Comprehensive Case
Applying Financial Statement Analysis
REVIEW
A comprehensive case analysis of the financial statements and notes of Campbell Soup
Company is our focus. The book has prepared us to tackle all facets of financial
statement analysis. This comprehensive case analysis provides us the opportunity to
illustrate and apply these analysis tools and techniques. This case also gives us the
opportunity to show how we draw conclusions and inferences from detailed analysis. We
review the basic steps of analysis, the building blocks, and the attributes of an expert
analysis report. Throughout the case we emphasize applications and inferences
associated with financial statement analysis.
, OUTLINE
• Steps in Analyzing Financial Statements
• Building Blocks of Financial Statement Analysis
• Reporting on Financial Statement Analysis
• Specialization in Financial Statement Analysis
• Comprehensive Case: Campbell Soup Company
Preliminary Financial Analysis
Short-Term Liquidity
Capital Structure and Solvency
Return on Invested Capital
Analysis of Asset Utilization
Analysis of Operating Performance and Profitability
Forecasting and valuation
Summary Evaluation and Inferences
, ANALYSIS OBJECTIVES
• Describe the steps in analyzing financial statements.
• Review the building blocks of financial statement analysis.
• Explain important attributes of reporting on financial statement analysis.
• Describe implications to financial statement analysis from evaluating companies in
specialized industries or with unique characteristics.
• Analyze in a comprehensive manner the financial statements and notes of
Campbell Soup Company.
, QUESTIONS
1. The six major "building blocks" of financial analysis that we have studied are:
i. Short-term liquidity—the ability to meet short-term obligations.
ii. Cash analysis and forecasting—future availability and disposition of cash.
iii. Capital structure and solvency—ability to generate future revenues and meet
long-term obligations.
iv. Return on invested capital—ability to provide financial rewards sufficient to attract
and retain financing.
v. Asset utilization (turnover)—asset intensity in generating revenues to reach a
sufficient profitability level.
vi. Operating performance and profitability—success at maximizing revenues and
minimizing expenses from operating activities over the long run.
The initial step in applying the building blocks to financial statement analysis
involves:
i. Determining the specific objectives of the analysis task.
ii. Arriving at a judgment about which of the six major areas of analysis must be
evaluated with what degree of emphasis and in what order of priority.
1. Financial statement analysis is oriented toward the achievement of specific
objectives. So that an analysis can best serve these objectives, the first step is to
define them carefully. The thinking and clarification leading up to the definition of
objectives is an important part of the analytical process as it insures a clear
understanding of objectives, of what is pertinent and relevant, and thus leads to
avoidance of unnecessary work. This is indispensable to an effective as well as an
efficient analysis. Effectiveness, given the specific objectives, is enhanced because
of a focus on the most important elements of the financial statements in light of the
decision task. It is also efficient in that it leads to an analysis with maximum economy
of time and effort.
1. An analyst of financial statement data must always bear in mind that financial
statements are at best an abstraction of an underlying reality. Further mathematical
Applying Financial Statement Analysis
REVIEW
A comprehensive case analysis of the financial statements and notes of Campbell Soup
Company is our focus. The book has prepared us to tackle all facets of financial
statement analysis. This comprehensive case analysis provides us the opportunity to
illustrate and apply these analysis tools and techniques. This case also gives us the
opportunity to show how we draw conclusions and inferences from detailed analysis. We
review the basic steps of analysis, the building blocks, and the attributes of an expert
analysis report. Throughout the case we emphasize applications and inferences
associated with financial statement analysis.
, OUTLINE
• Steps in Analyzing Financial Statements
• Building Blocks of Financial Statement Analysis
• Reporting on Financial Statement Analysis
• Specialization in Financial Statement Analysis
• Comprehensive Case: Campbell Soup Company
Preliminary Financial Analysis
Short-Term Liquidity
Capital Structure and Solvency
Return on Invested Capital
Analysis of Asset Utilization
Analysis of Operating Performance and Profitability
Forecasting and valuation
Summary Evaluation and Inferences
, ANALYSIS OBJECTIVES
• Describe the steps in analyzing financial statements.
• Review the building blocks of financial statement analysis.
• Explain important attributes of reporting on financial statement analysis.
• Describe implications to financial statement analysis from evaluating companies in
specialized industries or with unique characteristics.
• Analyze in a comprehensive manner the financial statements and notes of
Campbell Soup Company.
, QUESTIONS
1. The six major "building blocks" of financial analysis that we have studied are:
i. Short-term liquidity—the ability to meet short-term obligations.
ii. Cash analysis and forecasting—future availability and disposition of cash.
iii. Capital structure and solvency—ability to generate future revenues and meet
long-term obligations.
iv. Return on invested capital—ability to provide financial rewards sufficient to attract
and retain financing.
v. Asset utilization (turnover)—asset intensity in generating revenues to reach a
sufficient profitability level.
vi. Operating performance and profitability—success at maximizing revenues and
minimizing expenses from operating activities over the long run.
The initial step in applying the building blocks to financial statement analysis
involves:
i. Determining the specific objectives of the analysis task.
ii. Arriving at a judgment about which of the six major areas of analysis must be
evaluated with what degree of emphasis and in what order of priority.
1. Financial statement analysis is oriented toward the achievement of specific
objectives. So that an analysis can best serve these objectives, the first step is to
define them carefully. The thinking and clarification leading up to the definition of
objectives is an important part of the analytical process as it insures a clear
understanding of objectives, of what is pertinent and relevant, and thus leads to
avoidance of unnecessary work. This is indispensable to an effective as well as an
efficient analysis. Effectiveness, given the specific objectives, is enhanced because
of a focus on the most important elements of the financial statements in light of the
decision task. It is also efficient in that it leads to an analysis with maximum economy
of time and effort.
1. An analyst of financial statement data must always bear in mind that financial
statements are at best an abstraction of an underlying reality. Further mathematical
