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1

Markus Neuhaus I Corporate
Finance

I neuhauma@ethz.ch

Corporate Finance

Interpreting Financial Statements

Dr. Markus R.
Neuhaus

Dr. Marc
Schmidli
, CFA


Autumn
Term 2013

2

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch




Autumn
Term 2013

Corporate Finance: Course overview 2013

20.09.

Fundamentals

M.

Neuhaus

& M.
Schmidli

27.09.

No lecture

04.10.

Interpreting

Financial Statements

M.
Neuhaus

& M.
Schmidli

11.10.

Mergers & Acquisitions I

& II
(4 hours)

M.
Neuhaus

& S. Beer

18.10

Investment Management

M.
Neuhaus

& P.
Schwendener

25.10

Business Valuation
(4 hours)

M.
Neuhaus

& M. Bucher

01.11

Value Management

M.
Neuhaus
,

R.
Schmid

& G.
Baldinger

08.11

No lecture

15.11

Legal Aspects

Ines

Pöschel

22.11

Turnaround

Management

M.
Neuhaus

& R. Brunner

29.11

No lecture

06.12

Financial Reporting

M.
Neuhaus

& M.
Jeger

13.12

Taxes
(4 hours)

M.

Neuhaus

& M.
Marbach

20.12

Summary Repetition

M.
Neuhaus

3

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch





Grade


Chairman


Qualification


Doctor of Law (University of Zurich), Certified Tax Expert


Career

Development

J
oined

PwC in 1985, became Partner in 1992

and

CEO
from

2003






2012,
became

Chairman in 2012


Subject
-
related

Exp
.

Corporate Tax




Mergers &
Acquisitions


Lecturing


SFIT: Executive in
Residence
,
lecture
: Corporate
Finance




Multiple
speeches

on
leadership
,
business
,
governance
,
commercial





and

tax
law


Published

Literature

Author of commentary on the Swiss accounting rules




Publisher of book on transfer pricing




Author of multiple articles on tax and commercial law, M&A, IPO, etc.


Other professional roles:

Member of the board of
économiesuisse
, member of the board




and chairman of the tax chapter of the Swiss Institute of





Certified Accountants and Tax Consultants

Markus R.
Neuhaus

PricewaterhouseCoopers AG, Zürich


Phone:

+41 58 792
40 00

Email:

markus
.
neuhaus
@ch.pwc.com


Autumn
Term 2013

4

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch




Marc
Schmidli

PricewaterhouseCoopers AG, Zürich


Phone:

+41 58 792
15 64

Email:

marc.schmidli
@ch.pwc.com



Grade


Partner


Qualification


Dr.
oec
. HSG, CFA charterholder


Career

Development

Corporate
Finance

PricewaterhouseCoopers
since

July

2000


Lecturing


Euroforum


Valuation

in M&A
situations





Guest
speaker

at

ZfU

Seminars, Uni
Zurich
, ETH, etc.



Published

Literature

Finanzielle Qualität in der schweizerischen Elektrizitätswirtschaft





Various

articles

in „Treuhänder“, HZ, etc.

Autumn
Term 2013

5

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Contents


Learning targets


Pre
-
course reading


Lecture „Interpreting Financial Statements“


Pre
-
course reading case studies / questions


Solutions to case studies



Autumn
Term 2013

6

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Learning targets


Framework for financial statement analysis


Understanding the need for financial statement analysis


Understanding the financial reporting system


Refreshing principal elements of financial statements (Balance sheet, income and
cash flow statements)



Analysis of financial statements


Understand the purpose and use of ratio analysis


Being able to apply the various ratio analyses


Being able to evaluate corporate performance by the integrated analysis of ratios

Autumn
Term 2013

7

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Contents


Learning targets


Pre
-
course reading


Lecture „Interpreting Financial Statements“


Pre
-
course reading case studies / questions


Solutions to case studies



Autumn
Term 2013

8

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Pre
-
course reading


Books


Mandatory reading
:


Brigham, Houston (2012): Chapter 4 (pp. 96
-
130)


