Tiếng anh chuyên ngành kế toán bài 4
Trang 1FINANCIAL ANALYSIS
UNIT OBJECTIVES - MỤC TIÊU
DURATION (9 periods) - THỜI LƯỢNG HỌC (9 TIẾT)
• Provide students with the language and knowledge related to the work of financial analysis
Cung cấp cho sinh viên vốn ngôn ngữ và kiến thức liên quan đến công việc phân tích tài chính
• Provide students with the language and method to write a classification essay
Cung cấp cho học viên ngôn ngữ và phương pháp để viết một bài luận phân loại
• At the end of this unit, students will be able to tell and write about main types of financial analysis, the main characters of each type and some ratios in analyzing financial statements
Sau khi kết thúc bài học này, sinh viên có thể nói và viết về các cách phân tích tài chính cơ bản, những đặc điểm chính của từng loại và một số chỉ số trong phân tích báo cáo tài chính
In this unit, we will learn language and knowledge related to main types
of financial analysis, the main characters of each type and some ratios
in analyzing financial statements
Trong bài học này, chúng ta sẽ học về ngôn ngữ và kiến thức liên quan tới các phương thức phân tích tài chính, đặc điểm của từng loại và các chỉ số trong phân tích các báo cáo tài chính
Trang 2Match the terms or concepts in column A with their definitions in column B The suggested time to do this exercise is 10 minutes.
1 Business cycle A A detailed examination or report on financial
performance
2 Financial instrument B The difference between the price of goods paid by a
shopkeeper and the price paid by the customer
3 Financial statement
analysis
C An amount of money received from sales of goods minus the cost of manufacturing or buying them
4 Gross margin D The examination of two or more organizations that
produce similar goods or carry out the same stage of the production process
5 Gross profit E Any stock, share, money, or other financial security
6 Horizontal analysis F Recurring fluctuations in economic activity consisting
of recession and recovery and growth and decline
7 Liquidity
Liquidity ratio
G Having enough money to pay your debts; having an excess of assets over liabilities
8 Net sales revenue H The examination based on the relationship between
two amounts determined by the number of times one contains the other
9 Ratio analysis I The examination of a movement in a certain direction
10 Solvency
Solvency ratio
J Finance of assets that are easily turned into cash the relationship between the amount of money held
in cash and the total amount held in deposits and investments
11 Trend analysis K The amount of money made from the sale of goods
minus the cost of producing, selling and distributing them
12 Vertical analysis L The examination of two or more organizations that deal
with different stages in a production process
Trang 3Text A: Read the text do exercise 2.1 and 2.2 below The suggested time for reading the text and completing the exercise is 30 minutes
FINANCIAL ANALYSIS
Financial analysis
F inancial statement analysis
is the process of examining
relationships among financial
statement elements and making
comparisons with relevant
information It is a valuable tool
used by investors and creditors,
financial analysts, and others in
their decision-making rocesses
related to stocks, bonds, and
other financial instruments
The goal in analyzing financial
statements is to assess past
performance and current
financial position and to make
predictions about the future
performance of a company
Investors who buy stock
are primarily interested in a
company's profitability and
their prospects for earning a
return on their investment by
receiving dividends and/or
increasing the market value of
their stock holdings Creditors
and investors who buy debt
securities, such as bonds, are
more interested in liquidity
and solvency: the company's
short-and long-run ability to
pay its debts Financial analysts,
who frequently specialize in
following certain industries,
routinely assess the profitability,
liquidity, and solvency of
companies in order to make
recommendations about the
purchase or sale of securities, such as stocks and bonds
Analysts can obtain useful information by comparing a company's most recent financial statements with its results in previous years and with the results of other companies in the same industry Three primary types of financial statement analysis are commonly known
as horizontal analysis, vertical analysis, and ratio analysis
Horizontal Analysis
W hen an analyst compares
financial information for two or more years for a single company, the process is referred
to as horizontal analysis, since the analyst is reading across the page to compare any single line item, such as sales revenues
