Corp.finance 4: Financial statement analysis (FSA)

Introduction:
In this reading, we use 2 tools to do FSA:

• Dupont analysis for historical performance: separate ROA, ROE into some parts which could tell more 'bout the performance.
• Pro foma for future forecast

Ok, let's start.

DUPONT ANALYSIS

• Applying for ROA
• = Net income/total assets
• = NI/sales * sales/total assets
• = net profit margin * total asset turnover
• Net profit margin can be analyzed more specific:
• = (Earning before tax - taxes)/sales
  
• = (EBT-taxes)/EBT * EBT/operating income * operating income/sales
  
• = (1-taxes/EBT) * EBT/ operating income * operating income/ sales
• = tax burden * interest burden (or: effect of nonoperating item) * operating profit margin
  
• for ROE:
• = NI/total Equity
• = ROA* total assets/ total equity
• => applied similar analysis

PRO FOMA technique

• Use: forecast future financial statement
  
• Steps: