财务管理-onInvestedCapital(财务报表分析,台湾中兴大学)
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财务报表分析-(台湾中兴大学)chap008
• Referred to as long-term capitalization
• Excludes current liability financing
Components of ROI
Equity Capital
• Perspective is that of equity holders
Return on Invested Capital
Application of ROI
ROI is applicable to:
(1) evaluating managerial effective-
ness
(2) assessing profitability
(3) earnings forecasting
• ROI relates key summary measures: profits with financing
• ROI conveys return on invested capital from different financing perspectives
Return on Invested Cቤተ መጻሕፍቲ ባይዱpital
• Assumes certain assets not recognized in financial statements
• Uses the market value of invested capital (debt and equity)
Components of ROI
Investor Invested Capital
age
Components of ROI
Long-Term Debt Plus Equity Capital
• Excludes current liability financing
Components of ROI
Equity Capital
• Perspective is that of equity holders
Return on Invested Capital
Application of ROI
ROI is applicable to:
(1) evaluating managerial effective-
ness
(2) assessing profitability
(3) earnings forecasting
• ROI relates key summary measures: profits with financing
• ROI conveys return on invested capital from different financing perspectives
Return on Invested Cቤተ መጻሕፍቲ ባይዱpital
• Assumes certain assets not recognized in financial statements
• Uses the market value of invested capital (debt and equity)
Components of ROI
Investor Invested Capital
age
Components of ROI
Long-Term Debt Plus Equity Capital
onInvestedCapital(财务报表分析,台湾中兴大学)-PPT文档资料
over all investment ➢ assess overall management effectiveness
Components of ROI
Total Assets
Intangible Asset Adjustment
• Assumes skepticism of intangible asset values
• Referred to as long-term capitalization
• Excludes current liability financing
Components of ROI
Equity Capital
• Perspective is that of equity holders
optimisticor pessimistic forecasts
• ROI aids in evaluating prior forecast performance
Return on Invested Capital
For Planning and Control
ROI assists managers with:
construction, surplus plant, surplus inventories, surplus cash, and deferred charges from invested capital
Adjustment is not valid as it fails to: ➢ recognize that management has discretion
Components of ROI
Computing Invested Capital
• Usually computed using average capital available for the period
Components of ROI
Total Assets
Intangible Asset Adjustment
• Assumes skepticism of intangible asset values
• Referred to as long-term capitalization
• Excludes current liability financing
Components of ROI
Equity Capital
• Perspective is that of equity holders
optimisticor pessimistic forecasts
• ROI aids in evaluating prior forecast performance
Return on Invested Capital
For Planning and Control
ROI assists managers with:
construction, surplus plant, surplus inventories, surplus cash, and deferred charges from invested capital
Adjustment is not valid as it fails to: ➢ recognize that management has discretion
Components of ROI
Computing Invested Capital
• Usually computed using average capital available for the period
最新英文台湾中兴大学金融系王之彦老师的财务报表分析chap006精品资料
Economic Income
Income Measurement
Concepts
Accounting Concept of Income:
• Based on accrual accounting • Capture aspects of both economic income and
permanent income
income - $500 depreciation*)
*Condo’s useful life is 50 years and its salvage value is $75,000—yearly straight-line depreciation is $500
Income Measurement
Concepts
Illustration Facts:
• Net (free) cash flow = $(88,000) • Operating cash flow = $12,000 • Economic income = $37,000 • ($12,000 rental income + $25,000 holding gain) • Accounting income = $11,500 ($12,000 rental
Concepts
Economic Income:
Two measures reflect the economic concept
• economic income • permanent income
Income Measurement
Concepts
Economic Income:
• Equals net cash flows + the change in the present value of future cash flows
最新英文台湾中兴大学金融系王之彦老师的财务报表分析chap005精品资料
Equity Method Accounting
Equity method accounting—reports the parent’s investment in the subsidiary, and the parent’s share of the subsidiary’s results, as line items in the parent’s financial statements (referred to as one-line consolidation)
Investment 25,000 Equity earnings 25,000
(to record proportionate share of investee company earnings)
Cash 5,000 Investment 5,000
(to record receipt of dividends)
Intercorporate Investments
Equity Method Accounting
Investment account: ➢ Initially recorded at acquisition cost ➢ Increased by % share of investee earnings ➢ Decreased by dividends received
2,000,000 Beg.