White,
Sondhi
, Fried (2003): Chapter 3 (pp. 74
-
99)




Optional reading
:


Brigham, Houston (2012): Chapter 3 (pp. 56
-
95)



Slides


Slides 1 to 11


mandatory reading


Other Slides


optional reading, will be dealt within the lecture

Autumn
Term 2013

9

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Contents


Learning targets


Pre
-
course reading



Lecture „Interpreting Financial Statements“


Pre
-
course reading case studies / questions


Solutions to case studies



Autumn
Term 2013

10

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Agenda I

1. Introduction


Financial analysis


Classes of users


Need for financial statement analysis


2. Ratio analysis


Significance of ratio analysis


Sources


Financial reporting systems and standards


Important groups of ratio analysis

Autumn
Term 2013

11

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Agenda II

3. Case study

Beans Incorporation vs. Garlic Incorporation



4. Q&A and discussion

Autumn
Term 2013

12

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Agenda: Introduction


Financial analysis



Classes of users



Need for financial statement analysis

Autumn
Term 2013

13

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch


Evaluation of a firm‘s performance and development mainly by


identifying the key drivers of a firm‘s performance and financial position


calculating and interpreting important ratios of the firm


Balanced Scorecard (soft


hard)



A well rounded financial analysis takes into account not only the financials alone but also
surrounding factors which can have significant influence on the firm’s development.
Financial management does not operate in a vacuum.

Financial analysis

Source: White,
Sondhi
, Fried (2003), 2ff.

Environment

Financial Statements

Business

Macroeconomic situation,

industry, market

Balance sheet, income statement,

cash flow, stockholders’ equity, budget

Management, products, margins,

technology, knowledge base, competition

Financial

Analysis

Autumn
Term 2013

14

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch


Internal users (such as managers or board members)



External users of financial information encompass a wide range of interests but can be
classified into three general groups:


Credit and equity investors


Government, regulatory bodies, tax authorities


General public and special interest groups, labor unions and consumer groups

Classes of users

Source: White,
Sondhi
, Fried (2003), 4.

Autumn
Term 2013

15

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Need for financial statement analysis


Internal:


Financial
statements provide the
company with information on its
performance and development over
time and are a crucial basis for most
financial decisions (i.e. investment,
financing)


Costs


Efficiency


Profitability


Investments


Financing (needs)


External:


Financial
statements facilitate the
interaction between the company
and its business environment by
providing third parties with essential
information on the company’s
development


Creditors


Investors


Shareholders


Government


Financial analysis has great significance and impact
on a company‘s development as it influences
expectations on the capital markets

Autumn
Term 2013

16

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Agenda: Ratio analysis


Significance of ratio analysis



Sources



Financial reporting systems and standards



Important groups of ratio analysis

Autumn
Term 2013

17

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Ratio analysis


Financial statements
help predict the future development of a company




Firm A has total debt of $
1’060m and $ 88m interest charges
whereas firm B has total
debt of $
52m and $ 4m interest charges.
Which firm is stronger,
better financed?
Or
which firm is
more liquid or more
likely to generate higher cash flows?






Figures standing alone,
such as total
debt or interest charges,
are not really helpful






By putting debt into perspective with other appropriate figures, we are able to


predict which firm is more likely to succeed







such comparisons are
ratio analysis

The debt burden can be
evaluated

(a) by comparing
each firm‘s debt with its assets
and

(b) by
comparing the
interest the company has to pay with the income

it has available

Source: Brigham, Houston (
2012), 98f.

Autumn
Term 2013

18

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Significance of ratio analysis


As a
company’s value is determined by its ability to generate cash today and in
the future
, ratio analysis has great importance


Share price development


Credit rating



However, there is no generally used list of ratios that could be applied to any company



Groups of ratios
1)
:


Liquidity ratios


Asset management ratios


Debt or financing ratios


Profitability ratios


Market value ratios

„help predict the
future development
of a company”

1)

Details later: see page 25ff.

