Solution Manual For Financial Statement Analysis 10th Edition By Subramanyam

Chapter 01 Overview of Financial Statement Analysis




Chapter 1
Overview of
Financial Statement Analysis

REVIEW

Financial statement analysis is one important step in business analysis. Business analysis
is the process of evaluating a company’s economic prospects and risks. This includes
analyzing a company’s business environment, its strategies, and its financial position and
performance. Business analysis is useful in a wide range of business decisions such as
investing in equity or debt securities, extending credit through short or long term loans,
valuing a business in an initial public offering (IPO), and evaluating restructurings including
mergers, acquisitions, and divestitures. Financial statement analysis is the application of
analytical tools and techniques to general-purpose financial statements and related data to
derive estimates and inferences useful in business analysis. Financial statement analysis
reduces one’s reliance on hunches, guesses, and intuition for business decisions. This
chapter describes business analysis and the role of financial statement analysis. The
chapter also introduces financial statements and explains how they reflect underlying
business activities. Several tools and techniques of financial statement analysis are also
introduced. Application of these tools and techniques is illustrated in a preliminary business
analysis of Dell.




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,Chapter 01 Overview of Financial Statement Analysis



OUTLINE
 Introduction to Business analysis
Types of Business Analysis
Credit Analysis
Equity Analysis
Other Uses of Business Analysis
Managers
Mergers, Acquisitions, and Divestitures
Financial Management
External Auditors


Components of Business Analysis
Business Environment and Strategy Analysis
Financial Analysis
Accounting Analysis
Prospective Analysis
Valuation
Financial Statement Analysis and Business Analysis


 Financial Statements-Basis of Analysis
Financial Statements Reflect Business Activities
Planning Activities
Financing Activities
Investing Activities
Operating Activities


The Annual Report
Balance Sheet
Income Statement
Statement of Shareholders’ Equity
Statement of Cash Flows
Links Between Financial Statements
Additional Information
Management Discussion and Analysis (MD&A)
Management Report
Auditor Report
Explanatory Notes
Supplementary Information



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,Chapter 01 Overview of Financial Statement Analysis


Social Responsibility Reports
Proxy Statements


 Financial Statement Analysis Preview
Analysis Tools
Areas of Preliminary Analysis
Comparative Financial Statement Analysis
Year-to-Year Change Analysis
Index-Number Trend Analysis
Common-Size Financial Statement Analysis
Ratio Analysis
Factors Affecting Ratios
Ratio Interpretation
Illustration of Ratio Analysis
Cash Flow Analysis


 Specialized Analysis Tools
Valuation Models
Debt Valuation
Equity Valuation
Analysis in an Efficient Market
Market Efficiency
Market Efficiency Implications for Analysis


 Book Organization




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, Chapter 01 Overview of Financial Statement Analysis




ANALYSIS OBJECTIVES

 Explain business analysis and its relation to financial statement analysis

 Identify and discuss different types of business analysis

 Describe the component analyses that constitute business analysis

 Explain business activities and their relation to financial statements

 Describe the purpose of each financial statement and linkages between them

 Identify relevant analysis information beyond financial statements

 Analyze and interpret financial statements as a preview to more detailed analyses

 Apply several basic financial statement analysis techniques

 Define and formulate some fundamental valuation models

 Explain the purpose of financial statement analysis in an efficient market




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