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: The investment strategy being considered: The investment strategy being considered plays a significant role. Professionally managed equity investments have specific time frames…
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…
Behavioral Finance and Analyst Forecasts
Financial statement models are not immune to behavioral biases. Analysts must be aware of the impact of behavioral biases and solutions to improve investment decisions and forecasts. The five key behavioral biases are overconfidence, conservatism, confirmation bias, the illusion of…
Sales-based Pro Forma Development
A sales-based proforma company model helps in forecasting a company’s financial performance based on predicted future sales. This model plays a crucial role in strategic planning, providing insights for making informed business decisions. It uses various assumptions regarding sales growth…
Accounting Warning Signs
Management’s choices to achieve desired financial results often leave discernible evidence akin to tracks in sand or snow. The warning signs of potential information manipulation in financial reports are directly tied to the fundamental methods of manipulation: biased revenue recognition…
Accounting Methods Used to Manage Earnings
Accounting Choices and Estimates Management’s accounting policies and decisions don’t always involve intricate accounting standards. For example, even straightforward choices, such as the shipping terms for delivered goods, can significantly impact revenue timing. For instance, if a company ships a…
