OLEH:IFRIL RACHMAN

PRATISTA HARIYANTO

FINANCIAL STATEMENT ANALYSIS:INTRODUCTORY TECHNIQUES

CROSS-SECTIONAL TECHNIQUESA. Common-Size StatementsB. Financial Ratio Analysis

Common-Size Statements

Financial Ratio Analysis1. Cash Position

Cash +Marketable SecuritiesCurrent Liabilities

2. Liquidity Current Ratio = Current Assets

Current Liabilities3. Working Capital/Cash Flow

Working capital from operationsSales

Financial Ratio Analysis4. Capital Structure

Long-term Liabilities Shareholders’ equity

5. Debt Service Coverage Operating Income

Annual interest payments6. Profitability

Net IncomeRevenues

7. TurnoverSales

Total Assets

TIME-SERIES TECHNIQUESA. Trend StatementsB. Financial Ratio AnalysisC. Variability Measures

Trend Statements

Financial Ratio Analysis

Variability Measures

COMBINING FINANCIAL STATEMENT & NONFINANCIAL STATEMENT INFORMATIONA. Product Market InformationB. Capital Market Information

Product Market Information

Capital Market Information

CROSS-SECTIONAL ANALYSIS OF FINANCIAL STATEMENT INFORMATION

IntroductionCross-Sectional analysis is used in many

areas:1.Valuation analysis for mergers & acquisitions2.Management performance evaluation3.Prediction of financial distress4.Public policy decisions about excess profits

tax legislation

Criteria Used To Select Comparables1. Similarity on supply side2. Similarity on demand side3. Similarity in capital market attributes4. Similarity in legal ownership

Aggregation Options in Cross-Sectional Analysis1. Use a single summary measure of central

tendency2. Use both a measure of central tendency and

a measure of dispersion3. Use summary measures such as percentiles

or fractiles of the distribution of the ratios4. Use both the rank and the ratio of each firm

Data Availability Issues in Cross-Sectional AnalysisA. Nonavailability of DataB. Nonsynchronous Reporting PeriodsC. Nonuniformity in Accounting Methods

Line-Of-Business InformationA. Incentives of Firms to Disclose Line-Of-

Business DataB. Structural and Organizational Change

Implications- Acquisitions- Divestitures- Organization changes- Changes in the internal reporting system

Industry Comparisons Of Financial RatiosA. Definition of an IndustryB. Sources of Information about Firms in an

IndustryC. Evidence of Industry Differences

International Comparisons Of Financial Ratios1. Differences in the set of Accounting

Principles2. Differences in Taxation rules3. Differences in the Financing4. Differences in the Cultural

TIME-SERIES ANALYSIS OF FINANCIAL STATEMENT INFORMATION

Introduction Performance evaluation of management Examining allegations Designing a profit sharing Management decisions on alternative

accounting methods Litigation where business operations have

been disrupted

Issues in Analyzing Financial Time-Series DataA. Structural Change IssuesB. Accounting Method ChangesC. Accounting Classification IssuesD. Treatment of Extreme Observations

Time-Series Analysis Approaches1. Economic2. Visual3. Statistical

Economic Analysis Of Time-Series DataA. Causal Factor Analysis

- Mix of business decisions- Financing decisions- Operating decisions- Financial Reporting decisions

B. Seasonality- Event date induced- Weather induced- Reporting cycle induced

C. Ex Post Analysis Versus Ex Ante Analysis

Earning Management, Smoothing, and The Big BathA. Areas of Potential Management Intervention

1. Sales related2. Expense related

B. Legal and Regulatory DecisionsC. The Big Bath

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