Financial Analysis And Forecasting Pdf

Financial Analysis And Forecasting Pdf – 2 Techniques of Financial Analysis, Modeling, and Forecasting (Course #5710A/QAS-5710A) Table of Contents PART I: TOOLS AND TECHNIQUES OF FINANCIAL ANALYSIS Page Chapter 1: Break-Even and Contribution Margin Analysis I. What is Cost, Volume, and Profit Analysis? 1-1 A. Applying the CVP Model 1-1 B. The What and Why of Break-Even Sales 1-2 C. The Break-Even Point 1-3 D. The Formula Approach 1-6 E. What is the Margin of Safety? 1-7 F. Cash Breakeven Point 1-7 II. What is operating leverage? 1-8 III. Sales mix analysis 1-10 IV. Contribution Margin Analysis 1-11 A. Accepting or Rejecting Special Offers 1-12 B. Analyzing Make or Buy Decisions 1-13 C. Determining Whether to Sell or Reprocess 1-14 D. Adding or Removing Product Lines 1- 15 E. Using Scarce Resources 1-16 F. Don’t Forget Qualitative Factors 1-17 V. Conclusion 1-17 Review Questions and Solutions 1-18 Chapter 2: Understanding and Applying the Time Value of Money Concept I. Present Value and Future Value Techniques Assumptions 2-1 II. Present value Table 2-1 III. Future value Table 2-2 IV. Present Value and Future Value Table 2-2 A. Future Value of $1 (Table 2.1) 2-2 B. Future Value of a $1 Annuity (Table 2.2) 2-4 C. Future Value of a $1 Annuity Due (Table 2.2 Adapted) 2 -6 D. Present Value of $1 (Table 2.3) 2-9 E. Present Value of an Annuity $1 (Table 2.4) 2-9 F. Present Value of an Annuity Due $1 (Table 2.4 Adapted) 2-12 V. Perpetuity 2- 15 VI. Conclusion 2-15 Review Questions and Solutions 2-16 Contents 1

3 Table of Contents (continued) Page Chapter 3: How to Determine Capital Expenditure Proposals for Strategic Decision Making I. Factors to Consider When Determining Capital Expenditures 3-3 II. Types of capital budgeting decisions 3-3 III. Capital Budgeting Method 3-3 A. Payback Period 3-3 B. Discounted Payback Period 3-4 C. Accounting Rate of Return 3-5 D. Net Present Value 3-6 E. Internal Rate of Return 3-6 F. Index Profit 3 -8 IV. How to choose the best mix of projects with a limited budget 3-8 V. How to deal with mutually exclusive investments 3-9 VI. Capital Budgeting Risk Analysis 3-10 A. Probability Distribution 3-10 B. Risk-Adjusted Discount Rate 3-11 C. Equivalent Security Approach 3-12 D. Simulation 3-13 E. Sensitivity Analysis 3-13 F. Decision Tree 3 -13 VII. Conclusion 3-14 Review Questions and Solutions 3-15 Chapter 4: Analyzing Financial Statements for Financial Capability I. Who Uses Financial Analysis 4-1 A. Internal Managers 4-1 B. External Users 4-1 C. Horizontal and Vertical Analysis 4 -2 II. Analysis of financial statements 4-2 A. Trend analysis 4-2 B. Horizontal analysis 4-3 C. Vertical analysis 4-5 III. Ratio Analysis 4-8 A. Liquidity Analysis 4-8 B. Measuring a Company’s Ability to Pay Long-Term Debt 4-14 C. Profitability Ratio 4-16 D. Evaluating Stocks as Investments 4-18 IV. Limitations of Ratio Analysis 4-20 Review Questions and Solutions 4-21 Chapter 5: Earnings Quality Analysis I. Earnings Quality 5-1 II. Discretionary cost analysis 5-3 III. Accounting estimates 5-3 IV. Internal control and integrity management 5-4 V. Relations with auditors and reports 5-5 VI. Conclusion 5-5 Review Questions and Solutions 5-6 Contents 2

Financial Analysis And Forecasting Pdf

4 Table of Contents (continued) Page Chapter 6: Variance Analysis Analysis for Cost Control I. Responsibility Accounting and the Responsibility Center 6-1 II. Analysis of Standard Costs and Variance 6-2 III. General Variance Analysis Model 6-4 A. Materials Variance 6-4 B. Labor Variance 6-5 C. Overhead Variance 6-6 IV. Flexible budgeting and performance reports 6-7 V. Non-financial performance measures 6-9 VI. Conclusion 6-10 Review Questions and Solutions 6-11 Chapter 7: Segment Performance and Profit Variance Analysis I. Segment Reports for Profit Centers 7-1 II. Profit Variance Analysis 7-3 A. Types of Standards in Profit Variance Analysis 7-3 B. Single-Product Firm 7-4 C. Multi-Product Firm 7-4 D. Managerial Planning and Decision Making 7-9 III. Sales mix analysis 7-10 IV. Conclusion 7-10 Review Questions and Solutions 7-12 PART II: MANAGEMENT AND CONTROL OF FINANCIAL ASSETS, INVESTMENTS, AND POTENTIAL ACQUISITIONS Chapter 8: Performance Evaluation Section I. Rate of Return on Investment (ROI) 8-1 A. Du Pont Formula 8 Breakdown ROI -2 II. ROI and profit planning 8-3 III. Residual income (RI) 8-5 A. Residual income and economic added value 8-6 IV. ROI and RI Investment Decisions 8-6 V. Conclusion 8-7 Overview of Questions and Solutions 8-8 Chapter 9: Working Capital Analysis I. Working Capital Valuation 9-1 II. Cash Management 9-2 A. Cash Flow Acceleration 9-2 B. Cash Disbursement Delay 9-6 C. Monetary Model 9-7 III. Receivables management 9-9 A. Credit policy 9-10 B. Monitoring of receivables 9-10 C. Credit policy 9-11 D. Determination of investment in receivables 9-12 E. Discount policy 9-13 Contents 3

