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FINANCIAL STATEMENT ANALYSIS SUBRAMANYAM PDF

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Financial statement analysis (tenth edition) solution for Ch_pdf - Download as PDF File .pdf), Text Describe the preparation and analysis of the statement of cash flows. Financial Statement Anlysis 10e Subramanyam Wild_Chapter 4. (c) - page 1 of 8 - Get Instant Access to PDF File: Financial Statement Analysis By K. R. Subramanyam PDF EBOOK. financial statement analysis subramanyam solutions financial statement analysis subramanyam pdf. tvnovellas.info is a platform for academics to share research.


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financial stat e m e n t a na lys i s ELEVENTH EDITION K. R. SUBRAMANYAM University of Southern California FINANCIAL STATEMENT ANALYSIS. relevance of financial statement analysis to a wide assortment of decision . Financial statement analysis/K. R. Subramanyam, John J. Wild. Request PDF on ResearchGate | Financial Statement Analysis / J.J. Wild, L.A. Bernstein, K.R. Subramanyam. | Contenido: Parte I Introducción y vista general.

Profit levels are important only to the extent they reflect the margin of safety for a company in meeting its obligations. Credit analysis focuses on downside risk instead of upside potential. This includes analysis of both liquidity and solvency. The tools of credit analysis and their criteria for evaluation vary with the term maturity , type, and purpose of the debt contract. With short-term credit, creditors are concerned with current financial conditions, cash flows, and the liquidity of current assets. With long-term credit, including bond valuation, creditors require more detailed and forward-looking analysis.

A valuable analytical derivative of the SCF is "free cash flow. Here, as in the case of any cash flow measures, ulterior motives may sometimes affect the validity of the computation.

Internal growth and financial flexibility depend on an adequate amount of FCF.

Financial statement analysis (tenth edition) solution for Ch_07.pdf

Note that the amount of capital expenditures needed to maintain productive capacity at current levels is generally not disclosed by companies. It is included in total capital expenditures, which also can include outlays for expansion of productive capacity. Breaking down capital expenditures between these two components is difficult. The FASB considered this issue, but in SFAS 95 it decided not to require classification of investment expenditures into maintenance and expansion categories.

For financial statement analysis, the SCF provides clues to important matters such as: Feasibility of financing capital expenditures and possible sources of such financing. Sources of cash to finance an expansion in the business.

Dependence of the firm on external sources of financing such as debt or equity. Future dividend policies. Ability to meet future debt service requirements. Financial flexibility, that is, the firm's ability to generate sufficient cash so as to respond to unanticipated needs and opportunities. Insight into the financial habits of management and indications of future policies. Signals regarding the quality of earnings.

Some items decreased net income but did not use cashspecifically: a. Some items generated operating cash inflow did not enter into the determination of net incomespecifically: a. Exercise 40 minutes a. This means operating activities relate to all items in the statement of income with minor exceptions as well as to balance sheet items that relate to operations mostly working capital accounts such as accounts receivable, inventories, prepayments, accounts payable, and accruals. SFAS 95 requires that all significant financing and investing activities be disclosed.

For example, noncash transactions that include the conversion of debt to equity, the acquisition of assets through the issuance of debt, and exchanges of assets or liabilities, should be disclosed in a separate schedule of noncash investing and financing activities. Similarly, the bad debt expense does not require an outlay of cash. Since this corporation uses the indirect method for presentation of CFO, no additional adjustment is needed beyond the adjustment for the change in the net accounts receivable, which includes the credit to the allowance for doubtful accounts.

This amount also must be disclosed as part of the supplemental disclosures. In a separate schedule, the download of buildings and land for noncash considerations is detailed. Cash Flows from Operations Computation: Net income Add deduct items to convert to cash basis: Depreciation, depletion, and amortization Deferred income taxes Amortization of bond discount Increase in accounts payable Decrease in inventories Undistributed earnings of unconsolidated subsidiaries and affiliates Amortization of premium on bonds payable Increase in accounts receivable Cash provided by operations If the amount funded exceeds pension expense, then net income must be reduced by that excess amount.