Autumn
Term 2013

19

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Principal elements of

financial statements as primary
source for financial analysis



Balance sheet


Income statement


Statement of cash flows


Statement of stockholders‘ equity



Further sources: Broker/analyst reports, Bloomberg, Reuters, Factset etc.

Collectively, these
interrelated

financial statements provide
relevant and timely information about the past and are
essential
for making crucial business decisions

about
investment or financing activities today and in the future.
Financial statements are a key component to build trust in the
financial community.

Source: White,
Sondhi
, Fried (2003),
5.

Autumn
Term 2013

20

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Financial reporting systems and standards


Reporting systems and standards compel the company to meet a great number of
requirements in order to ensure that the financial statements are, above all, transparent
and comparable



The two most commonly used standards are:


IFRS

(International Financial Reporting Standards)


US GAAP

(United States Generally Accepted Accounting Principles)



Differences are found mainly in the classification of certain events (e.g. whether an
interest payment is reported under operating costs or financing costs etc
.) or with regard
to financial instruments.
Both aim to provide a “true and fair
view”of

the company’s
performance.



In addition, there are local GAAPs (Generally Accepted Accounting Principles). In
Switzerland we have rules in the Code of Obligation which permit hidden reserves and
the FER (
Fachempfehlung

für

Rechnungslegung
) which is a light form of IFRS.

Source: White,
Sondhi
, Fried (2003), 5ff.

Autumn
Term 2013

21

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet


Snapshot of the company‘s assets
and liabilities at a certain reporting
date



Assets = Liabilities + Equity


Source: Brigham, Houston (
2012), 62.

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

Autumn
Term 2013

22

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Income statement


Reports on the performance of a firm, the results of its operating activities


Matching principle = revenues and related costs must be accounted for during the same
period of time. This requires the recognition of expenses incurred to generate revenues
in the same period as the related revenues (revenue recognition, accrual method).

Source: Brigham, Houston (
2012), 67.

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


USD m

2011

2010

Autumn
Term 2013

23

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Statement of cash flow


The cash flow statement represents the cash
generated by a company during the given
accounting period


Separated into three categories: (I) operating
activities, (II) investing activities, (III) financing
activities


The investment section illustrates how cash was
spent whereas section III, financing shows how
those investments were financed


In the long run, cash flows from operating activities
should considerably increase; investments should
be equal to depreciation (plus a bit more to
support stable growth)




In this example, the company has

an operating
problem as the cash flow from operating activities
is negative



CAPEX = capital expenditures

Source: Brigham, Houston
(2012), 69.

Statement of Cash Flow
(chf in millions)
2008
Operating activities
Net Income
117.5


Additions
Depreciation and Amortization
100.0


Increase in accounts payable
30.0


Increase in accruals
10.0


Substractions
Increase in accounts receivable
(60.0)


Increase in inventories
(200.0)


Net cash provided by operating activities
(2.5)


Long-term investing activities
Cash used to acquire fixed assets (CAPEX)
(230.0)


Financing activities
Increase in notes payable
50.0


Increase in bonds
170.0


payments of dividens
(57.5)


Net cash provided by financing activities
162.5


Net decrease in cash and equivalents
(70.0)


Cash and equivalents at beginning of the year
80.0


Cash and equivalents at end of the year
10.0


USD m

2011

Autumn
Term 2013

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Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Statement of retained earnings


Changes in retained earnings occur because stockholders allow the management to
retain and invest funds that otherwise would be paid out as dividend


Thus, the retained earnings position is not cash and is not available for spending



Source: Brigham, Houston
(2012), 72.

Statement of retained earnings
(chf in millions)
2008
Balance of retained earnings as of 2007
750.0


Add: Net income 2008
117.5


Less: Dividend to common stockholders
(57.5)


Balance of retained earnings as of 2008
810.0


USD m

2010

2011

2011

2011

Autumn
Term 2013

25

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Important groups of financial ratios


Liquidity ratios


Is the company able to pay its debts as they become due this year?


Asset management ratios


Does the amount of assets seem to be reasonable in relation to current and projected sales? And
how efficiently does the company use its assets?”


