objectives:


  • Describe what is meant by financial statement analysis. Describe the five basic types of financial ratios.

  • Indicate what is meant by Du Pont analysis and indicate its major components.

  • Explain the importance of the quality of financial statements.

  • Describe the link between asset investment requirements and sales growth.

  • Describe how internally generated financing occurs.

  • Describe how additional external financing requirements are determined.

  • Describe the cost-volume-profit analysis concept.

Where We Have Been...

The previous chapter introduced the three basic financial statements and some basics of accounting—the language of business. Not only do financial market participants such as bondholders, shareholders, and bankers analyze the financial statements; the firm's managers help them analyze their own firms and their firm's competition as well as plan for future strategies and financing needs.

Where We Are Going...

A myriad of financial market participants will use and analyze financial statement information, particularly bankers, other lenders, suppliers, investors, and even some of the firm's customers. We will see how and why they need this information in future chapters, especially Chapter 16 (Short-term Business Financing) and Chapter 18 (Capital Structure and the Cost of Capital).

How This Chapter Applies to Me...

Publicly available data can be ...

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