View
217
Download
1
Tags:
Embed Size (px)
Citation preview
1FINANCIAL ANALYSIS
1. Financial Statement Analysis
2. Common Size Statement Analysis
3. Ratio Analysis
4. Sources/ Uses of Funds
5. Statement of Cash Flow
6. Free Cash Flow, MVA, EVA
2Table 3-1 Allied Food Products: December 31 Balance Sheets ($ Millions)
ASSETS 2005 2004 LIABILITIES & EQUITY 2005 2004
Cash & equivalents $ 10 $ 80 Accounts payable $ 60 $ 30
Notes payable 110 60
Accounts receivable 375 315 Accruals 140 130
Inventories 615 415 Total current liabilities $ 310 $ 220
Total current assets $1,000 810 Long-term bonds 750 580
Net plant & Total debt $1,060 $ 800
equipment 1,000 870
Common stock
(50,000,000 shares) 130 130
Retained earnings 810 750
Total common equity $ 940 $ 880
Total assets $2,000 $1,680 Total liabilities & equity $2,000 $1,680
3Table 3-2 Allied Food Products: Income Statements for Years Ending December
31 ($ Millions, except for per-share data) 2005 2004
Net sales $ 3,000.0 $ 2,850.0Operating costs except depreciation 2,616.2 2,497.0Earnings before interest, taxes, and depreciation(EBITDA) $ 383.8 $ 353.0Depreciation 100.0 90.0Earnings before interest & taxes (EBIT) $ 283.8 $ 263.0
Less interest 88.0 60.0Earnings before taxes (EBT) $ 195.8 $ 203.0
Taxes (40%) 78.3 81.2Net income $ 117.5 $ 121.8Common dividends $ 57.5 $ 53.0Addition to retained earnings $ 60.0 $ 68.8Per-share data:
Common stock price $ 23.00 $ 26.00Earnings per share (EPS)a $ 2.35 $ 2.44Dividends per share (DPS)a $ 1.15 $ 1.06Book value per share (BVPS)a $ 18.80 $ 17.60
Cash flow per share (CFPS)a $ 4.35 $ 4.24
4Table 3-2 Allied Food Products: Income Statements for years ending December
31 ($ Millions, except for per-share data)
a There are 50,000,000 shares of common stock outstanding. Note that EPS is based on earnings after preferred dividends - that is, on net income available to common stockholders. Calculations of EPS, DPS, and BVPS for 2004 are as follows:
EPS = Net income
= $117,500,000
= $2.35
Common shares outstanding 50,000,000
DPS = Dividends paid to common stockholders
= $57,500,000
= $1.15
Common shares outstanding 50,000,000
BVPS = Total common equity
= $940,000,000
= $18.80
Common shares outstanding 50,000,000
CFPS = Net income + Depreciation + Amortization
= $217,500,000
= $4.35
Common shares outstanding 50,000,000
=
5Table 3-4 Allied Food Products: Statement of Retained
Earnings for year ending December 31, 2005($ Millions)
Balance of retained earnings, Dec 31, 2004 $ 750.0
Add: Net income, 2005 117.5
Less: Dividends to common stockholders (57.5)a
Balance of retained earnings, Dec 31, 2005 $ 810.0
a Here, and throughout the book, parentheses are used to denote negative numbers.
6 Income Statement Common Size Analysis
% of Sales Ind. ave
Net sales $ 3,000 100 %
Costs excluding depreciation 2,616. 2 87. 2 62 %
Depreciation 100 3. 3 8
Total operating costs 2,716. 2 90. 5 % 70 %
Net Operating Income, or Earnings
before interest and taxes (EBIT) $ 283. 8 9. 5 % 30 %
Less interest expense 88 2. 9 5
Earnings before taxes (EBT) $ 195. 8 6. 5 22
Taxes ( 40% ) 78. 3 2. 6 4
Net Income available to C. S. 117. 5 3. 9 18
Common Dividends 57. 5 1. 9 8
Add. to Retained Earnings 60 2. 0 9
7 Balance Sheet Common Size Analysis
% of Total Assets Ind. Ave. Comment
Cash / Securities $10 0. 50 % 10% very low
Accounts Receivable 375 18. 75 15 OK
Inventories 615 30. 75 40 low
Total Current Assets $1,000 50 % 65 % low, risky
Net Plant & Equip. 1,000 50 45 OK
Total Assets $2,000 100 %
Accounts payable $ 60 3 % 7 OK
Notes payable 110 5. 5 4 slightly high
Accruals 140 7 10 slightly low
Total Current Lia. $310 15. 5 % 21 low
Long-term Bonds 750 37. 5 22 high
Total Debt 1,060 53% 43 high
Common stock 130 6. 5 15 low
Retained earnings 810 40. 5 40 OK
Total Common Equity $940 47% 65 low
Total Lia. & Equity $2,000 100%
8 Allied Food Products: Summary of Financial Ratios ($ Millions)
Ind.