Debt or financing ratios


To what extent is the company using financial leverage? Risk from capital structure?


Profitability ratios


How profitable is the company? How much output does the company generate in relation to a
certain input?


Market value ratios


How do the earnings and results appear in relation to the stock price?

Source: Brigham, Houston (
2012), 99ff
.


Be aware


the definition of ratios may vary between different authors or users!

Autumn
Term 2013

26

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Liquidity ratios

3.2x

310
1000
s
liabilitie

Current
assets

Current

ratio

Current



1.2x

310
615
-
1000
s
liabilitie

Current
s
inventorie

-

assets

Current

ratio
Quick




Inventories are a firm’s least liquid current asset and therefore most likely to suffer losses if they have
to be sold in liquidation. A company should be able to pay current liabilities with current assets less
inventories
.


The quick ratio is also known as liquidity ratio 2.


If
a company is getting into financial difficulties, it will pay its bills more slowly, borrowing money from
banks and from suppliers. This leads to increased current liabilities which causes the current ratio to
decrease. If current liabilities grow faster than current assets, this is a an indication of financial
difficulties
.


The current ratio is also known as liquidity ratio 3.

Source: Brigham, Houston
(2012), 99f;
Volkart

(2011), 161f.

Autumn
Term 2013

27

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

Source: Brigham, Houston (
2012), 67.

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


USD m

2011

2010

Autumn
Term 2013

28

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Liquidity ratios

3.2x

310
1000
s
liabilitie

Current
assets

Current

ratio

Current



1.2x

310
615
-
1000
s
liabilitie

Current
s
inventorie

-

assets

Current

ratio
Quick




Inventories are a firm’s least liquid current asset and therefore most likely to suffer losses if they have
to be sold in liquidation. A company should be able to pay current liabilities with current assets less
inventories
.


The quick ratio is also known as liquidity ratio 2.


If a company is getting into financial difficulties, it will pay its bills more slowly, borrowing money from
banks and from suppliers. This leads to increased current liabilities which causes the current ratio to
decrease. If current liabilities grow faster than current assets, this is a an indication of financial
difficulties
.


The current ratio is also known as liquidity ratio 3.

Source: Brigham, Houston (
2012), 99ff;
Volkart

(2011), 161f.

Autumn
Term 2013

29

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

Source: Brigham, Houston (
2012), 67.

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


2011

2010

USD m

Autumn
Term 2013

30

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Asset management ratios


DSO shows the “average collection period” or how long customers usually take to pay their bills. The
higher the DSO, the more money is lost, because the company has to finance the gap with
expensive loans etc.

4.9x

615
3000
Inventory
Sales

ratio

turnover
Inventory



days

46

365
3000
375
365
/
Sales
s
Receivable
day

per

sales

Average
s
Receivable

g
outstandin

sales

Days




3.0x

1000
3000
assets

fixed

Net
Sales

ratio

turnover

asset

Fixed




Inventory turnover indicates whether a company (compared with peer companies) holds too much
inventory, which is very unproductive and represents an investment with a low
return


The inventory turnover ratio can also be calculated by using “Cost of Goods Sold” instead of “Sales”


The fixed assets turnover ratio indicates how effectively the company is using its fixed assets
compared with peer companies.

Source: Brigham, Houston (
2012), 102ff;
Volkart

(2011), 163f.

Autumn
Term 2013

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


31

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Source: Brigham, Houston (
2012), 67.

2011

2010

USD m

Autumn
Term 2013

32

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Asset management ratios


DSO shows the “average collection period” or how long customers usually take to pay their bills. The
higher the DSO, the more money is lost, because the company has to finance the gap with
expensive loans etc.

4.9x

615
3000
Inventory
Sales

ratio

turnover
Inventory



days

46

365
3000
375
365
/
Sales
s
Receivable
day

per

sales

Average
s
Receivable

g
outstandin

sales

Days




3.0x

1000
3000
assets

fixed

Net
Sales

ratio

turnover

asset

Fixed




Inventory turnover indicates whether a company (compared with peer companies) holds too much
inventory, which is very unproductive and represents an investment with a low
return


The inventory turnover ratio can also be calculated by using “Cost of Goods Sold” instead of “Sales”


The fixed assets turnover ratio indicates how effectively the company is using its fixed assets
compared with peer companies.