Div. 20,000 100,000 Inc.
2,080,000 End.
Equity Investments
Important Points in Equity Method Accounting
The investment account represents the proportionate share of the stockholders’ equity of the investee company. Substantial assets and liabilities may, therefore, not be recorded on balance sheet unless the investee is consolidated. This can have important implications for the analysis of the investor company. Investment earnings (the proportionate share of the earnings of the investee company) should be distinguished from core operating earnings in the analysis of the earnings of the investor company. Investments accounted for under the equity method are reported at adjusted cost, not at market value. Substantial unrealized gains may, therefore, not be reflected in assets or stockholders’ equity.
Equity method accounting—reports the parent’s investment in the subsidiary, and the parent’s share of the subsidiary’s results, as line items in the parent’s financial statements (referred to as one-line consolidation)
Investment 25,000 Equity earnings 25,000
(to record proportionate share of investee company earnings)
Cash 5,000 Investment 5,000
(to record receipt of dividends)
Intercorporate Investments
Equity Method Accounting
Investment account: ➢ Initially recorded at acquisition cost ➢ Increased by % share of investee earnings ➢ Decreased by dividends received
2,000,000 Beg.
Div. 20,000 100,000 Inc.
2,080,000 End.
Equity Investments
Important Points in Equity Method Accounting
The investment account represents the proportionate share of the stockholders’ equity of the investee company. Substantial assets and liabilities may, therefore, not be recorded on balance sheet unless the investee is consolidated. This can have important implications for the analysis of the investor company. Investment earnings (the proportionate share of the earnings of the investee company) should be distinguished from core operating earnings in the analysis of the earnings of the investor company. Investments accounted for under the equity method are reported at adjusted cost, not at market value. Substantial unrealized gains may, therefore, not be reflected in assets or stockholders’ equity.
Analysis(财务报表分析,台湾中兴大学)-PPT文档资料
Purpose: To apply analysis tools to aid achuch as income forecasting and estimating earning power
Analyzing Revenues
Revenue Sources
• Evaluation, projection, and valuation of income is aided by segment analysis
• Segments share characteristics of variability, growth, and risk • Income forecasting benefits from forecasts by segments • Must separate and interpret the impact of individual segments
Analyzing Profitability
Measuring Income--Estimation Issues
Management discretion is part of income measurement
Estimates of skilled and experienced professionals Some consensus (less variability)
❖ Estimation Issues ❖ Accounting Methods ❖ Incentives for Disclosure ❖ Diversity across Users
Analyzing Profitability
Measuring Income--Estimation Issues
Analyzing Revenues
Revenue Sources
• Evaluation, projection, and valuation of income is aided by segment analysis
• Segments share characteristics of variability, growth, and risk • Income forecasting benefits from forecasts by segments • Must separate and interpret the impact of individual segments
Analyzing Profitability
Measuring Income--Estimation Issues
Management discretion is part of income measurement
Estimates of skilled and experienced professionals Some consensus (less variability)
❖ Estimation Issues ❖ Accounting Methods ❖ Incentives for Disclosure ❖ Diversity across Users
Analyzing Profitability
Measuring Income--Estimation Issues
财务报表分析 (台湾中兴大学)chap007
How much cash is generated from or used in operations? What expenditures are made with cash from operations?
How are dividends paid when confronting an operating loss?