Ratio Formula Calculations Ratio Avg Comment
Liquidity
Current Current assets $1,000 = 3.2x 4.2x Poor
Current liabilities $310
Quick, or Current assets - Inventories $385 = 1.2x 2.2x Poor
acid test Current liabilities $310
9 Allied Food Products: Summary of Financial Ratios ($ Millions)
Ind.
Ratio Formula Calculations Ratio Avg Comment
Asset Management
Inventory Sales $3,000 = 4.9x 10.9x Poor
turnover Inventories $615
Days sales Receivables $375 = 46 days 36 days Poor
outstanding (DSO) Annual sales/365 $8.22
Fixed assets Sales $3,000 = 3.0x 2.8x O.K.
turnover Net fixed assets $1,000
Total assets Sales $3,000 = 1.5x 1.8x Somewhat
turnover Total assets $2,000 low
10 Allied Food Products: Summary of Financial Ratios ($ Millions)
Ind.
Ratio Formula Calculations Ratio Avg Comment
Debt Management
Total debt to Total debts $1,060 = 53% 40.0% High
total assets Total assets $2,000 (risky)
Times-interest Earnings before interest & taxes (EBIT) $283.8 = 3.2x 6.0x Low
earned (TIE) Interest charges $88 (risky)
EBITDA EBITDA + Lease payments $383.8 + $28
coverage I nterest + Principal + Lease $88 + $20 + $28 charges payments payments
$411.8 = 3.0 x 4.3x Low
$136 (risky)
11 Allied Food Products: Summary of Financial Ratios ($ Millions)
Ind.
Ratio Formula Calculations Ratio Avg Comment
ProfitabilityProfit margin Net income available to common stockholders $117.5 = 3.9% 5.0% Poor
on sales Sales $3,000
Basic earning Earnings before interest & taxes (EBIT) $283.8 = 14.2% 18% Poor
power (BEP) Total assets $2,000
Return on total Net income available to common stockholders $117.5 = 5.9% 9.0% Poor
assets (ROA) Total assets $2,000
Return on Net income available to common stockholders $117.5 = 12.5% 15% Poor
common equity Common equity $940
(ROE)
12 Allied Food Products: Summary of Financial Ratios ($ Millions)
Ind.
Ratio Formula Calculations Ratio Avg Comment
Market Value
Price/earnings Price per share $23.00 = 9.8x 11.3x Low
(P/E) Earnings per share $2.35
Price/cash flow Price per share $23.00 = 5.3x 5.4x Low
Cash flow per share $4.35
Market/book Market price per share $23.00 = 1.2x 1.7x Low
(M/B) Book value per share $18.80
13Allied Food Products: Summary of Financial Ratios ($ Millions)
Ratio FormulaOther RatiosDividend payout ratio : Div. = $57.5 = 48.9% N I $117.5
Retention ratio: 1 - payout ratio = 1 – 48.9% = 51.1% or
Retained earnings = $60 = 51.1% N I $117.5
14 Du Pont Analysis (Allied Food Products)
ROE =
Profit x Total assets
x Equity
margin turnover multiplier
NI =
NI x Sales
x TA
Equity Sales TA Equity
Firm: 12.5% = 3.9% x 1.5 x 2.13
Industry: 15.0% = 5.0% x 1.8 x 1.67
15 Allied Food Products: Changes in Balance Sheet Accounts During 2005 ($
Millions)
CHANGE 12/31/05 12/31/04 Sources Uses
Cash & marketable securities $ 10 $ 80 $ 70
Accounts receivable 375 315 $ 60
Inventories 615 415 200
Gross plant & equipment 1,500 1,270 230
Less Accum. Depreciation (500) (400) 100
Net plant & equipment 1,000 870
Accounts payable 60 30 30
Notes payable 110 60 50
Accruals 140 130 10
Long-term bonds 750 580 170
Common stock 130 130
Retained earnings 810 750 60
Totals $490 $490
