Chapter
4: ANALYSING FINANCIAL STATEMENTS
After
read through a chapter, there are some key concepts that I found:
1.The
two common frameworks used by people to analyse firms:
The discount cash flow (DCF) and
economic profit frameworks.
·
An example about Ryman Healthcare is very clearly for me to understand Free Cash Flow. As I know, free
cash flow refer to the amount of cash available from operations after paying
for planned investments in plant, equipment and other long-term assets, and
after paying dividends to shareholders. Cash flows are important to company’s
survival. Cash flow data help to spot losers than they help to spot winners.
When a company’s business is booming, profits are high and cash flows are
usually improving. A negative cash flow from operations warrants investigation.
A cash turndown in a single year is not necessarily a danger signal, But
negative cash flows for two consecutive years may throw a company into
liquidation. Without cash flow from operations, a business simply cannot
survive.
·
The economic profit
model highlights how and when the company creates value yet leads to a
valuation that is identical to that of enterprise DCF. An advantage of the
economic profit model over the DCF model is that economic profit is a useful
measure for understanding a company’s performance in any single year, whereas
free cash flow is not.
Economic profit = (RNOA-Cost of capital)*
NOA
Where RNOA = OI/NOA
2. The
most powerful way of viewing a business: viewing a firm as having separate
operating and financial activities.
We need to know what is operating and financial
activities. After having an understanding about that, we can separate them easily.
A firm’s Operating activities, which is usually where value is added (or destroyed)
by a firm. Financial activities relate to loan, bank, borrowing....
The first thing I need to do in my assignment
is that I need to separate two those activities to start restating financial statements.
3. Restate
two key financial statements: balance sheet and income statement.
I have a big question for this section: why
the company do not restate their financial statement before they have been public?
A balance sheet statement is so easy to restate
if I can separate the operating and financial assets and liabilities of my company.
hi:
ReplyDeleteI am glad visit your blog and do get the chance of communicate with you. as I sew you got some idea is very great. when I do restate financial statement, I also look for some website and try to find out the restate financial statement. I cannot find and I also think the work of restate is very important specify balance sheet. I totally agree do the balance sheet. by this way, can you visit my blog and give me some feedback.
Hello, im visiting your blog and know you spent lot of time to understand this chapter. Great. Also you are clear to understand people use two common frameworks to analyse firm, very quite. thanks a lot because after read your paragraph male me clear to understand this point.
ReplyDeleteHi there! I have seen your blog as well as read your chapter 4 in Step 1. you are a creative person by the way you did your blog. But it will be great if you add more explanation in chapter 4 that way i can understand more. Well done, you have done a good job. thanks :)
ReplyDeleteHi Heo,
ReplyDeleteI've found a lot information in your step 1. They are all good. I like the way you defined some key concepts by tour own words.
I also have some question regarding to this chapter and some constraints about restating financial statement. I agree with you that classifying activities into operating and financial one is not easy at all. It take me a while to complete that.
I think after understand these key concepts, I could restate financial statement easier.
Thank you for your useful information above and good luck with your study
Cheers
Hoang
Hi Heo,
ReplyDeleteI've found a lot information in your step 1. They are all good. I like the way you defined some key concepts by tour own words.
I also have some question regarding to this chapter and some constraints about restating financial statement. I agree with you that classifying activities into operating and financial one is not easy at all. It take me a while to complete that.
I think after understand these key concepts, I could restate financial statement easier.
Thank you for your useful information above and good luck with your study
Cheers
Hoang