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1. Exploratory Analysis

1. Exploratory Analysis. - Start with the raw statements; - Look for structure, structural changes; - Observe trends and cycles; - Compare with other companies. Example:. Costco. Costco. Wal-Mart. Wal-Mart. 2. Quality of Accounting.

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1. Exploratory Analysis

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  1. 1. Exploratory Analysis - Start with the raw statements; - Look for structure, structural changes; - Observe trends and cycles; - Compare with other companies. Example: ... Presentation to the Board of REI on 11-22-2004

  2. Costco Presentation to the Board of REI on 11-22-2004

  3. Costco Presentation to the Board of REI on 11-22-2004

  4. Wal-Mart Presentation to the Board of REI on 11-22-2004

  5. Wal-Mart Presentation to the Board of REI on 11-22-2004

  6. 2. Quality of Accounting Do financial reports and other means of communication provide relevant, reliable and transparent information to investors ? Is accounting being manipulated to convey an image that does not represent the business faithfully ? Presentation to the Board of REI on 11-22-2004

  7. Accounts most often subject to manipulation AAER-1 to AAER-1745 on 294 firms that manipulated 426 different accounts. (Dechow) Presentation to the Board of REI on 11-22-2004

  8. 3. Dupont Analysis  Return on Equity ROE = ROA + ( Leverage x Spread )  Return on Assets ROA = Profit Margin x Asset Turnover Presentation to the Board of REI on 11-22-2004

  9. Map of ROA breakdown for 248 3-digit SIC industry groups from 1970 to 2001 (medians) (Soliman 2003, Dechow) Presentation to the Board of REI on 11-22-2004

  10. Wal-Mart in 2003: Dupont analysis Presentation to the Board of REI on 11-22-2004

  11. WMT vs. COST ROA in 1999 Presentation to the Board of REI on 11-22-2004

  12. WMT vs. COST ROA in 2000 Presentation to the Board of REI on 11-22-2004

  13. WMT vs. COST ROA in 2001 Presentation to the Board of REI on 11-22-2004

  14. WMT vs. COST ROA in 2002 Presentation to the Board of REI on 11-22-2004

  15. WMT vs. COST ROA in 2003 Presentation to the Board of REI on 11-22-2004

  16. WMT vs. COST ROE in 1999 Presentation to the Board of REI on 11-22-2004

  17. WMT vs. COST ROE in 2000 Presentation to the Board of REI on 11-22-2004

  18. WMT vs. COST ROE in 2001 Presentation to the Board of REI on 11-22-2004

  19. WMT vs. COST ROE in 2002 Presentation to the Board of REI on 11-22-2004

  20. WMT vs. COST ROE in 2003 Presentation to the Board of REI on 11-22-2004

  21. Dupont conclusions: - WMT beats COST in ROA and ROE every year (99-03). - The ROA gap has shrunk. Therefore maintenance of the ROE gap has come at a higher level of debt and risk. - WMT has suffered a steady decline in ATO; PM recovers in 03 because of lower ETR and other transitory items. Presentation to the Board of REI on 11-22-2004

  22. Dupont questions: - Why are WMT’s asset turnover and profit margin falling? (ROA goes from 16.3% to 12.6%, before recovering) - Why is WMT’s effective tax rate falling? (37.4% to 35.3% of EBT) - Why is the investment in operating LT assets relatively so much higher? (67 to 86 days of sales!) Presentation to the Board of REI on 11-22-2004

  23. Wal-Mart’s business segments Presentation to the Board of REI on 11-22-2004

  24. Wal-Mart’s business segments Presentation to the Board of REI on 11-22-2004

  25. Wal-Mart’s business segments Presentation to the Board of REI on 11-22-2004

  26. Wal-Mart’s business segments Presentation to the Board of REI on 11-22-2004

  27. Wal-Mart’s business segments Presentation to the Board of REI on 11-22-2004

  28. Wal-Mart’s business segments Presentation to the Board of REI on 11-22-2004

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