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Financial Statement Analysis. MIM 517 Class 4 Fall 2010. Understanding a Company. 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)

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financial statement analysis

Financial Statement Analysis

MIM 517

Class 4

Fall 2010

understanding a company
Understanding a Company
  • 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 starbucks 10 k
Background – Starbucks 10-K
  • 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
Background – Starbucks 10-K Industry
  • Increased competition from large well-known competitors (Dunkin, McDonalds)
  • Customers trading down to lower priced coffee beverages & related products due to economy
starbucks key accounting policies
Starbucks Key Accounting Policies
  • “Application of Critical Accounting Policies”
    • Asset Impairment
    • Stock-based Compensation
    • Operating Leases
    • Self insurance reserves
  • Other issues
    • Fair value accounting
    • Multiple revenue streams
financial statement analysis8
Financial Statement Analysis
  • Group by category
  • Calculate numbers over time AND for industry/peer
  • Comment on “improving” or “deteriorating” by category
income statement analysis
Income Statement Analysis

Questions

  • Size of company changed?
  • Nature of operations changed?
  • Unusual items?
  • What is “quality of earnings”?

Tools

  • Common sized I/S (% of net sales)
  • Horizontal analysis
  • Ratios
  • Industry comparison
balance sheet analysis
Balance Sheet Analysis

Questions

  • Consistent with income statement “story”?
  • Big changes?

Tools

  • Common sized B/S (% of total assets)
  • Horizontal analysis
  • Industry comparison
  • Ratios
cash flow analysis
Cash Flow Analysis

Tell the story….

  • What did the company use cash for?
    • Primary sources of cash
  • Where did the company get cash from?
    • Primary uses of cash
  • Did the company receive more cash than it used?
lets work through starbucks
Lets work through Starbucks
  • Common size and horizontal analysis
  • Ratios
  • Usefulness of financial web sites…
    • Morningstar, Yahoo finance, etc.
      • http://quicktake.morningstar.com/StockNet/FinancialHealth10.aspx?Country=USA&Symbol=SBUX
    • Why might there be differences?
      • Is your 10K most current financials?
      • Different categorization
      • Ratio definitions
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