Statement of Cash Flows
Depreciation Add-Back Sales - Expenses - Depreciation and amortization expense Net Income + Depreciation expense +/- Gains (losses) on sales of assets +/- Cash generated (used) by current assets and liabilities Net cash flows from operating activities
Cash Flow Analysis
7
CHAPTER
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Statement of Cash Flows
Relevance of Cash Flows
Gould Corporation Comparative Balance Sheet As of December 31, Year 2 Year 2 $ 75,000 48,000 54,000 6,000 440,000 (145,000) 51,000 $ 529,000 $ 51,000 18,000 30,000 175,000 200,000 55,000 $ 529,000 Year 1 $ 51,000 39,000 60,000 9,000 350,000 (125,000) 58,000 $ 442,000 $ 56,000 14,000 150,000 200,000 22,000 $ 442,000 Absolute Value of Change $ 24,000 9,000 6,000 3,000 90,000 20,000 7,000 5,000 4,000 30,000 150,000 175,000 33,000
财务报表分析 (台湾中兴大学)chap001
• Selling resources
Investing
Financing
Investing = Financing
Business Activities
Investing Activities
Planning Activities
Financial Activities
Operating Activities
Intrinsic Value
Accounting Analysis
Process to evaluate and adjust financial statements to better reflect economic reality
Comparability problems — across firms and across time Manager estimation error Distortion problems Earnings management Accounting Risk
Equity Analysis
Management & Control Types of Business Analysis
Labor Negotiations
Regulation
Director Oversight
Financial Management
External Auditing
Mergers, Acquisitions & Divestitures
Financial Analysis
Intrinsic Value
Dynamics of Business Activities
Business Activities
AnalysisandValuation(财务报表分析,台湾中兴大学
reclassified, their pre-tax amounts along with their tax effects
must be removed
•• Income tax disclosures enable one to separate factors that either
reduce or increase taxes such as:
••Analyzing earnings persistence is a main analysis objective
••Attributes of earnings persistence include:
• Stability • Predictability • Variability • Trend • Earnings management • Accounting methods
•
Recast earnings components
to yield meaningful
classifications and a relevant
format for analysis
•
Components
can
be
rearranged, subdivided, and tax
effected
•
ห้องสมุดไป่ตู้
•Earnings Persistence
•Recasting and Adjusting
•Information for Recasting and Adjusting
•➢ Income statement, including its subdivisions: • Income from continuing operations • Income from discontinued operations • Extraordinary gains and losses • Cumulative effect of changes in accounting
英文台湾中兴大学金融系王之彦老师的财务报表分析chap(2)
Management estimates the allowance for uncollectibles based on experience, customer fortunes, economy and industry expectations, and collection policies
some savings accounts.
Current Asset Introduction
Cash, Cash Equivalents and Liquidity
Cash Equivalents
Short-term, highly liquid investments that are: Readily convertible to a known cash amount. Close to maturity date and not sensitive to interest rate changes.
• Examine for restrictions on disposition
— remove restricted balances from current assets since they are not available for paying current obligations
— in assessing liquidity, consider repercussions of violating these agreements
4
2
4
2
3
Services sold to customers
3
Products sold
to customers
Current Asset Introduction
some savings accounts.
Current Asset Introduction
Cash, Cash Equivalents and Liquidity
Cash Equivalents
Short-term, highly liquid investments that are: Readily convertible to a known cash amount. Close to maturity date and not sensitive to interest rate changes.
• Examine for restrictions on disposition
— remove restricted balances from current assets since they are not available for paying current obligations
— in assessing liquidity, consider repercussions of violating these agreements
4
2
4
2
3
Services sold to customers
3
Products sold
to customers
Current Asset Introduction
andAnalysis(财务报表分析,台湾中兴大学)
Commission
Unions
AICPA
Lenders
Investors
Politicians
Accountants
Others
Provide input to
Financial Accounting Standards Board
Help set
Generally Accepted Accounting Principles
Predictive value
Feedback value
Timeliness
Neutrality
Verifiability
Representational faithfulness
Secondary qualities
Comparability and consistency
Financial Accounting
Level II
FASB Technical Bulletins
AICPA Industry Audit & Accounting Guidelines
AICPA Statement of
Position
Level III
FASB Emerging Issues Task Force
AICPA Practice Bulletins
FASB AICPA
Industry Practices
GAAP Managers
Alternative Information Sources
Economy and Industry Information
Voluntary Disclosure
Statutory Financial Reports (Financial Statements)
Unions
AICPA
Lenders
Investors
Politicians
Accountants
Others
Provide input to
Financial Accounting Standards Board
Help set
Generally Accepted Accounting Principles
Predictive value
Feedback value
Timeliness
Neutrality
Verifiability
Representational faithfulness
