Credit Analysis The evaluation of the creditworthiness of a company
2 types of creditors Trade creditors and non trade creditors
Trade creditors Provide goods or services, bear risk of default, most short term and usually implicit interest
Non-trade creditors Provide major financing, bear risk o...
Advanced Financial Analysis & Modeling
Exam 1 (Chp. 1-3) Questions and
Answers
Credit Analysis ✅The evaluation of the creditworthiness of a company
2 types of creditors ✅Trade creditors and non trade creditors
Trade creditors ✅Provide goods or services, bear risk of default, most short term and
usually implicit interest
Non-trade creditors ✅Provide major financing, bear risk of default, most long term and
usually explicit interest
Equity Analysis ✅Evaluating a company's performance and valuing its equity in order
to assess its relative attractiveness as an investment
Managers ✅Analysis of financial statements can provide managers with clues to
strategic changes in operating, investing, and financing activities. Also analyze
competitions financial statements
Mergers, acquisitions, and divestitures ✅Business analysis is performed whenever a
company restructures its operations, through mergers, acquisitions, divestitures, and
spin offs.
Financial management ✅Managers must evaluate the impact of financing decisions
and dividend policy on company value
Financial analysis ✅Use of financial statements to analyze a company's financial
position and performance, and to assess future financial performance
Accounting analysis ✅Process of evaluating the extent to which a company accounting
reflects economic reality
Prospective analysis ✅Forecasting of future payoffs-typically earnings, cash flows, or
both
Valuation ✅Main objective of many types of business analysis and refers to the
process of converting forecasts of future payoffs into an estimate of company value
, Planning activities ✅The process of identifying a company's goals, and the strategies
adopted to reach those goals. (business plan)
Financing activities ✅Refers to the methods that companies use to raise the money to
pay for these needs. (Raw materials, payroll, marketing, R&D)
Investing activities ✅Refers to a company's acquisition and maintenance of
investments for purposes of selling products and providing services, and for the purpose
of investing excess cash
Operating activities ✅Represent the "carrying out" of the business plan given its
financing and investing activities
Balance sheet ✅A financial statement that reports assets, liabilities, and owner's equity
on a specific date.
Income statement ✅Financial statement that measures a company's financial
performance over a period of time, typically a year or a quarter
Statement of Shareholders equity ✅Useful in identifying reasons for changes in equity
holders claims on the assets of a company
Statement of cash flows ✅Reports cash inflows and outflows separately for a
company's operating, investing, and financing activities over a period of time
Links between financial statements ✅Financial statements are linked at points in time
and across time
Areas of preliminary analysis ✅Comparative financial statement analysis, common
size financial statements analysis, Ratio analysis, cash flow analysis and valuation
Comparative financial statement analysis ✅Reviewing consecutive balance sheets,
income statements, or statements of cash flows from period to period
Year to year change analysis ✅Comparing financial statements over relatively short
time periods (2 or 3 years) and is usually performed with analysis of year to year
changes in individual accounts
Index number trend analysis ✅Analyzing data using index number trend analysis
requires choosing a base period, for all items, with a preselected index number usually
set to 100
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