Source: Brigham, Houston (
2012), 102ff;
Volkart

(2011), 163f.

Autumn
Term 2013

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

33

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Source: Brigham, Houston (
2012), 67.

2011

2010

USD m

Autumn
Term 2013

34

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Asset management ratios


DSO shows the “average collection period” or how long customers usually take to pay their bills. The
higher the DSO, the more money is lost, because the company has to finance the gap with
expensive loans etc.

4.9x

615
3000
Inventory
Sales

ratio

turnover
Inventory



days

46

365
3000
375
365
/
Sales
s
Receivable
day

per

sales

Average
s
Receivable

g
outstandin

sales

Days




3.0x

1000
3000
assets

fixed

Net
Sales

ratio

turnover

asset

Fixed




Inventory turnover indicates whether a company (compared with peer companies) holds too much
inventory, which is very unproductive and represents an investment with a low
return


The inventory turnover ratio can also be calculated by using “Cost of Goods Sold” instead of “Sales”


The fixed assets turnover ratio indicates how effectively the company is using its fixed assets
compared with peer companies.

Source: Brigham, Houston (
2012), 102ff;
Volkart

(2011), 163f.

Autumn
Term 2013

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

35

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Source: Brigham, Houston (
2012), 67.

2011

2010

USD m

Autumn
Term 2013

36

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Debt
management ratios

53.0%

2000
1060
assets

Total
debt

Total

assets

total

to

debt

Total



3.2x

88
284
Interest
EBIT

ratio

earned
-
interest
-
Times




Creditors prefer a low debt to equity ratio whereas stockholders may want more leverage as it can
magnify expected earnings (


pecking order theory). The optimal ratio between debt and assets is
highly dependent on the firm’s business and industry.


The TIE ratio measures the extent to which operating
profit can
decline before the firm is unable to
meet its interest costs. Not being able to pay interest costs will bring legal troubles and can result in
bankruptcy.

Source: Brigham, Houston (
2012), 105ff
.

Autumn
Term 2013

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

37

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Source: Brigham, Houston (
2012), 67.

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


2011

2010

USD m

Autumn
Term 2013

38

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Debt
management ratios

53.0%

2000
1060
assets

Total
debt

Total

assets

total

to

debt

Total



3.2x

88
284
Interest
EBIT

ratio

earned
-
interest
-
Times




Creditors prefer a low debt to equity ratio whereas stockholders may want more leverage as it can
magnify expected earnings (


pecking order theory). The optimal ratio between debt and assets is
highly dependent on the firm’s business and industry.


The TIE ratio measures the extent to which operating
profit
can decline before the firm is unable to
meet its interest costs. Not being able to pay interest costs will bring legal troubles and can result in
bankruptcy.

Source: Brigham, Houston (
2012), 105ff
.

Autumn
Term 2013

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


39

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

Source: Brigham, Houston (
2012), 67.

2011

2010

USD m

Autumn
Term 2013

40

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Profitability ratios

3.9%

3000
118
Sales
income

Net

margin

Profit



14.2%

2000
284
assets

Total
EBIT

power

earning
Basic




The profit margin on sales shows the profit per unit of sales

12.5%

940
118
equity

Common
income

Net
equity

common

on

Return




Stockholders want to earn a return on their money invested. This ratio indicates the profitability of a
stockholders’ invested money from an accounting perspective


This ratio shows the raw earning power of the firm’s assets excluding potential influence from interest
payments or leverage effects.

Source: Brigham, Houston (
2012), 108ff
.

5.9%

2000
118
assets

Total
income

Net

assets

total

on

Return




Stockholders want to earn a return on their money invested. This ratio indicates the profitability of a
stockholders’ invested money from an accounting perspective

Autumn
Term 2013

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


41

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

Source: Brigham, Houston (
2012), 67.