In addition to comparing dollar amounts, the analyst computes percentage changes from year
to year for all financial statement balances, such as cash and inventory Alternatively, in comparing financial statements for a number of years, the
analyst may prefer to use a variation of horizontal analysis called trend analysis Trend analysis involves calculating each year's financial statement balances as percentages of the first year, also known as the base year When expressed
as percentages, the base year figures are always 100 percent, and percentage changes from the base year can be determined
Vertical Analysis
When using vertical analysis,
the analyst calculates each item on a single financial statement as a percentage of a total The term vertical analysis applies because each year's figures are listed vertically on a financial statement The total used by the analyst on the income statement is net sales revenue, while on the balance sheet it is total assets This approach to financial statement analysis, also known as com-ponent percentages, produces common-size financial statements Common-size balance sheets and income statements can be more easily compared, whether across the years for a single company or across different companies
Trang 4Ratio Analysis
Ratio analysis enables the
analyst to compare items
on a single financial statement
or to examine the relationships
between items on two financial
statements After calculating
ratios for each year's financial
data, the analyst can then examine
trends for the company across
years Since ratios adjust for
size, using this analytical tool
facilitates intercompany as well
as intracompany comparisons
Ratios are often classified
using the following terms:
profitability ratios (also known
as operating ratios), liquidity
ratios, and solvency ratios
Profitability ratios are gauge
of the company's operating
success for a given period
of time Liquidity ratios are
measures of the short-term
ability of the company to pay its
debts when they come due and
to meet unexpected needs for
cash Solvency ratios indicate
the ability of the company to
meet its long-term obligations
on a continuing basis and thus
to survive over a long period of
time In judging how well on
a company is doing, analysts typically compare a company's ratios to industry statistics as well
as to its own past performance
Financial statement analysis, when used carefully, can pro-duce meaningful insights about
a company's financial informa-tion and its prospects for the
future However, the analyst must be aware of certain important considerations about financial statements and the use
of these analytical tools For example, the dollar amounts for many types of assets and other financial statement items are usually based on historical costs and thus do not reflect replacement costs or inflationary adjustments
Furthermore, financial statements contain estimates of numerous items, such as warranty expenses and uncollectible customer
balances The meaning fulness
of ratios and percentages depends on how well the financial statement amounts depict the company's situation Comparisons to industry statistics or competitors' results can be complicated because companies may select different, although equally acceptable, methods of accounting for inventories and other items Making meaningful comparisons
is also hampered when a company
or its competitors have widely diversified operations
T he tools of financial
statement analysis, ratio and percentage calculations, are relatively easy to apply Understanding the content of the financial statements, on the other hand, is not a simple task Evaluating a company's financial status, performance, and prospects using analytical tools requires skillful application
of the analyst's judgment
2.1
1 The purpose of analyzing the financial statements is only to make prediction
about the future performance of a company
2 Financial analysts often specialize in assessing the performance of many
dif-ferent industries at the same time
3 Trend analysis assesses the performance of a company in a year based on the
comparison between the figures of that year to that of the base year
4 It is more difficult to compare common-size balance sheets and income sheets
either across the years or across different companies
5 Liquidity ratios are measures of the company’s ability to pay its debts in a short term
According to the text, which of the following sentences are true (T) or false (F)
Source: Text A: From Financial Statement Analysis, MARY BRADY GREENAWALT, http://www.answers.com/
Trang 5Answer the following questions with your own words, based on the information