Orwe Financial Forecasting And Analysis.pdf

5 BIBLIOGRAPHY (continued) Page IV. Inventory Management 9-17 A. Quantity Discounts 9-18 B. Investing in Inventory 9-18 C. Determining Carrying and Ordering Costs 9-19 D. Reorder Points 9-21 E. Inventory Control 9-22 V. Conclusion 9 – 23 Review Questions and Solutions 9-24 Chapter 10: Corporate Investments I. Accounting Aspects 10-1 II. Implications of the analysis 10-2 III. Obtaining Information 10-3 A. Market Information and Indices 10-3 B. Economic and Political Events 10-4 C. Industry and Business Analysis 10-4 D. Microcomputers and Electronic Databases 10-4 IV. Risk versus Return 10-5 V. Financial Assets 10-6 A. Common Stock 10-7 B. Preferred Stock 10-7 C. Bonds 10-8 D. Convertible Securities 10-8 E. Warrants 10-8 F Options 10 -9 G. Future contracts VI. Real estate A. Real estate B. Precious metals VII. Portfolio analysis VIII. Mutual fund IX. Fundamental Analysis X. Technical Analysis A. Key Indicators B. Chart XI. Conclusion Questions and Solutions Overview Chapter 11: Obtaining Funds: Short-Term and Long-Term Financing I. Financial Planning 11-1 II. Short-Term Financing 11-1 A. Use of Trade Credit 11-2 B. Bank Loans 11-2 C. Interest 11-4 D. Commercial Financing Loans 11-4 E. Commercial Paper 11-5 F. Debt Financing 11-5 G. Use of inventory for financing 11-7 H. Financing with other assets 11-7 Contents 4

6 Contents (continued) Page III. Medium-Term Financing: Term Loans and Leasing 11-7 A. Purpose of Medium-Term Bank Loans 11-8 IV. Types of Long-Term Debt 11-8 A. Mortgages 11-8 B. Bonds 11-9 C. Interest 11-9 V. Cost of Capital 11-9 A. Calculation of Individual Cost of Capital B. Cost of Debt C. Cost of Preferred Stock D. Cost of Equity capital E. Cost of retained earnings F. Measurement of total cost of capital G. Historical weight VI. Conclusion Overview Questions and Solutions Chapter 12: Analysis of Mergers and Acquisitions I. Mergers 12-2 II. Determining Acquisition Terms 12-4 A. Earnings 12-4 B. Dividends 12-4 C. Market Price 12-4 D. Book Value Per Share 12-5 E. Net Working Capital Per Share 12-5 III. Other business acquisitions 12-5 IV. Impact of the merger on earnings per share and market price per share 12-8 V. Risks VI. Parent company VII. Conclusion Overview Questions and Solutions Chapter 13: Forecasting and Financial Planning 13-1 I. Who Uses Forecasting? 13-2 II. Prediction method 13-3 III. Choosing a forecasting method 13-4 IV. Qualitative Approach 13-4 A. Executive Opinion 13-5 B. Delphi Method 13-5 C. Sales Staff Survey 13-7 D. Consumer Survey 13-7 E. Pert Origin Forecast 13-7 V. General Characteristics and Assumptions – Assumptions Related to Forecasting 13-8 VI. Steps in the Forecasting Process 13-9 Contents Overview Questions and Solutions 5

7 Table of Contents (continued) Page Chapter 14: Forecasting Methodology I. The Na├»ve Model 14-1 II. Smoothing Techniques 14-2 A. Moving Averages 14-2 B. Advantages and Disadvantages 14-4 C. Exponential Smoothing 14-5 D. Models 14-5 E. Computers and Exponential Smoothing 14-7 III. Forecasting Using Time Series Decomposition 14-7 IV. Conclusion Questions and Solutions Review Chapter 15: Forecasting by Regression and the Markov Method I. The Quadratic Method 15-1 II. Trend analysis 15-4 III. Regression statistics 15-8 IV. Statistics to look for in multiple regression A. T-statistics B. R-squared (R) and F-statistics C. Multicollinearity D. Autocorrelation (series correlation) V. Checklist How to choose the best prediction equation A. How to eliminate outliers B. How to choose the best equation VI. Using computer statistical packages for multiple regression VII. Forecast accuracy measurement A. MAD and MSE B. U statistics and milestone error C. Forecast control VIII. Sales Forecasting with Markov Model IX. Conclusion Questions and Solutions Overview Chapter 16: Financial Forecasting and Budgeting Tools I. Forecasting External Financing Needs Percentage of Sales Method 16-1 II. Budget and financial planning 16-3 III. How Budgets Work: Example 16-7 A. Sales Budget 16-7 B. Monthly Cash Collection from Customers 16-8 C. Production Budget 16-8 D. Merchandising Company’s Inventory 16-9 E. Direct Materials Budget F. Direct Labor Budget Work G. Factory overhead budget H. Finished goods inventory budget I. Selling and administrative expenses budget J. Cash budget K. Planned profit and loss account Contents 6

8 Table of Contents (continued) Page L. Budget Balance Sheet M. Some Financial Calculations N. Computer Models and Spreadsheets for Budgeting IV. Statute Zero V.

Steps To Conduct A Strategic Financial Analysis For Your Business

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