BU283 Lecture Notes - Lecture 1: Financial Analysis, Accounts Receivable, Time Series
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Liabilities/owners equity provide the funds for these assets: left side assets that generate income, right side financing the assets. If a firm borrows money, it will be an increase in cash. If it pays off debt, that will be a reduction in cash. Similarly, if dividends are paid, or if we sell or retire equity, there will be changes in cash balances. Financial analysis is a powerful tool to help drive investment and management decisions. We do not use it to find very many absolute a(cid:374)s(cid:449)e(cid:396)s, (cid:271)ut (cid:449)e (cid:272)a(cid:374) use it to fi(cid:374)d (cid:858)(cid:396)ed flags(cid:859). Identify weaknesses: by identifying problems early, managers can make corrections to improve firm performance. Important for investors as well: identify strengths, capitalize o(cid:374) the (cid:272)o(cid:373)pa(cid:374)(cid:455)(cid:859)s st(cid:396)e(cid:374)gths to (cid:373)a(cid:454)i(cid:373)ize thei(cid:396) pote(cid:374)tial. C(cid:396)oss se(cid:272)tio(cid:374)al a(cid:374)al(cid:455)sis is the (cid:272)o(cid:373)pa(cid:396)iso(cid:374) of o(cid:374)e fi(cid:396)(cid:373) to othe(cid:396) si(cid:373)ila(cid:396) fi(cid:396)(cid:373)s. o(cid:374)e (cid:449)a(cid:455) to ide(cid:374)tif(cid:455) a fi(cid:396)(cid:373)(cid:859)s i(cid:374)dust(cid:396)(cid:455) is (cid:271)(cid:455) its. Ti(cid:373)e se(cid:396)ies a(cid:374)al(cid:455)sis is (cid:272)o(cid:373)pa(cid:396)i(cid:374)g the fi(cid:396)(cid:373)(cid:859)s (cid:272)u(cid:396)(cid:396)e(cid:374)t pe(cid:396)fo(cid:396)(cid:373)a(cid:374)(cid:272)e to p(cid:396)io(cid:396) pe(cid:396)iods.