Beginning balance of accounts receivable Net sales Ending balance of accounts receivable Cash collected from sales Ending balance of inventory Cost of sales Beginning balance of accounts payable downloads from above Total potential payments Ending balance of accounts payable Cash payments for accounts payable Issuance of common stock Issuance of treasury stock Total nonoperating cash receipts Increase in land Increase in plant and equipment Total payments for noncurrent assets Depends on whether tax savings are realized in cash.

Further explanations listed by proposal number : 1. Substituting payment in stock for payment in cash for its dividends will not affect income or CFO but will increase cash position. In the short run, postponement of capital expenditures will save cash but have no effect on income or CFO.

In the long term, both income and CFO may suffer due to lower operating efficiency. Cash not spent on repair and maintenance will increase all three measures.

However, the skimping on necessary discretionary costs will adversely impact future operating efficiency and, hence, profitability. Managers advocating an increase in depreciation may have spoken in the mistaken belief that depreciation is a source of cash and that consequently increasing it would result in a higher cash inflow.

In fact, the level of depreciation expense has no effect on cash flow the same amount of depreciation deducted in arriving at net income is added back in arriving at CFO. On the other hand, increasing depreciation for tax purposes will in all cases result in at least a short-term savings. Quicker collections will not affect income but will increase CFO because of lower accounts receivable.

Cash will also increase by the speedier conversion of receivables into cash. In the longer run this stiffening in the terms of sale to customers may result in sales lost to competition. Payments stretched-out will lower income because of lost discounts but does positively affect CFO by increasing the level of accounts payable. Cash conservation will result in a higher cash position. Relations with suppliers may be affected adversely. Note: Long-term cash outflow will be higher because of the lost discount.

Borrowing will result in interest costs that will decrease income and CFO. Cash position will increase. This change in depreciation method will increase income in the early stages of an asset's life. The opposite may hold true in the later stages of the asset's life. In the short term, higher sales to dealers will result in higher profits assuming we sell above costs and, if they pay promptly, both CFO and cash will increase.

However, unless the dealers are able to sell to consumers, such sales will be made at the expense of future sales. This will lead to less income from pension assets in the future which could cause future pension expense to increase.

The cost of funding inventory will be reduced in the future. In the current period net income may also be increased by a LIFO liquidation from reduced inventory levels. The current period decline in the value of the trading securities has been reflected in current period income, as has the previous gain. Although the sale will increase cash, it will have no effect on current period income.

If the current period decline is deemed to be temporary, the company is selling a potentially profitable security for a short-term cash gain. Reissuance of treasury shares will increase cash, but will have no effect on current period income as any gain or loss is reflected in additional paid in capital, not income. If the stock price is considered to be temporarily depressed, the company is foregoing a future sale at a greater market price and is, thus, suffering current dilution of shareholder value.

Depreciation is neither a source nor a use of cash. Instead, depreciation is an allocation of the cost of an asset over its useful life. A major cause of the belief that depreciation is a source of cash is the "add back" presentation in the SCF prepared using the indirect format. A valuable analytical derivative of the SCF is "free cash flow.

That same profitability should ultimately turn CFO into a positive figure. It also can highlight more clearly the distinction between net income and cash provided by operations.

These conditions usually contain the seeds of further losses and cash drains and also can lead to difficulties in obtaining trade credit. Internal growth and financial flexibility depend on an adequate amount of FCF. Note that the amount of capital expenditures needed to maintain productive capacity at current levels is generally not disclosed by companies.

Breaking down capital expenditures between these two components is difficult. The FASB considered this issue. It is included in total capital expenditures. Ability to meet future debt service requirements.

Insight into the financial habits of management and indications of future policies. Future dividend policies. Sources of cash to finance an expansion in the business. Cash Flow Analysis Positive FCF implies that this is the amount available for company purposes after provisions for financing outlays and expenditures to maintain productive capacity at current levels.

Financial flexibility.

Financial statement analysis / John J. Wild, K.R. Subramanyam, Robert F. Halsey - Details - Trove

For financial statement analysis. Dependence of the firm on external sources of financing such as debt or equity. Signals regarding the quality of earnings. Such operations include activities such as the extension of credit to customers. Some items generated operating cash inflow did not enter into the determination of net income—specifically: This means operating activities relate to all items in the statement of income with minor exceptions as well as to balance sheet items that relate to operations mostly working capital accounts such as accounts receivable.