2011

2010

USD m

Autumn
Term 2013

42

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Profitability ratios

3.9%

3000
118
Sales
income

Net

margin

Profit



14.2%

2000
284
assets

Total
EBIT

power

earning
Basic




The profit margin on sales shows the profit per unit of sales

12.5%

940
118
equity

Common
income

Net
equity

common

on

Return




Stockholders want to earn a return on their money invested. This ratio indicates the profitability of a
stockholders’ invested money from an accounting perspective


This ratio shows the raw earning power of the firm’s assets excluding potential influence from interest
payments or leverage effects.

Source: Brigham, Houston (
2012), 108ff
.

5.9%

2000
118
assets

Total
income

Net

assets

total

on

Return




Stockholders want to earn a return on their money invested. This ratio indicates the profitability of a
stockholders’ invested money from an accounting perspective

Autumn
Term 2013

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


43

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

Source: Brigham, Houston (
2012), 67.

2011

2010

USD m

Autumn
Term 2013

44

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Profitability ratios

3.9%

3000
118
Sales
income

Net

margin

Profit



14.2%

2000
284
assets

Total
EBIT

power

earning
Basic




The profit margin on sales shows the profit per unit of sales

12.5%

940
118
equity

Common
income

Net
equity

common

on

Return




Stockholders want to earn a return on their money invested. This ratio indicates the profitability of a
stockholders’ invested money from an accounting perspective


This ratio shows the raw earning power of the firm’s assets excluding potential influence from interest
payments or leverage effects.

Source: Brigham, Houston (
2012), 108ff
.

5.9%

2000
118
assets

Total
income

Net

assets

total

on

Return




Stockholders want to earn a return on their money invested. This ratio indicates the profitability of a
stockholders’ invested money from an accounting perspective

Autumn
Term 2013

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

45

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Source: Brigham, Houston (
2012), 67.

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


2011

2010

USD m

Autumn
Term 2013

46

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Profitability ratios

3.9%

3000
118
Sales
income

Net

margin

Profit



14.2%

2000
284
assets

Total
EBIT

power

earning
Basic




The profit margin on sales shows the profit per unit of sales

12.5%

940
118
equity

Common
income

Net
equity

common

on

Return




Stockholders want to earn a return on their money invested. This ratio indicates the profitability of a
stockholders’ invested money from an accounting perspective


This ratio shows the raw earning power of the firm’s assets excluding potential influence from interest
payments or leverage effects.

Source: Brigham, Houston (
2012), 108ff
.

5.9%

2000
118
assets

Total
income

Net

assets

total

on

Return




Stockholders want to earn a return on their money invested. This ratio indicates the profitability of a
stockholders’ invested money from an accounting perspective

Autumn
Term 2013

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


47

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Source: Brigham, Houston (
2012), 67.

2011

2010

USD m

Autumn
Term 2013

48

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Market value ratios

9.8x

50
118
23
share

per

Earnings
share

per

Price

ratio

ings
Price/earn




This ratio shows how much an investor is willing to pay per unit of reported earnings. Thus, the P/E
ratio indicates, by comparison with its peers, whether a company is regarded as being risky or
expected to have poor growth.

1.2x

50
940
23.00
share

per

value

Book
share

per

Price

ratio

k
Market/boo




The market to book ratio typically exceeds 1.0 as the balance sheet does not reflect inflation or
goodwill. In addition, this ratio provides an indication whether a company is able to earn high returns.

Numbers of shares:
50m

Share price: 23

Source: Brigham, Houston (
2012), 111ff
.

Autumn
Term 2013

49

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

Source: Brigham, Houston (
2012), 67.

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


2011

2010

USD m

Autumn
Term 2013

50

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Market value ratios

9.8x

50
118
23
share

per

Earnings
share

per

Price

ratio

ings
Price/earn




This ratio shows how much an investor is willing to pay per unit of reported earnings. Thus, the P/E
ratio indicates, by comparison with its peers, whether a company is regarded as being risky or
expected to have poor growth.