in the text
1 What is the importance of financial statement analysis?
……… …
2 What is the purpose of analyzing financial statements?
……… …
3 What do the financial analysts do?
……… …
4 How can financial analysts get useful information to make financial statements?
……… …
5 Why is it called Horizontal Analysis?
……… …
6 What is the character of ratio analysis?
……… …
7 In ratio analysis, how can analysts judge on the performance of a company?
……… …
Text B: Read the text and do exercise 2.3 and, 2.4 The suggested time for reading the text and completing the exercises is 30 minutes
FINANCIAL RATIO ANALYSIS
Financial ratio analysis is the calculation and comparison of ratios which are derived
from the information in a company's financial statements The level and historical trends
of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment
Financial ratios are calculated from one or more pieces
of information from a company's financial statements
For example, the "gross margin" is the gross profit from
operations divided by the total sales or revenues of a
company, expressed in percentage terms In isolation, a
financial ratio is a useless piece of information In context,
however, a financial ratio can give a financial analyst an
excellent picture of a company's situation and the trends
that are developing
Aratio gains utility by comparison to other data and standards Taking our example, a gross
profit margin for a company of 25% is meaningless by itself If we know that this company's competitors have profit margins of 10%, we know that it is more profitable than its industry peers which are quite favourable If we also know that the historical trend is upwards, for example has been increasing steadily for the last few years, this would also be a favourable sign that management is implementing effective business policies and strategies
2.2
Trang 6Financial ratio analysis groups the ratios into categories that tell us about different facets of
a company's finances and operations An overview of some of the categories of ratios is given below
• Leverage Ratios which show the extent that debt is used in a company's capital structure
• Liquidity Ratios which give a picture of a company's short term financial situation or
solvency
• Operational Ratios which use turnover measures to show how efficient a company is in
its operations and use of assets
• Profitability Ratios which use margin analysis and show the return on sales and capital
employed
• Solvency Ratios which give a picture of a company's ability to generate cash flow and pay
it financial obligations
It is imperative to note the importance of the proper
context for ratio analysis Like computer programming, financial ratio is governed by the GIGO law of "Garbage In Garbage Out!" A cross industry comparison of the leverage of stable utility companies and cyclical mining companies would be worse than useless Examining a cyclical company's profitability ratios over less than a full commodity or business cycle would fail to give an accurate long-term measure of profitability Using historical data independent of fundamental changes
in a company's situation or prospects would predict very little about future trends For example, the historical ratios of a company that has undergone a merger or had a substantive change in its technology or market position would tell very little about the prospects for this company
Credit analysts, those interpreting the financial ratios from the prospects of a lender,
focus on the "downside" risk since they gain none of the upside from an improvement in operations They pay great attention to liquidity and leverage ratios to ascertain a company's financial risk Equity analysts look more to the operational and profitability ratios, to determine the future profits that will accrue to the shareholder
Although financial ratio analysis is well-developed and the actual ratios are well-known,
practicing financial analysts often develop their own measures for particular industries and even individual companies Analysts will often differ drastically in their conclusions from the same ratio analysis
Source: From Financial Ratio Analysis, http://www.finpipe.com/equity/finratan.htm
Answer the following questions by choosing the best choice
1 What does the phrase “in isolation” mean?
a in particular b individually c.in general
2 What does the phrase “in context” mean?
a in combination b in general c in all
2.3
Trang 73 What can be inferred from the example of the gross profit margin?
a the ratios are especially useful by comparison to others
b the ratios themselves can show a company’s financial performance
c there’s no need to look at the historical trend when analyzing the ratios
4 What does the word “itself” in the sentence: “Taking our example, a gross profit margin for a company of 25% is meaningless by itself” refer to?
a a company b a gross profit margin c 25%
5 What’s the INCORRECT statement?
a Historical data and fundamental changes should be used independently
b Credit analysts pay attention to liquidity and leverage ratios most of all
c Equity analysts are interested in the operational and profitability ratios
Fill in the blanks with the words given below
Ratio Analysis (1) _ the business owner/manager to spot trends in a business and
to (2) _ its performance and condition with the (3) _ performance of similar businesses in the same (4) _ To do this, compare your ratios with the average of businesses (5) _ to yours and compare your own ratios for several (6) _ years, watching especially for any unfavorable (7) _ that may be starting Ratio analysis may provide the all-important early warning (8) _ that allow you to solve your business (9) _ before your business is destroyed by (10) _
Listening 1
Listen to a lecture about the financial ratio analysis and answer the following questions
1 What does ratio analysis provide?
…… ………
2 How is horizontal analysis used?
…… ………
3 What about vertical analysis?
…… ………
4 What does “it” in this sentence: “It indicates the existing relationship between sales and each income statement account” refer to?
