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Corporate Finance Workbook: A Practical Approach, Second Edition by George H. Troughton, CFA, Martin S. Fridson, CFA, Michelle R. Clayman, CFA

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CHAPTER 9

FINANCIAL STATEMENT ANALYSIS

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

  • Interpret common-size balance sheets and common-size income statements and demonstrate their use by applying either vertical analysis or horizontal analysis.
  • Calculate and interpret measures of a company’s operating efficiency, internal liquidity (liquidity ratios), solvency, and profitability, and demonstrate the use of these measures in company analysis.
  • Calculate and interpret variations of the DuPont expression and demonstrate use of the DuPont approach in corporate analysis.
  • Calculate and interpret basic earnings per share and diluted earnings per share.
  • Calculate and interpret book value of equity per share, price-to-earnings ratio, dividends per share, dividend payout ratio, and plowback ratio.
  • Demonstrate the use of pro forma income and balance sheet statements.

SUMMARY OVERVIEW

A challenge that we face in financial analysis is making sense of the wealth of information that is available about a company and the industry in which it operates. Companies provide shareholders and investors with quarterly and annual financial statements, as well as numerous other financial releases. Financial ratio analysis and common-size analysis help us gauge the financial performance and condition of a company through an examination of relationships among these many financial items.

A thorough financial analysis of a company requires examining its efficiency in ...

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