1.2x

50
940
23.00
share

per

value

Book
share

per

Price

ratio

k
Market/boo




The market to book ratio typically exceeds 1.0 as the balance sheet does not reflect inflation or
goodwill. In addition, this ratio provides an indication whether a company is able to earn high returns.

Numbers of shares:
50m

Share price: 23

Source: Brigham, Houston (
2012), 111ff
.

Autumn
Term 2013

Balance Sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
10


80


Accounts receivable
375


315


Inventories
615


415


Current assets
1'000


810


Net plant and equipment
1'000


870


Non-current assets
1'000


870


Total assets
2'000


1'680


Liabilities and Equity
Accounts payable
60


30


Notes payable
110


60


Accruals
140


130


Total current liabilities
310


220


Long-term bonds
750


580


Total debt
1'060


800


Common stock (50'000'000 shares)
130


130


Retained earnings
810


750


Total equity
940


880


Total liabilities and equity
2'000


1'680


USD m

2011

2010

51

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Balance sheet and income statement

Source: Brigham, Houston (
2012), 62.

Source: Brigham, Houston (
2012), 67.

Income Statement
(chf in millions)
2008
2007
Net Sales
3'000.0


2'850.0


Operating Costs
(2'616.2)


(2'497.0)


EBITDA
383.8


353.0


Amortization
-


-


Depreciation
(100.0)


(90.0)


EBIT
283.8


263.0


Interest
(88.0)


(60.0)


Taxes
(78.3)


(81.2)


Net Income
117.5


121.8


Common dividends
57.5


53.0


Addition to retained earnings
60.0


68.8


2011

2010

USD m

Autumn
Term 2013

52

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Agenda: Case study

Beans Incorporation vs. Garlic Incorporation

Autumn
Term 2013

53

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Case study: Interpretation of financial statements


Your client tells you he is interested in investing in a company from the food industry as he sees
great growth potential in this industry



He has already selected two potential targets and now wants your professional advice on which
company is more likely to report good results in the future



Please try to give your client your opinion based on what you have learned in this course


Read the financial statements and calculate the ratios based on 2008 figures


Compare these ratios with those of the other company and with those of the industry average

Beans Inc.

Garlic Inc.

vs.

Autumn
Term 2013

54

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Case study: Beans Incorporation I

Beans Inc.

Balance sheet
(chf m)
2008
2007
Assets
Cash and cash equivalents
325


80


Accounts receivable
491


455


Inventories
548


508


Current assets
1'365


1'042


Net plant and equipment
1'470


1'297


Total assets
2'835


2'339


Liabilities and equity
Accounts payable
302


263


Notes payable
227


193


Accruals
75


70


Total current liabilities
604


525


Long-term bonds
590


490


Total debt
1'194


1'015


Common stock (50'000'000 shares)
250


250


Retained earnings
1'391


1'074


Total equity
1'641


1'324


Total liabilities and equity
2'835


2'339


Share price
152


Book value per share
33


Numbers of shares (in m)
50


Income statement
(chf m)
2008
2007
Net sales
3780
3500
Operating sosts
2650
2500
EBITDA
1130
1000
Amortization
0
0
Depreciation
75
90
EBIT
1055
910
Interest
96
81
EBT
959
829
Taxes
384
332
Net income
576
497
Common dividends
259
224
Addition to retained earnings
317
274
EBITDA margin
29.9%
28.6%
EBIT margin
27.9%
26.0%
Net income margin
15.2%
14.2%
EPS
11.51


9.95


2011

2010

2011

2010

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Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Case study: Beans Incorporation II

Beans Inc.


By analyzing its financial
statements, what are the
strengths and weaknesses of this
company?



Where do you see risks or
opportunities?

Statement of cash flow
(chf m)
2008
Operating activities
Net income
576


Additions
Depreciation and Amortization
75


Increase in accounts payable
40


Increase in accruals
5


Substractions
Increase in accounts receivable
(36)


Increase in inventories
(41)


Net cash provided by operating activities
619


Long-term investing activities
Cash used to acquire fixed assets
(248)


Financing activities
Increase in notes payable
34


Increase in bonds
100


Payments of dividends
(259)


Net cash provided by financing activities
(125)


Net increase in cash and equivalents
245


Cash and equivalents at beginning of the year
80


Cash and equivalents at end of the year
325


2011

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Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Case study: Garlic Incorporation I

Garlic Inc.