Secondary qualities
Comparability and consistency
Financial Accounting
Level II
FASB Technical Bulletins
AICPA Industry Audit & Accounting Guidelines
AICPA Statement of
Position
Level III
FASB Emerging Issues Task Force
AICPA Practice Bulletins
FASB AICPA
Industry Practices
GAAP Managers
Alternative Information Sources
Economy and Industry Information
Voluntary Disclosure
Statutory Financial Reports (Financial Statements)
chap011CreditAnalysis(财务报表分析,台湾中兴大学)
Current Liabilities
Classification as current liability depends on: 1. Manament’s intent 2. Industry practice
Analysis must assess this classification 1. Is classification as current liability appropriate? 2. If not, then adjust accounts and amounts among current and noncurrent 3. Are current liabilities reported? 4. If not, then adjust accounts for these amounts—potential examples:
Liquidity and Working Capital
Current Assets
Classification as current asset depends on:
1. Manament’s intent 2. Industry practice
Balance Shee classification
Basics
Liquidity is a matter of degree
Lack of liquidity can limit
• Advantages of favorable discounts • Profitable opportunities • Management actions • Coverage of current obligations
Credit Analysis
Classification as current liability depends on: 1. Manament’s intent 2. Industry practice
Analysis must assess this classification 1. Is classification as current liability appropriate? 2. If not, then adjust accounts and amounts among current and noncurrent 3. Are current liabilities reported? 4. If not, then adjust accounts for these amounts—potential examples:
Liquidity and Working Capital
Current Assets
Classification as current asset depends on:
1. Manament’s intent 2. Industry practice
Balance Shee classification
Basics
Liquidity is a matter of degree
Lack of liquidity can limit
• Advantages of favorable discounts • Profitable opportunities • Management actions • Coverage of current obligations
Credit Analysis
andAnalysis(财务报表分析,台湾中兴大学)
Environmental Factors
Economic, Industry & Company News
Impacts current & future financial condition and performance
Voluntary Disclosure
Many factors encourage voluntary disclosure by managers
Level IV (Least authoritative)
FASB Implementation
Guides
AICPA Interpretations
Recognized and Widely Used Industry
Practices
Environmental Factors
Securities and Exchange
Information Intermediaries
Industry devoted to collecting, processing, interpreting & disseminating company information
Includes analysts, advisers, debt raters, buy- and sell-side analysts, and forecasters
- oversee accounting process
-oNveortseceuinrrteernnatllycoanctrcoel pted in U.S. I-notSevreEnraCsleAauuinnddtietoernrrapl/erxetsersnualreautdoit accept
财务报表分析 (台湾中兴大学)chap011
Deficient when current liabilities exceed current assets
In surplus when current assets exceed current liabilities A margin of safety for creditors A liquid reserve to meet contingencies and uncertainties A constraint for technical default in many debt agreements
Measure and predict the pattern of future cash inflows and outflows?
Measure the adequacy of future cash inflows to outflows?
Answer is generally no to both these questions
• Contingent liabilities associated with loan guarantees • Future minimum rental payments under noncancelable operating leases • Progress payments under contracts • Current deferred tax liabilities (and assets)
Liquidity and Working Capital
Working Capital
Working capital more relevant when related to other key variables such as Sales Total assets
财务报表分析 (台湾中兴大学)chap012
Earnings Persistence
Recasting and Adjusting
Objectives of Recasting
1. Recast earnings and earnings components so that stable, normal and continuing elements comprising earnings are distinguished and separately analyzed from random, erratic, unusual and nonrecurring elements 2. Recast elements included in current earnings that should more properly be included in the operating results of one or more prior periods Recasting and adjusting earnings also aids in determining earning pow.5 $ (152.8) 296.7 $ (3.8) — (1.2) (0.2) (0.1) — (343.0)
Earnings Persistence
Recasting and Adjusting
General Recasting Procedures
Income statements of several years (typically at least five) are recast Recast earnings components to yield meaningful classifications and a relevant format for analysis Components can be rearranged, subdivided, and tax effected Total recasted components must reconcile to reported net income
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Income InvestedcapI
Invested Capital Defined
• No universal measure of invested capital exists
• Different measures of invested capital reflect different financiers’ perspectives
•Riskier investments are expected to yield a higher ROI
•ROI impacts a company’s ability to succeed, attract financing, repay creditors,and reward owners
