Lecture 6 - Analysis of Operating and Financing Activities; Strategic Financial Statements Flashcards
Net operating assets =
NOA =
Operating assets - operating liabilities
OA - OL
Net financial obligations =
NFO =
Financial obligations - financial assets
FO - FA
Common shareholders’ equity =
CSE =
NOA - NFO
Reformulated balance sheets inform about the firm’s strategy for running the business:
- how the firm invests in operating assets
- how the firm relies on operating liabilities
- how the firm conducts its financing of operations
Tax benefit =
Net interest expense x tax rate
Reformulated income statements show how the firm’s strategy generates earnings:
- how the firm grows earnings through sales growth
- how the sales are translated into operating income
- how the financing strategy affects shareholders
Residual operating income (ReOI) =
OIt - (p - 1)NOAt-1
where p is the WACC
Cross-sectional analysis:
comparison to other firms
Common size analysis:
income statement: each item/ total revenues
balance sheet: operating items/ totals, financing items/totals
Operating profit margin =
OI / sales
Sales profit margin =
OI (after tax) from sales / sales
Other items profit margin =
OI (after tax) / sales
Net income profit margin =
Comprehensive net income / sales
