Accounting Profit and Taxable Income
Accounting profit, also known as income before taxes, is reported on a company’s income statement according to prevailing accounting standards. By definition, accounting profit does not account for income tax expense. Taxable income is the portion of a company’s income…
Use of Ratio Analysis in Earnings Forecast and Modeling
Analysts often need to forecast future financial performance, such as EPS forecasts and equity valuations. This process involves using data about the economy, industry, and company alongside the results of financial analyses like common-size and ratio analyses and the judgment…
Industry-specific Ratios
There is no universally accepted definition or classification of ratios. Ratios indicate a company’s performance and value, but their significance varies by industry. Industry-specific ratios, like same-store sales changes in retail, help distinguish growth sources. In regulated sectors like banking,…
DuPont Analysis of Return on Equity
Recall that, return on equity (ROE) measures the return a company generates on its equity capital. To understand the factors driving a company’s ROE, it is helpful to decompose ROE into its component parts, a technique often referred to as…
Ratio Analysis
Recall that financial ratios express one financial quantity concerning another and can be used to evaluate a company’s performance over time. By reducing the effect of company size, ratios can also enhance comparison between companies. Financial Ratio Relationships It is…
Activity, Liquidity, Solvency and Profitability Ratios
Financial ratios are used to express one financial quantity regarding another. Financial ratios can assist with company and security valuations, stock selections, and forecasting. A variety of categories may be used to classify financial ratios. Although the names of these…
Financial Analysis Techniques and Tools
Financial analysis helps assess a company’s financial performance over time and identify the trends in that performance. It can also be used to evaluate a company’s equity securities, assess its financial risk exposures, and perform necessary due diligence before a…
Projections Beyond the Short-Term Forecast Horizon
Considerations in the Choice of an Explicit Forecast Horizon The forecast time horizon is influenced by the following: Practice financial forecasting questions with our Free Trial Developing Projections Beyond the Short-Term Forecast Horizon Longer-term projections can offer a more accurate…
Deflation and Inflation Modeling
The process of forecasting industry and company sales amidst inflation or deflation is intricate and essential. The shifting tides of economies impact industries and individual companies, affecting sales volumes, prices, and costs. It is vital for analysts to adeptly understand…
The Impact of Competitive Position on Prices and Costs
Competitive Statusand Porter’s Five Forces Porter’s Five Forces framework is a valuable tool for analyzing a company’s competitive position. This model evaluates the influence of five key industry factors: competitive rivalry, threat of new entrants, bargaining power of suppliers, bargaining…
