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BFIN 241: chapter 3: financial analysis

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BFIN 241: chapter 3: financial analysis

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  • February 18, 2022
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  • 2021/2022
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Ch 3 - Financial Analysis

What is financial analysis?
4 categories of Financial Ratios
A. Profitability Ratios
Show how profitable a company is
B. Asset Utilization Ratios
Show how effectively a company uses its assets
C. Liquidity Ratios
Show how liquid a company is or how much cash it has available to meet short-term
needs.
D. Debt Utilization Ratios
Show how well a company is managing or using debt
Techniques of Ratio Analysis
DuPont Analysis
Decomposes Return on Asset (ROA) into 2 factors:
Decomposes Return on Equity (ROE) into 3 Factors:
Asset Utilization Ratios - Assets
Liquidity Ratios
Distortion in Financial Reporting
Summary and Conclusion
Practice Questions
Exercises




What is financial analysis?
Evaluating a firm’s financial performance

Calculating ratios to reveal relationships between different accounts of financial
statements

Linking ratios to reveal the factors determining a firm’s profitability and value

Financial analysis may not answer questions, but leads to further inquiry



4 categories of Financial Ratios


Ch 3 - Financial Analysis 1

, A. Profitability Ratios
Show how profitable a company is




B. Asset Utilization Ratios
Show how effectively a company uses its assets




Ch 3 - Financial Analysis 2

, C. Liquidity Ratios
Show how liquid a company is or how much cash it has
available to meet short-term needs.




Ch 3 - Financial Analysis 3

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