Balance sheet
(chf in millions)
2008
2007
Assets
Cash and cash equivalents
148


80


Accounts receivable
509


480


Inventories
541


450


Current assets
1'198


1'010


Net plant and equipment
1'318


1'120


Total assets
2'516


2'130


Liabilities and equity
Accounts payable
159


180


Notes payable
127


150


Accruals
130


90


Total current liabilities
416


420


Long-term bonds
812


490


Total debt
1'228


910


Common stock (50'000'000 shares)
250


250


Retained earnings
1'037


970


Total equity
1'287


1'220


Total liabilities and equity
2'516


2'130


Share price
32


Book value per share
26


Numbers of shares (in m)
50


Income statement
(chf m)
2008
2007
Net sales
3180
3000
Operating costs
2703
2550
EBITDA
477
450
Amortization
0
0
Depreciation
150
120
EBIT
327
330
Interest
123
91
EBT
204
239
Taxes
82
96
Net income
123
143
Common dividends
55
65
Addition to retained earnings
67
79
EBITDA margin
15.0%
15.0%
EBIT margin
10.3%
11.0%
Net income margin
3.9%
4.8%
EPS
2.45


2.87


2011

2010

2011

2010

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57

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Case study: Garlic Incorporation II

Garlic Inc.

Statement of cash flow
(chf m)
2008
Operating activities
Net income
123


Additions
Depreciation and amortization
150


Increase in accounts payable
(21)


Increase in accruals
40


Substractions
Increase in accounts receivable
(29)


Increase in inventories
(91)


Net cash provided by operating activities
172


Long-term investing activities
Cash used to acquire fixed assets
(348)


Financing activities
Increase in notes payable
(23)


Increase in bonds
322


Payments of dividends
(55)


Net cash provided by financing activities
244


Net increase in cash and equivalents
68


Cash and equivalents at beginning of the year
80


Cash and equivalents at end of the year
148



By analyzing its financial
statements, what are the
strengths and weaknesses of this
company?



Where do you see risks or
opportunities?

2011

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58

Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Case study: Solution guideline


Liquidity ratios


Asset management ratios


Debt ratios


Profitability ratios


Market value ratios

Value Creation

Liquidity

Security/Risk

Profitability


Try to assess whether the given company shows a healthy relation between profitability, liquidity and
risk


If a company shows high exposure to risky investments, one expects the profitability to be
accordingly


Try to come to a conclusion on which company is more likely to pursue an expansive strategy and
strengthen its position within the market


In terms of ability to generate cash flows, capital structure and working capital management

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Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Case study: Solution guideline II


Try to compare the companies with each other and
put the results into perspective using the industry
average values on the right


Industry average figures can be seen as a guide


Why is the company less profitable than
average peer companies?


Why does one company have such a high
P/E multiple and what does that mean for the
operating business?





Financial statements can never fully answer
such questions. However, they can raise the
right questions


Source: Brigham, Houston (
2012), 118.

Ratios

Industry average

Liquidity

Current ratio

4.2x

Quick
ratio

2.2x

Asset Management

Inventory turnover

10.9x

Days sales outstanding

36 days

Fixed
assets

turnover

2.8x

Debt Management

Total
debt

to

total
assets

40.0%

Times

interest

earned

6x

Profitability

Profit

margin

5.0%

Return on total
assets

(ROA)

9.0%

Basic
earning

power

18.0%

Return on
common

equity

(ROE)

Market Value

Price /
earnings

(P/E)

11.3x

Market /
book

(M/B)

1.7x

15.0%

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Markus Neuhaus I Corporate Finance I neuhauma@ethz.ch

Contents


Learning targets


Pre
-
course reading


Lecture „Interpreting Financial Statements“


Pre
-
course reading case studies / questions


Solutions to case studies



Autumn
Term 2013