16 Allied Food Products: Statement of Cash Flows for 2005 ($ Millions)OPERATING ACTIVITIES
Net income $117.5Additions (Sources of Cash)
Depreciationa 100.0Increase in accounts payable 30.0Increase in accruals 10.0
Subtractions (Uses of Cash)Increase in accounts receivable (60.0)Increase in inventories (200.0)
Net cash provided by operating activities ($ 2.5)LONG-TERM INVESTING ACTIVITIESCash used to acquire fixed assetsb ($230.0)FINANCING ACTIVITIES
Increase in notes payable $ 50.0Increase in bonds 170.0Payment of common dividends (57.5)
Net cash provided by financing activities $ 162.5Net decrease in cash & marketable securities ($ 70.0)Cash & securities at beginning of year 80.0Cash & securities at end of year $ 10.0
17 Allied Food Products: Statement of Cash Flows for 2005 ($ Millions)
a Depreciation is a non-cash expense that was deducted when calculating net income. It must be added back to show the correct cash flow from operations.
b The net increase in fixed assets is $130 million; however, this net amount is after a deduction for the year’s depreciation expense. Depreciation expense should be added back to show the increase in gross fixed assets. From the company’s income statement, we see that 2004 depreciation expense is $100 million; thus, the acquisition of fixed assets equals $230 million.
18
Stock Markets and Stock ReportingI. Stock markets
A. New York stock exchange (NYSE)
B. American stock exchange (AMEX)
C. Over-the-counter (OTC) markets
D. Smaller regional markets
Ii. Stock market reporting52 weeks Yld. P-E sales net
High low stock div. % Ratio 100s high low close chg.
1757/8 102 IBM 4.40 3.8 16 27989 1181/4 1151/4 1171/4 +13/4
Dividend yield = D/P
= $4.40 / $117.25 = 3.8%
19
Free Cash Flow, MVA, EVA, and Stock Valuation
20FREE CASH FLOW
2004 2005CA (Current Asset) 810 1,000
AP (Account Payable) -30 -60
Accruals -130 -140
Total Operating Working Capital (TOWC) 650 800
Net Fixed Asset 870 1,000
Total Operating Capital (TOC) 1,520 1,800
Net Investment in Oper. Cap (NIOC) 280
Depreciation (2002) 100
Gross Investment in Operating Cap (GIOC) 380
21
NET OPERATING PROFIT AFTER TAX (NOPAT):NOPAT = EBIT ( 1 – TAX ) 283.8 (1- 0.4) = 170.3
FREE CASH FLOW CALCULATION:
FCF = NOPAT – NIOC = 170.3 - 280 = - 109.7FCF = NOPAT + Depreciation – GIOC = 170.3 + 100 – 380 = - 109.7
(NOPAT + Depreciation = Operating Cash Flow)
FREE CASH FLOW
22STOCK VALUATION
Total Corporation Value =
PV (FCF1)+PV (FCF2)+....+ PV ( FCFn) + PV (Terminal Value)Where i = WACC
Terminal Value = FCF n +1 WACC - g
Value of Common Stock Equity =
Total Corp. Value – Market Value of Debt – Market Value of Preferred Stock
23MARKET VALUE ADDED (MVA)
MVA measure the effects of managerial actions since the inception of a company
MVA = Market Value – Book Value MVA = (Stock Price * No of shares) – Common Stock Equity
MVA = ( 23 * 50 mil shares) – 940
MVA = $ 210
24
ECONOMIC VALUE ADDED (EVA)
EVA measures the managerial effectiveness in a given year
EVA = Net Oper. Profit After Tax- After Tax Dollar Cost of Operating Capital
EVA = NOPAT – (Total Operating Capital * WACC)
EVA = EBIT (1–T) – (TOC * WACC)
EVA = 283.8 (1-0.4) – (1800 * 10%)
EVA = 170.3 – 180
EVA = $ - 9.7