... purpose and contribution of this book have been to help
make financial/ economic analysisa practical, understandable and usable process
for managers and analysts, and we argue with conviction that applying ... differentiate between purely financial
analysis on one hand, and economic analysisand trade-offs on the other. As we
mentioned, the first is largely based on financial statements and accounting data,
while ... 18 Financial Analysis: Toolsand Techniques
production, carefully calibrated against quality standards and relative contribution
from products and services, or cost effectiveness standards that...
... broader,
judgmentally more difficult, setting.
Analytical Support
Financial Genome, the commercially available financialanalysisand planning
software described in Appendix I, is accompanied by general purpose ... Page 251
242 Financial Analysis: Toolsand Techniques
estimates. It sharpens the analyst’s understanding of the relationship of economic
life and acceptable performance, and is a much improved ... discounted payback, internal rate of return and annualization all gave indi-
cations of value creation in excess of the cost of capital, albeit in different form.
We laid out a common format for analysis, ...
... 9/27/01 10:57 AM Page 5
10 Financial Analysis: Toolsand Techniques
The Practice of Financial/ Economic Analysis
The financial/ economic analysis sponsored and used by the economic manager
can be viewed ... the mechanical aspects of analysis.
An entirely new feature is the optional availability of the advanced, knowl-
edge-based financialanalysis software package, Financial Genome, created by
hel78340_FM.qxd ... per-
formance assessment and incentives, and finally to valuation and investor
communication. Each of these areas contains challenges and issues in the practice
of analysisand decision-making that...
... integrated
conceptual backdrop both for the financial/ economic dimensions of systematic
business management and for understanding the nature of financial statements,
data, and processes underlying financialanalysis ... develop finan-
cial statements, the whole range of key financial measures, and integrated finan-
cial projections and plans, as well as ad hoc financial analyses. The patented
knowledge-based technology ... 10:57 AM Page 5
xii Contents
Target Profit Analysis 202
Financial Leverage 203
Financial Growth Plans 209
Basic Financial Growth Model 210
Sustainable Growth and the Sustainable Growth Equation...
... purpose and contribution of this book have been to help
make financial/ economic analysisa practical, understandable and usable process
for managers and analysts, and we argue with conviction that applying ... professional application enables the user to develop finan-
cial statements, the whole range of key financial measures, and integrated finan-
cial projections and plans, as well as ad hoc financial analyses. ... the mechanical aspects of analysis.
An entirely new feature is the optional availability of the advanced, knowl-
edge-based financialanalysis software package, Financial Genome, created by
hel78340_FM.qxd...
... Financial Analysis: Toolsand Techniques
For many years the purpose and contribution of this book have been to help
make financial/ economic analysisa practical, understandable and usable process
for ... Contents
Target Profit Analysis 202
Financial Leverage 203
Financial Growth Plans 209
Basic Financial Growth Model 210
Sustainable Growth and the Sustainable Growth Equation 214
Integrated Financial ... professional application enables the user to develop finan-
cial statements, the whole range of key financial measures, and integrated finan-
cial projections and plans, as well as ad hoc financial analyses....
... 2 Financial Analysis: Toolsand Techniques
For many years the purpose and contribution of this book have been to help
make financial/ economic analysisa practical, understandable and usable ... the basic task and the fundamental challenge—of
financial/ economic analysis lies in constructing and sharing a reasonably consis-
tent and meaningful set of data and relationships that will support ... positioning
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18 Financial Analysis: Toolsand Techniques
production, carefully calibrated against quality standards and relative contribution
from products and services, or cost...
... 9/27/01 10:57 AM Page 9
10 Financial Analysis: Toolsand Techniques
The Practice of Financial/ Economic Analysis
The financial/ economic analysis sponsored and used by the economic manager
can be viewed ... per-
formance assessment and incentives, and finally to valuation and investor
communication. Each of these areas contains challenges and issues in the practice
of analysisand decision-making that ... with information sources within the company, and works in
close collaboration with financialand other staff persons to make sure that rel-
evant data are at hand for sound analysisand judgments....
... information.
• Use of comparative data.
• Analysis of financial markets.
Interpretation of financial information essentially amounts to analyzing fi-
nancial statements and other financial data about ...
Team-Fly
®
58 Financial Analysis: Toolsand Techniques
Knight, James A. Value Based Management: Developing a Systematic Approach to Creat-
ing Shareholder Value. Burr Ridge, IL: Irwin /McGraw- Hill, ... relevant feedback, and provide
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54 Financial Analysis: Toolsand Techniques
rarely can financial data, as generally provided, be used in their exact form...
... new capital spending as well as disposals, and the impact of the
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84 Financial Analysis: Toolsand Techniques
acquisitions, accompanied by an increase ... changes that impact the company over a period
of several years. Economic variations and specific industry cycles are generally
long term and not as regular and predictable as seasonal variations. ... 11:00 AM Page 78
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76 Financial Analysis: Toolsand Techniques
Funds lags during a cyclical upturn or downturn tend to be magnified by a
mostly unavoidable lag...
... on both an an-
nual anda quarterly basis, and are a matter of record whenever a company’s
shares are publicly traded.
A recent requirement by the Financial Accounting Standards Board and the
Securities ... $6,410)
Sales
Average total assets
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136 Financial Analysis: Toolsand Techniques
based on cash flows, and if decisions are consistently analyzed and executed ... 11:07 AM Page 104
142 Financial Analysis: Toolsand Techniques
In the case of physical assets, the depreciation write-off is shown as a
charge in the income statement, and is accumulated on the balance...
... earnings serve as examples. Creative use of spreadsheets is
a natural assistance in these types of analysis.
Integrated Financial Plan
We can now turn to an illustration of an integrated financial ... of the plans.
Management can set a variety of financial objectives andfinancial policies
to direct and constrain the company’s planning effort and the specific financial
projections based on ... more detail in
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210 Financial Analysis: Toolsand Techniques
Chapters 11 and 12, shareholder value creation ultimately is based on cash flows
and market...
... discounting in later years.
Analytical Framework
With all the basic data at hand, we now can lay out the framework for a present
value analysis. We’ll assume a 10 percent return standard and again set ... Support
Financial Genome, the commercially available financialanalysisand planning
software described in Appendix I, is accompanied by general purpose present
value analysis templates and graphic ... initial
expenditure. For example, any major capital outlay for plant and equipment also
might entail additional future outlays for major maintenance, upgrading, and par-
tial replacement some years hence. These...