There are several other items that had a similar effect. They encompass. Some items decreased net income but did not use cash—specifically: Exercise 40 minutes a. SFAS 95 requires that all significant financing and investing activities be disclosed Cash Flow Analysis Exercise —concluded b.

In a separate schedule. For example During Year 8. Since this corporation uses the indirect method for presentation of CFO This amount also must be disclosed as part of the supplemental disclosures.

Financial statement analysis (tenth edition) solution for Ch_07.pdf

As such Deferred income taxes Undistributed earnings of unconsolidated subsidiaries and affiliates Amortization of premium on bonds payable Add deduct items to convert to cash basis: Amortization of bond discount Increase in accounts payable Cash Flow Analysis Exercise 30 minutes a Increase in accounts receivable.

Cash Flows from Operations Computation: Net income If the amount funded exceeds pension expense Cash provided by operations Decrease in inventories. Beginning balance of accounts receivable Beginning balance of accounts payable Increase in land Total potential payments Total payments for noncurrent assets Net sales Ending balance of accounts payable Cash payments for accounts payable Issuance of common stock Increase in plant and equipment Total nonoperating cash receipts Ending balance of inventory.

Cash collected from sales Ending balance of accounts receivable Cost of sales. Issuance of treasury stock downloads from above In the long term. Cash Flow Analysis Exercise 20 minutes Source a.

Further explanations listed by proposal number: Substituting payment in stock for payment in cash for its dividends will not affect income or CFO but will increase cash position.

Analysis financial subramanyam pdf statement

In the short run. Depends on whether tax savings are realized in cash. Although the sale will increase cash. If the stock price is considered to be temporarily depressed. Cash conservation will result in a higher cash position.

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Borrowing will result in interest costs that will decrease income and CFO. On the other hand. If the current period decline is deemed to be temporary. Long-term cash outflow will be higher because of the lost discount. This will lead to less income from pension assets in the future which could cause future pension expense to increase. In the current period net income may also be increased by a LIFO liquidation from reduced inventory levels.

Cash will also increase by the speedier conversion of receivables into cash.

Subramanian Swamy

Quicker collections will not affect income but will increase CFO because of lower accounts receivable. In fact. The opposite may hold true in the later stages of the asset's life. In the longer run this stiffening in the terms of sale to customers may result in sales lost to competition. This change in depreciation method will increase income in the early stages of an asset's life.

In the short term. The cost of funding inventory will be reduced in the future. Cash Flow Analysis Exercise —continued 3. The current period decline in the value of the trading securities has been reflected in current period income. Relations with suppliers may be affected adversely. Cash position will increase. Reissuance of treasury shares will increase cash.

Managers advocating an increase in depreciation may have spoken in the mistaken belief that depreciation is a source of cash and that consequently increasing it would result in a higher cash inflow. Payments stretched-out will lower income because of lost discounts but does positively affect CFO by increasing the level of accounts payable.

Cash not spent on repair and maintenance will increase all three measures. A major cause of the belief that depreciation is a source of cash is the "add back" presentation in the SCF prepared using the indirect format.

Depreciation is neither a source nor a use of cash. There is one sense in which depreciation is a source of cash. Cash Flow Analysis Exercise 20 minutes a. This presentation adds depreciation to net income and gives the erroneous impression that it increases cash from operations.

Cash Dividends Paid Computation: Dividends Payable Dividend paid [77] Cost of Goods and Services Produced Computation: Inventories Beg [34] Amount to balance Cash Collections Computation: Cash Flow Analysis Exercise 60 minutes a. Item [89] represents dividends declared. The entry for the income tax provision for Year 11 is: Income tax expense [27] These provisions are added back because they affect only noncash accounts.

During the launch of a new product line. Start-up companies usually have greater capital addition requirements and lower cash inflows from operations. Free cash flow earned by start-up companies is usually used to fund the growth of the company. Any gain or loss is reported under "other. The credit. Cash Flow Analysis Exercise —continued e. Depreciation expense has no effect on cash from operations. Cash Flow Analysis Exercise 15 minutes a. Expenses are.

Operating cash flows can serve as one indicator of earnings quality because over a number of years. As with any broad guideline. If cash flows from operations are consistently lower than earnings. During the growth stage. Revenues are. This transition would be manifested in the statement of cash flows by increased operating cash flows less cash outflows for advertising and promotion.

