AFM101 Chapter Notes - Chapter 13: Financial Statement Analysis, Mcchicken, Product Differentiation
26 Jun 2018
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AFSA Education
AFM 101 Chapter 13
Analyzing Financial Statements
The Investment Decision
- Analysts are information intermediaries who interpret audited financial information
- Analysts consider other factors that might affect the future operating performance of
the company
- Investors should evaluate the future net earnings and growth potential of the business
on the basis of three factors:
o Economy-wide factors
Overall health of the economy
ex: unemployment rate, inflation rate, interest rates
o Industry factors
Certain events within an industry or outside the industry
Ex: a drought affecting the food industry
o Individual company factors
Company specific
past, present and future information, including company strategy –
MD&A useful source of information, consider product differentiation etc.
Ex: the actual McChicken of Mcdonalds
Understanding a Company’s strategy
- Useful starting point for financial statement analysis is the return on equity (ROE)
- Dupont model
o ROE = Net Profit Margin x Total Asset Turnover Ratio x Financial Leverage
- 2 fundamental strategies
o Product Differentiation
Company offers unique benefits to increase prices that results in higher
profit margins
o Cost Advantage
Companies attempt to operate more efficiently, to offer lower prices and
attract customers
- Analysis starts with a solid understanding of a company’s business strategy found in the
annual report
- Company can take different actions to try to affect each ratio in the Dupont model
Financial Statement Analysis
- Two types of benchmarks for making financial comparisons: time series and
comparisons with other companies
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AFM101 Full Course Notes
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Document Summary
Analysts are information intermediaries who interpret audited financial information. Analysts consider other factors that might affect the future operating performance of the company. Investors should evaluate the future net earnings and growth potential of the business on the basis of three factors: economy-wide factors. Ex: unemployment rate, inflation rate, interest rates. Certain events within an industry or outside the industry. Ex: a drought affecting the food industry. Past, present and future information, including company strategy . Md&a useful source of information, consider product differentiation etc. Useful starting point for financial statement analysis is the return on equity (roe) 2 fundamental strategies: roe = net profit margin x total asset turnover ratio x financial leverage, product differentiation profit margins. Company offers unique benefits to increase prices that results in higher: cost advantage attract customers. Companies attempt to operate more efficiently, to offer lower prices and. Analysis starts with a solid understanding of a company"s business strategy found in the.