optimisticor pessimistic forecasts
• ROI aids in evaluating prior forecast performance
Return on Invested Capital
For Planning and Control
ROI assists managers with:
Components of ROI
Alternative Measures of Invested Capital
Five Common Measures:
• Total Assets • Long-Term Debt Plus Equity • Equity • Market Value of Invested Capital • Investor Invested Capital
ROI Relation
•ROI relates income, or other performance measure, to a company’s level and source of financing
•ROI allows comparisons with alternative investment opportunities
Assists in Forecasting Earnings
• ROI links past, current, and forecasted earnings with
invested capital
• ROI adds discipline
to forecasting
• ROI helps identify
Return on Invested Capital
Application of ROI
ROI is applicable to:
(1) evaluating managerial effective-
ness
(2) assessing profitability
(3) earnings forecasting
• Planning • Budgeting • Coordinating activities • Evaluating opportunities • Control
Components of ROI
Definition
Return on invested capital is defined as:
Components of ROI
Total Assets
• Perspective is that of its total financing base
• Called return on assets (ROA)
ROA: measures operating efficiency/ performance reflects return from all financing does not distinguish return by
financing sources
Components of ROI
Total Assets
Some adjust this invested capital base for:
• ROI relates key summary measures: profits with financing
• ROI conveys return on invested capital from different financing perspectives
Return on Invested Capital
Return on Invested Capital
McGraw-Hill/Irwin
8
CHAPTER
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Return on Invested Capital
Importance of Joint Analysis
(4) planning and
control
Return on Invested Capital
Evaluating Managerial Effectiveness
• Management is responsible for all company activities
• ROI is a measure of managerial effectiveness in business activities
• Joint analysis is where one measure is assessed relative to another
• Return on invested capital (ROI) is an important joint analysis
Return on Invested Capital
• ROI depends on the skill, resourcefulness, ingenuity, and motivation of management
Return on Invested Capital
Measuring Profitability
• ROI is an indicator of company profitability
Invested Capital Defined
• No universal measure of invested capital exists
• Different measures of invested capital reflect different financiers’ perspectives
•Riskier investments are expected to yield a higher ROI
•ROI impacts a company’s ability to succeed, attract financing, repay creditors,and reward owners
optimisticor pessimistic forecasts
• ROI aids in evaluating prior forecast performance
Return on Invested Capital
For Planning and Control
ROI assists managers with:
Components of ROI
Alternative Measures of Invested Capital
Five Common Measures:
• Total Assets • Long-Term Debt Plus Equity • Equity • Market Value of Invested Capital • Investor Invested Capital
ROI Relation
•ROI relates income, or other performance measure, to a company’s level and source of financing
•ROI allows comparisons with alternative investment opportunities
Assists in Forecasting Earnings
• ROI links past, current, and forecasted earnings with
invested capital
• ROI adds discipline
to forecasting
• ROI helps identify
Return on Invested Capital
Application of ROI
ROI is applicable to:
(1) evaluating managerial effective-
ness
(2) assessing profitability
(3) earnings forecasting
• Planning • Budgeting • Coordinating activities • Evaluating opportunities • Control
Components of ROI
Definition
Return on invested capital is defined as:
Components of ROI
Total Assets
• Perspective is that of its total financing base
• Called return on assets (ROA)
ROA: measures operating efficiency/ performance reflects return from all financing does not distinguish return by
financing sources
Components of ROI
Total Assets
Some adjust this invested capital base for:
• ROI relates key summary measures: profits with financing
• ROI conveys return on invested capital from different financing perspectives
Return on Invested Capital
Return on Invested Capital
McGraw-Hill/Irwin
8
CHAPTER
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Return on Invested Capital
Importance of Joint Analysis
(4) planning and
control
Return on Invested Capital
Evaluating Managerial Effectiveness
• Management is responsible for all company activities
• ROI is a measure of managerial effectiveness in business activities
• Joint analysis is where one measure is assessed relative to another
• Return on invested capital (ROI) is an important joint analysis
Return on Invested Capital
• ROI depends on the skill, resourcefulness, ingenuity, and motivation of management
Return on Invested Capital
Measuring Profitability
• ROI is an indicator of company profitability