Financial Statement Analysis: A Practitioner's Guide, 3rd Edition

✍ Scribed by Martin Fridson, Fernando Alvarez

• Publisher: Wiley
• Year: 2002
• Tongue: English
• Leaves: 415
• Edition: 3
• Category: Library

✦ Synopsis

Praise for Financial Statement AnalysisA Practitioner's GuideThird Edition"This is an illuminating and insightful tour of financial statements, how they can be used to inform, how they can be used to mislead, and how they can be used to analyze the financial health of a company."-Professor Jay O. Light Harvard Business School"Financial Statement Analysis should be required reading for anyone who puts a dime to work in the securities markets or recommends that others do the same."-Jack L. Rivkin Executive Vice President (retired)Citigroup Investments"Fridson and Alvarez provide a valuable practical guide for understanding, interpreting, and critically assessing financial reports put out by firms. Their discussion of profits-'quality of earnings'-is particularly insightful given the recent spate of reporting problems encountered by firms. I highly recommend their book to anyone interested in getting behind the numbers as a means of predicting future profits and stock prices."-Paul Brown Chair-Department of AccountingLeonard N. Stern School of Business, NYU"Let this book assist in financial awareness and transparency and higher standards of reporting, and accountability to all stakeholders."-Patricia A. SmallTreasurer Emeritus, University of CaliforniaPartner, KCM Investment Advisors"This book is a polished gem covering the analysis of financial statements. It is thorough, skeptical and extremely practical in its review."-Daniel J. FussVice ChairmanLoomis, Sayles & Company, LP

✦ Table of Contents

Financial Statement Analysis......Page 4
contents......Page 16
PART I Reading between the Lines......Page 20
CHAPTER 1The Adversarial Nature of Financial Reporting......Page 22
The Purpose of Financial Reporting......Page 23
The Flaws in the Reasoning......Page 27
Small Profits and Big Baths......Page 30
Maximizing Growth Expectations......Page 31
Downplaying Contingencies......Page 37
The Importance of Being Skeptical......Page 39
Conclusion......Page 43
PART II The Basic Financial Statements......Page 46
CHAPTER 2 The Balance Sheet......Page 48
The Value Problem......Page 49
Issues of Comparability......Page 50
“Instantaneous” Wipeout of Value......Page 52
How Good Is Goodwill?......Page 53
Losing Value the Old-Fashioned Way......Page 56
True Equity Is Elusive......Page 58
Pros and Cons of a Market-Based Equity Figure......Page 61
Undisclosed Hazards......Page 64
The Common Form Balance Sheet......Page 65
Conclusion......Page 67
Making the Numbers Talk......Page 68
How Real Are the Numbers?......Page 74
Conclusion......Page 109
CHAPTER 4 The Statement of Cash Flows......Page 110
The Cash Flow Statement and the LBO......Page 112
Analytical Applications......Page 117
Cash Flow and the Company Life Cycle......Page 118
The Concept of Financial Flexibility......Page 126
In Defense of Slack......Page 129
Conclusions......Page 131
PART III A Closer Look at Profits......Page 134
Bona Fide Profits versus Accounting Profits......Page 136
What Is Revenue?......Page 137
Which Costs Count?......Page 139
How Far Can the Concept Be Stretched?......Page 141
Conclusion......Page 142
Informix’s Troubles Begin......Page 144
Calling the Signals......Page 149
Astray on Layaway......Page 155
Recognizing Membership Fees......Page 156
A Potpourri of Liberal Revenue Recognition Techniques......Page 159
Conclusion......Page 171
AOL’s Search for Wiggle Room......Page 172
IBM’s Innovative Expense Reduction......Page 175
Simple Analysis Foils Elaborate Deception......Page 176
Oxford’s Plans Go Astray......Page 178
Conclusion......Page 181
CHAPTER 8 The Applications and Limitations of EBITDA......Page 182
EBIT, EBITDA, and Total Enterprise Value......Page 183
The Role of EBITDA in Credit Analysis......Page 187
Abusing EBITDA......Page 191
A More Comprehensive Cash Flow Measure......Page 193
Working Capital Adds Punch to Cash Flow Analysis......Page 196
Conclusion......Page 198
CHAPTER 9 The Reliability of Disclosures and Audits......Page 200
An Artful Deal......Page 201
Death Duties......Page 204
Chainsaw Al......Page 205
Stumbling Down the Audit Trail......Page 209
Conclusion......Page 210
CHAPTER 10 Mergers-and-Acquisitions Accounting......Page 212
The Twilight of Pooling-of-Interests Accounting......Page 213
Maximizing Postacquisition Reported Earnings......Page 216
Managing Acquisition Dates and Avoiding Restatements......Page 217
Conclusion......Page 219
CHAPTER 11 Profits in Pensions......Page 220
An Admonition from the SEC......Page 225
Conclusion......Page 226
PART IV Forecasts and Security Analysis......Page 228
A Typical One-Year Projection......Page 230
Sensitivity Analysis with Projected Financial Statements......Page 243
How Accurate Are Projections in Practice?......Page 249
Projecting Financial Flexibility......Page 251
Pro Forma Financial Statements......Page 253
Multiyear Projections......Page 263
Conclusion......Page 284
CHAPTER 13 Credit Analysis......Page 286
Balance Sheet Ratios......Page 287
Income Statement Ratios......Page 299
Statement of Cash Flows Ratios......Page 304
Combination Ratios......Page 306
Relating Ratios to Credit Risk......Page 313
Conclusion......Page 332
CHAPTER 14 Equity Analysis......Page 334
The Dividend Discount Model......Page 335
The Price-Earnings Ratio......Page 341
Why P/E Multiples Vary......Page 344
The Du Pont Formula......Page 352
Valuation through Restructuring Potential......Page 355
Conclusion......Page 362
Bibliography......Page 364
Glossary......Page 366
Notes......Page 384
Index......Page 396