a the horizontal analysis b the vertical analysis c the structure of the firm
5 What are the two types of comparison in financial ratio analysis?
…… ………
6 What will the firm’s financial analyst do after completing the financial statement analysis?
…… ………
2.4
3.1
average compare enables indications industry problems similar successive them trends
Trang 8Listening 2
Listen to the lecture again and fill in the blanks
Industry comparison The ratios of a firm are compared with those of (1) _ firms or with industry (2) or norms to (3) _ how the company is faring relative
to its (4) _ Industry average ratios are (5) _ from a number of (6) _, including: (a) Dun & Bradstreet Dun & Bradstreet computes 14 ratios for each of
125 (7) _ They are published in Dun's Review and Key Business Ratios (b) Robert Morris Associates This association of bank loan officers (8) _ Annual Statement Studies Sixteen ratios (9) for more than 300 lines
of business, as well as a (10) _distribution of items on the (11) and (12) _ (common size financial statements)
Trend analysis A firm's present ratio is compared with its (13) and expected (14) _ ratios to determine whether the company's (15) is improving
or deteriorating over time
After completing the financial statement analysis, the firm's financial analyst will consult with management to discuss plans and prospects, any problem areas identified in the analysis, and possible solutions
Match the terms or expressions in column A with their definitions in column B The suggested time to do this exercise is 5 minutes
4.1
2.3
1 The current ratio (or working capital) measures
liquidity – i.e having enough cash to meet
short-term obligations It shows if a business
can pay its most urgent debts
A Sales volume Number (or wages) of employees
2 A company’s profit margin or return on sales
is the percentage difference between sales
income and the cost of sales
B (long-term) loan capital Shareholders’ equity or net assets
3 Productivity shows the amount of work or
sales per employee
C Current assets _
Current liabilities
4 Earnings per share relates the company’s
profits to the number of ordinary shares it
has issued
D Distributable profit _
Number of shares
5 A company’s debt/ equity ratio compares the
amount of debt to the firm’s own capital
E Pre-tax profit _
Owners’ equity
6 Return on equity shows profit compared to
shareholders’ capital
F Pre-tax profit _
Sales
Trang 9Choose the best alternative to complete each sentence The suggested time to do this exercise is 10 minutes
1 A company needs to raise a lot of money, it may ……… shares
2 Pension ……… play an important role in the stock market
3 As an ordinary shareholder, you are ……… to vote at the meeting
4 The share ……… , which is made up of a cross-section of shares, reflects the general activity of the market
5 A …… … is someone who buys shares, expecting the market to rise
6 A …… … is a speculator who expects share prices to fall
7 A …… … is a person who buys new issues of shares hoping to sell them quickly at
a profit
8 I’ve put part of the money into an instant ……… account
9 Bonds issued by the government are often known as ………
10 What kind of ……… can I expect on my investment?
11 You should have as diversified a ……… of shares as possible
12 In real ……… the $1,000 you invested would be worth $5,000 today
13 The higher the risk you ……… , the more money you could make
14 The market has been extremely ……… over the past few years
4.2
Trang 10Based on the information in the two texts above, answer the following questions
in your own words
1 What’s financial statement analysis?
…… ………
2 What’s the purpose of analyzing financial statements?
…… ………
3 How many types of financial statement analysis? What are they?
…… ………
4 Describe each type of financial statement analysis?
…… ………
5 What is financial ratio analysis?
…… ………
6 Give some examples of financial ratios and explain them
…… ………
Discussion – Work in pairs or groups and discuss the following questions
1 Which particular skills and abilities among those below do you think a financial executive needs?
Can you name any other skills or characteristics important for a financial executive?
2 Do you think you possess the necessary skills?
3 If you have yet to choose a career, do you think it could be a financial executive? Why or Why not?
5.1
5.2
team work skill language skills problem solving skill communication skills
………
knowledge about finance data analyzing skill maths
………