Financial Analysis for Managers
Abschnittsübersicht
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Welcome to "Financial Analysis for Managers!" The ultimate purpose of Financial Analysis is to make performance comparable—over time and across companies. This introductory section motivates the topic and provides a brief overview of the structure of the module.
The main learning goals of this module are:
- Learn how to read and analyze financial statements and how to tell the "financial story" of a company.
- Conduct quick health checks using financial ratios.
- Understand the strengths and limitations of financial ratios.
- Know the main determinants of Return on Equity (ROE).
- Build the foundations for key financial decisions.
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We start with a brief review of the basic accounting principles that are necessary for financial analysis. Then we turn to the question of non-operating assets and how they affect performance analysis. Finally, we introduce the so-called common-size financial statements.
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Now that we are familiar with the available financial statements, the typical next step is to take a closer look at one of the key value drivers: Net revenues (Sales). In particular, we are interested to understand the sales volume as well as its growth rate. Depending on the specific situation of the company, it will also be important to know whether the business is seasonal, whether there are bulk risks in the client base, and to what extent new and existing products contribute to sales.
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Let's now turn to the most important financial ratios that we as analysts or managers should be familiar with. This section looks at Liquidity Ratios. These ratios tell us whether the firm is able to cover its short-term obligations with its "liquid" assets. We learn how to measure liquidity and how to interpret different liquidity ratios. In particular, we will get to know the current ratio, the quick ratio, as well as the cash ratio.Aktivitäten 3
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Another important dimension of "performance" is how efficiently the firm manages its assets. This section presents the most popular financial ratios to assess this efficiency. We get to know ratios such as days inventory outstanding, days sales outstanding, and days payables outstanding. We also get familiar with the firm's Cash Conversion Cycle.
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This section looks at the firm's capital structure. We study the varios ratios that summarize the debt-equity mix. We also learn how important it is to distinguish between market values and book values. Finally, we get to know ratios such as the interest coverage ratio that tell us whether the firm can service its debt obligations from operating business.
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For many firms, the ratios that deal with profitability are the most important financial ratios. They are the topic of this section. We look at various ways to express profitability and learn how to compute important ratios such as the EBIT-margin, Return on Equity, or Earnings per Share.
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This section takes a closer look at Return on Equity (ROE). We identify the three determinants of ROE: Operating performance, technical efficiency, and leverage. We need to know these drivers to properly interpret ROE.
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Next we turn to the question of how the firm distributes its profits to the shareholders. We look at dividends and share repurchases and compute the most popular payout ratios.
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The last step of the investigation is to look at the value implications for the providers of capital. In particualar, we want to understand whether the firm's profitability is sufficient to cover the cost of capital.
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This section summarizes the most important elements of financial analysis that we have discussed in the previous sections. To do so, we go back to the Hershey case study and conduct an analysis of the financial developments over the years 2011 - 2015.Aktivitäten 3
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Let's now apply the knolwedge we have gained in this course to a comprehensive case study. You are kindly asked to complete this case study on your own.
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