Forecast a Company’s Future Net Income and Cash Flow
Forecasting a company’s near-term financial performance may lead to market-based valuations or relative valuations. Forecasting generally includes an analysis of the risks in the forecasts. Quantifying these risks requires an analysis of the economics of a company’s business and expense…
Credit Quality of a Potential Debt Investment
The analysis of a company’s historical and projected financial statements is an integral part of the credit evaluation process. It helps determine a company’s ability to meet its debt obligations. Several financial ratios may be computed from these financial statements….
Screening for Potential Equity Investments
Financial ratios are oftentimes used to screen potential equity investments by identifying companies that meet specific criteria. This analysis may be used in the creation of a portfolio. Alternatively, it may form part of a more thorough analysis of potential…
Adjustments to a Company’s Financial Statements to Facilitate Comparison
Analysts frequently make adjustments to a company’s reported financial statements when comparing those statements to those of another company that uses different accounting methods, estimates, or assumptions. Adjustments include those related to investments, inventory, property, plant, and equipment; goodwill; and…
Tools and Techniques Used in Financial Analysis
Financial analysis is useful in the assessment of a company’s financial performance over time and identification of the trends in that performance. It can also be used in the valuation of a company’s equity securities, assessment of its financial risk…
Relationships Among Ratios
Financial ratios express one financial quantity concerning another and they can be used to evaluate the performance of a company over time. By reducing the effect of company size, ratios can also enhance a comparison being made between companies. Evaluating…
Ratio Analysis to Forecast Earnings
Data on the economy, industry and company are used in deriving forecasts for a company. The results of financial analysis, including common-size and ratio analysis, are integral to this forecasting process. The forecasts of a company’s growth and expected relationships…
Cash Flows from Operating, Investing, and Financing Activities
The cash flow statement gives information on a company’s cash receipts and payments during a specified period of time. This information can help users of financial statements (creditors, investors, analysts, etc.) evaluate a company’s liquidity and solvency. Components of the…
Contrast Cash Flow Statements – IFRS – US GAAP
Several differences exist between how the cash flow statement is prepared under IFRS and US GAAP. The most significant difference lies in the fact that IFRS gives companies more flexibility in regard to how interest paid or received and the…
Link Between Cash Flow Statement and Income Statement
In the preparation of a company’s cash flow statement, data from both its income statement and balance sheet is utilized. An understanding of the linkages among the cash flow statement, income statement, and balance sheet is useful for understanding a…
