Financial Statement Analysis MIM 517 Class 4 Fall 2010

Financial Statement Analysis
MIM 517
Class 4
Fall 2010
Understanding a Company
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What product line(s) is the company
involved in? Is the product
understandable?
Are there industry specific accounting
rules? (e.g. oil & gas, financial services)
Does the company have one primary
line of business?
Background & Industry
Research - BizStats
Background & Industry
Research – S&P
Background – Starbucks 10-K
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Premier roaster & retailer of specialty
coffee in the world
Offers coffee drinks, food items, roasted
beans, coffee accessories, and teas in retail
stores
Also sells coffee through grocery stores &
licenses its brand for other products
Owns Seattle’s Best Coffee & Torrefazione
Italia coffee brands
Background – Starbucks 10-K
Industry
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Increased competition from large wellknown competitors (Dunkin,
McDonalds)
Customers trading down to lower priced
coffee beverages & related products
due to economy
Starbucks Key Accounting
Policies
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“Application of Critical Accounting Policies”
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Asset Impairment
Stock-based Compensation
Operating Leases
Self insurance reserves
Other issues
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Fair value accounting
Multiple revenue streams
Financial Statement Analysis
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Group by category
Calculate numbers over time AND for
industry/peer
Comment on “improving” or
“deteriorating” by category
Income Statement Analysis
Questions
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Size of company changed?
Nature of operations changed?
Unusual items?
What is “quality of earnings”?
Tools
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Common sized I/S (% of net sales)
Horizontal analysis
Ratios
Industry comparison
Balance Sheet Analysis
Questions
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Consistent with income statement “story”?
Big changes?
Tools
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Common sized B/S (% of total assets)
Horizontal analysis
Industry comparison
Ratios
Cash Flow Analysis
Tell the story….
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What did the company use cash for?
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Where did the company get cash from?
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Primary sources of cash
Primary uses of cash
Did the company receive more cash than it
used?
Lets work through Starbucks
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Common size and horizontal analysis
Ratios
Usefulness of financial web sites…
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Morningstar, Yahoo finance, etc.
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http://quicktake.morningstar.com/StockNet/FinancialHealth10.aspx?Country=USA&Symbol=SBUX
Why might there be differences?
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Is your 10K most current financials?
Different categorization
Ratio definitions
Liquidity Ratios
Current
Ratio
Quick (Acid
Test) Ratio
Cash Flow
Liquidity
Ratio
SBUX
2009
SBUX
2008
Tim
Hortons
2009
1.29
0.80
1.45
0.59
0.30
0.92
1.30
0.72
1.53
Liquidity Ratios
SBUX
2009
Net Trade Cycle
Average Collection
Period
Days Inventory
Held
Days Payable
Outstanding
SBUX
2008
Tim
Hortons
2009
102.25 days 109.04 days 14.97 days
62.04 days
74.65 days 34.08 days
67.22 days
64.77 days 21.30 days
27.00 days
30.37 days 40.40 days
Operating Efficiency Ratios
Accounts Receivable
Turnover
SBUX
2009
SBUX
2008
Tim
Hortons
2009
5.88
4.89
3.57
Inventory Turnover
Accounts Payable
Turnover
5.43
5.64
17.14
13.52
12.02
9.03
Fixed Asset Turnover
3.85
3.51
1.67
Total Asset Turnover
1.75
1.83
1.12
Leverage Ratios
SBUX
2009
SBUX
2008
Tim
Hortons
2009
Debt Ratio
45.4%
56.1%
41.4%
LT Debt to Total
Capitalization
15.3%
18.1%
22.3%
0.83
1.28
0.71
Debt to Equity
Leverage Ratios
Times Interest
Earned
Cash Interest
Coverage
Fixed Charge
Coverage
Cash Flow
Adequacy
SBUX
2009
SBUX
2008
Tim
Hortons
2009
14.37
9.44
23.35
40.0
29.8
27.99
1.69
1.57
3.80
3.08
1.13
1.70
Profitability Ratios
SBUX
2009
SBUX
2008
Tim
Hortons
2009
Gross Profit Margin
55.8%
55.3%
421.2%
Operating Profit Margin
5.7%
4.9%
212.1%
Net Profit Margin
4.0%
3.0%
13.2%
Cash Flow Margin
14.2%
12.1%
18.5%
7.0%
5.6%
14.8%
Return on Equity
12.8%
12.7%
25.4%
Cash Return on Assets
24.9%
22.2%
20.8%
ROA or ROI