As a result. Consider some examples: Exercise 15 minutes a. Cash Receipts from Operations Net Sales Noncurrent deferred income taxes.. Depreciation and amortization Cash Disbursements for Operations Total expenses include min YEAR 11 Ref.. Dividends Received Equity in income of unconsolidated affiliates I D in accounts payable.. I D in accruals. I D in noncurrent receivables Effect of translation adjustments I D in taxes payable Other provision for restructuring and writedowns I D in dividends payable Noncurrent deferred income taxes YEAR 10 Ref I D in prepaid expense Cash Receipts from Operations Net Sales..

I or D in noncurrent amounts Undistributed equity in income of affiliates Cash Flow From Operations Other revenue and income: I D in current receivables Cash Flow Analysis Problem 75 minutes a download of fixed assets Net cash used by financing activities Net cash provided from investing activities Cash flows from financing activities Sale of unissued common stock. Sale of investments Income taxes Net Increase in cash..

Schedule of noncash investing and financing activities: Acquisition of fixed assets by issue of bonds Year 2 Cash flows from operating activities Net Income Conversion of bonds into common stock download of treasury stock Loss on sale of fixed assets Expenses paid Cash from operations.

Decrease in inventory The income statement prepared on the accrual basis is designed to reflect profitability.. Cash Flow Analysis Problem —continued b Cash from operations measures the effects on cash of operating activities Net cash provided from financing activities Addition to other assets Cash provided from used for financing activities Addition to long-term debt Addition to plant and equipment Net decrease in cash Dividends paid Net cash used for investing activities Cash provided from used for investing activities download of patents Supplemental disclosure of cash flow information Cash paid during year for: Cash Flow Analysis Problem —continued b.

With rising sales and profits. The following actions are reasonable recommendations: The resulting expansion of accounts payable would increase cash from operations. Issuance of equity will form a good base for further borrowing should business continue to expand rapidly. The company needs a larger equity capital base.

Given its current profit opportunities. For a fast growing and profitable company such as Dax. This situation must be addressed before the liquidity problem becomes more serious. Compared to these heavy investments in operating assets. After additional equity capital has been obtained the company should consider lowering the dividend payout.

With increasing profits and with the company being in a growth industry this may be a good time to sell stock without diluting earnings per share. The larger volume of downloads justifies increased trade credit. Cash dividends paid Cash flows from financing activities Repayment of notes payable Less increase in deferred income tax Add increase in inventories Cash collections Issuance of long-term debt Cash flows used in financing Cash flows from investing activities download of fixed assets Ending cash balance Supporting schedule for CFO: Less increase in payables Less increase in interest payable Net increase in cash Beginning cash balance Year 9 Cash flows from operating activities Cash receipts from operations Sales [a] Less increase in receivables..

None e Loss on Sale None f Accumulated Depreciation Machinery net Bad Debt Expense.. Accounts Receivable Cash Flow Analysis Problem 35 minutes Effects a.. Allowance for Bad Debt Long-Term Note Payable Depreciation expense. Treasury stock Cost of Goods Sold Long-Term Debt Mortgage Payable—Current Mortgage Payable Paid-In Capital Plant and Equipment Equity in NI of Subsidiary Current Liabilities Current Assets.

Investment Cash. Effects a.. Plant Assets Effects a. Equipment net Note Payable current. Common stock. Common stock Gain on Sale Paid-In Capital.. Bonds Payable Common stock.. Minority Interest Equity in Earnings…………… Current Liabilities..

Equity in Earnings. Minority Interest Expense Paid-in Capital. Bad Debts Expense None n Effects Analytical Entries Optional j.. None Inventory Loss Accounts receivable Leased Equipment Long-Term debt Allow for Doubtful Accounts Retained Earnings.. Accounts receivable. Long-term debt Year 1 Assets Cash Retained earnings Accumulated depreciation Liabilities and Equity Accounts payable Other noncurrent investments Total assets Current liabilities Total liabilities and equity Current portion of long-term debt Current assets Sec t.

NE NE p. Cash Cash Mktble Org. Depreciation Exp.

Subramanyam pdf financial statement analysis