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Lecture 2

FINA601 Lecture Notes - Lecture 2: Economic Model, Financial Statement, Financial Plan

16 pages93 viewsSummer 2018

Department
FINA
Course Code
FINA601
Professor
Ivan
Lecture
2

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Week 2 Lecture 2 Chapter 3: Financial Statement Analysis and Financial Models
Standardizing Statements
When comparing two companies financial statement , we would immediately have a
problem It’s almost impossible to directly compare the financial statements for two
companies because of difference in size
To start making comparisons, one common and useful way of doing this is to work
with percentages instead of total dollars (this is called common-size statements)
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Common-Size Balance Sheet
What a normal balance sheet looks like:
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This is what Common-Size Balance looks like:
In this form, financial statements are relatively easy to read and compare
For example, just looking at the two balance sheets for Prufrock, we see that current
assets were 19.7 percent of total assets in 2015, up from 19.1 percent in 2014
Current liabilities declined from 16.0 percent to 15.1 percent of total liabilities and
equity over that same time. Similarly, total equity rose from 68.1 percent of total
liabilities and equity to 72.2 percent.
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