CHAPTER

1
INTRODUCTION
Targets of the course

This course is designed to:

• Provide the core and updated knowledge in financial
management
• Help the learners to well understand the contents
and prepare the financial statements
• Provide skills and methodology in financial analysis:
operating analysis, investment analysis and financing
analysis
• Help to make financial decisions in short term and
long term
CONTENT OF INTRODUCTION CHAPTER

1. Target of financial analysis (FA)

2. Financial analysis process
3. Vietnam financial reports and International
financial reports
4. Financial analysis mothod
Book Organization
Financial Statement Analysis

Part I Part II Part III

Introduction and Overview Accounting Analysis Financial Analysis

Chapter 3: Analyzing Chapter 7: Cash Flow

Chapter 1: Overview of Analysis
Financial Activities
Financial Statement Chapter 8: Return on
Chapter 4: Analyzing
Analysis Invested Capital
Investing Activities
Chapter 5: Analyzing Chapter 9: Profitability
Chapter 2: Financial Analysis
Investing Activities:
Reporting and Chapter 10: Prospective
Special topic
Analysis Analysis
Chapter 6: Analyzing
Chapter 11: Credit
Operating Activities Analysis
Chapter 12: Equity
Analysis and Valuation
 Business Analysis

Evaluate Evaluate
Prospects Risks
Business Decision Makers

Equity investors

Creditors

Managers

Merger and Acquisition Analysts

External Auditors

Directors

Regulators

Employees & Unions

Lawyers
 Credit Analysis Equity Analysis

Management &
Control Labor Negotiations

Types of
Business
Regulation Director Oversight
Analysis

Financial External Auditing

Analysis

Mergers, Acquisitions
& Divestitures
 Credit Analysis
Creditors

Trade Non-trade
Creditors Creditors

Provide
Bear risk
Provide
goods or Bear risk
of default major
services of default
financing

Usually Usually
Most Most long-
implicit explicit
short-term term
interest interest
 Credit Analysis
Credit worthiness: Ability to honor credit
obligations
(downside risk)

Liquidity Solvency
Ability to meet Ability to meet
short-term long-term
obligations obligations
Focus: Focus:
• Current cash flows • Long-term
• Make up of profitability
current assets • Capital structure
and liabilities
• Liquidity of assets
 Equity Analysis
Assessment of downside risk and upside
potential

Technical analysis / Fundamental Analysis

Charting Determine Intrinsic
• Patterns in price or value without
volume history of a reference to price
stock • Analyze and
• Predict future price interpret key factors
movements • Economy
• Industry
• Company
1-10
 Business Activities
Planning
Investing Activities Financial
Activities Activities

Operating Activities
Revenues and expenses from providing
goods and services
Financial Statements Reflect Business Activities

Planning
Investing Financing
Current: Operating Current:
•
Cash
•
Notes Payable
•
Sales
•
Accounts Receivable
•
Accounts Payable
•
Cost of Goods Sold
•
Inventories
•
Salaries Payable
•
Selling Expense
•
Marketable Securities
•
Income Tax Payable
•
Administrative Expense
Noncurrent: •
Interest Expense
Noncurrent:
•
Land, Buildings, & •
Income Tax Expense
•
Bonds Payable
Equipment
•
Common Stock
•
Patents
•
Retained Earnings
•
Investments
Net Income

Liabilities & Equity

Income
Assets statement
Cash Flow Balance Sheet

Balance Statement of Statement of

Sheet Cash Flows Shareholders’
Equity
Financial Analysis
• Financial Analysis is the use of financial statements
to analyze a company’s financial position and
performance and to assess future financial
performance.
• Financial Analysis is the process of examining a
company's performance in the context of its
industry and economic environment in order to
arrive at a decision or recommendation.
• Financial Analysis consists of three broad areas:
profitability analysis, risk analysis and analysis of
sources and uses of funds
Target of financial analysis

• For each object, the analysis purpose is

different?
• For Chief Financial Officer (CFO)
• For shareholders
• For creditors: Bank, supplier
• For others: tax, audit, ….
• For staff
Financial Analysis Process
To collect information
Internal information
External information
Accounting and managing information

Information processing
Comparation
Explanation and evaluation
Finding reasons

Focus and make a decision

To invest
To finance in short term and long term
Financial Analysis Process
To collect information
• Financial statements:
• Financial statement information processing for
analysis purpose
• FS in base year
• FS by the proportion reports
• Others:
• Internal information (department
relationship)
• External information (general
information/macro economy, by sector)
Financial Analysis Process

• Comparative analysis method

• Time series analysis
• Cross - sectional analysis
• Common-size analysis.

• Ratio Analysis
• Dupont method
• The method of separated segment analysis
Analysis Method

• Comparative analysis
• Condition: data/ratios must have the same
content, the same unit of measurement
• Year basis: choose year basis (eg. Previous
data/ratios, average value of the sector, each
indicator proportion compared to the overall,…)
• Technical: absolute number/ ralative number.
Analysis Method

• Comparative analysis
+ Time series analysis :
• A year-to-year change analysis: It present
changes in amounts as well as in
percentages
• Index-number trend analysis: is useful tool for
long-term trend comparisons
 1-20

Analysis Preview
ANALYSIS METHOD

• Comparative analysis
+ Cross - sectional analysis : compares a
particular company to its industry peers
Analysis Preview
Common-Size Analysis
Purpose :  Evaluation of internal makeup
of financial statements
 Evaluation of financial statement
accounts across companies
Output: Proportionate size of assets,
liabilities, equity, revenues, &
expenses
COMMON – SIZE ANALYSIS

Dentify changing trends of each item in

the financial statements.

• For balance sheet

Calculate and compare the proportion of each item
compared to the total assets and total capital.

• For income statement

Calculate and compare the proportion of each item
compared to sales.
Analysis Preview
Analysis Preview
LIMITATION OF COMPARATIVE METHOD

• When the company has many business

field, the comparative analysis is not
effective and not reflect comparable
results, eg. Holdings, goups, corporations,…

• “Average” – Mean (sector) is not reflect

fuctuation and gap

• Seasonal factors distort ratio analysis

(More…)
26
Analysis Preview
Ratio Analysis
Purpose : Evaluate relation between two
or more economically
important items (one
starting point for further analysis)
Output: Mathematical expression of
relation between two or more
items
Cautions:  Prior Accounting analysis is
important
 Interpretation is key - long vs
ANALYSIS METHOD
• Dupont system integrates many elements of
income statement and balance sheet, which
will identify the causes of the good or bad
phenomenon in the business of company. This
approach separates a ratio reflecting
profitability of the corporate (such as returns
on total assets (ROA), returns on equity
(ROE)) some ratios. These ratios are
ralationship to each other. Then, analyst will
find out the factors that affect the common –
size ratio.
DUPONT
• Split a general ratios into constituent
indicators which have a causal relationship.

ROE = PM x AU x EM
NI
Equity

NI Revenue Total
x x assets
Revenue Total Equity
assets
29
TEXT BOOK

• K.R.Subramanyam, John J Wild, Robert F.Halsey,

Financial Statement Analysis (10th edition), Mc
Graw Hill, 2014.
COURSE REQUIREMENT & GRADING POLICY

Content Weight Detail

Attendance 10% Students are required to attend each session of the

course. Otherwise, they must have reason. Discussing
about the lesson is appreciate.

Group presentation 20% The class is divided to N groups. Each group will have a
presentation. Each member in the group is evaluated
depend on his participation.

Mid-term test 30% 02 the mid-term tests are open-book test, each test 50 -
90 minutes.
Final test 40% The final test is closed-book test, 90 minutes.