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Investment Analysis Summary

In: Business and Management

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Analysis for financial management (Robert C. Higgins) Summary of the used chapters in the lecture (WM0609LR) written by: Jorris Van Gestel

Chapter 1 Interpreting financial statements
Accounting
Information provided by 3 annual reports: Balance Sheet Cash-Flow statement Income statement

Figure 1 Cash flow­production cycle

(Operating) working capital: movement of cash into inventory Investment: flow from cash into new fixed assets Depreciation: the loss in value of fixed assets ⇒ increase in value of merchandise made + needed for growth Solvency: ability to have cash to buy fixed assets and inventory (outflow cash)

The balance sheet
Equity= assets - liabilities current assets cash inventories

Financial statements: Balance sheet

current liabilities ! ! ! long-term liabilities equipment plant ! ! total shareholders equity stock ! long-term debt ! accounts payable !

acc receivable fixed assets

retained earnings !

total assets

x

total liabilities + equity

x

Figure 2 example of a balance sheet

Financial snapshot: 1 moment in time Assets against the claims Liability: obligation to deliver something of value in the future Equity: difference between assets and liabilities Liquidity: speed at which an item can be turned into cash Accounting: income statement Assets and liabilities are listed in order of decreasing liquidity ‐ Current: liquidity 1 year
Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA) -Depreciation, Amortization Earnings Before Interest and Taxes (EBIT) -Interest Earnings before taxes (EBT) -Taxes Net income -Dividends Addition to retained earnings

2

Income statement Difference between 2 important balance sheets ‐ Change in owner’s equity in terms of revenues (sales) and expenses (costs) ⇒ net income

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