new lecture 1 spring 09

8/14/2019 New Lecture 1 Spring 09

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Spring 2009 NBA 5060

Lecture 1 - Introduction

I. Administrative details

II. Course Description and Introduction

III. Ratio Detective Exercise


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I. Administrative Details

Handouts will be available at the front of the classroom, prior to thestart of each class. Extra copies will be put on the 5060 shelves acrossfrom 304 at the end of the day, and made available on the course homepage.

Syllabus and Course Outline

Note -- all items in the course schedule are subject to changedepending on the speed at which we cover the material.


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II. Course Description and Introduction

The purpose of this course is to introduce the tools for effective analysis offinancial statements. We will analyze financial statements in the context ofequity valuation for the purpose of making well-informed investmentdecisions.

** The assignments are intended to develop the application of the material,while the final exam for the course integrates all of these dimensions

STEP 1Understand the past

1. Collect Information

2. Understand theBusiness

3. Accounting Analysis

4. Financial Ratio Analysis

5. Cash Flow Analysis

STEP 2Forecast the Future

1. Structured Forecasting

2. Income StatementForecasts

3. Balance SheetForecasts

4. Cash Flow Forecasts

STEP 3Estimate Value

1. Cost of Capital

2. Valuation Models

Residual Income

Model

Free Cash FlowsModel

3. Valuation Ratios

4. Additionalconsiderations


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~~ Ratio Detective Exercise ~~Listed below are selected financial ratios for nine publicly traded companies for fiscal 2007. The figures presented are common-sized and, hence, are apercentage of sales. Using your knowledge about the operating and financial structure of these companies, identify the ninecompanies. The companies are asfollows: Best Buy Co., Inc. (BBY); Wells Fargo & Co. (WFC); Brinker International, Inc. (EAT) operator of restaurants such as Chilis and Macaroni Grill;Nike, Inc. (NKE); Bidz.com, Inc. (BIDZ) an online jewelry retailer; Plum Creek Timber Co., Inc. (PCL) a producer of lumber products; Google, Inc.(GOOG); Bristol-Myers Squibb Co. (BMY); and Molson Coors Brewing Co. (TAP).

1 2 3 4 5 6 7 8 9

COMPANY:Cash & Mkt Securities 85.7% 11.5% 71.5% 3.8% 1.9% 17.4% 14.3% 2.6% 6.1%Accounts Receivable 13.9% 21.9% 35.2% 1.4% 1.1% 15.3% 2.7% 2.8% 14.1%Inventories (Total): 0.0% 11.2% 0.0% 11.8% 0.7% 13.0% 5.2% 30.3% 6.5%

RM 0.0% 2.2% 0.0% 0.0% 0.0% 0.0% 2.0% 0.0% 2.7%WIP 0.0% 4.3% 0.0% 0.0% 0.0% 0.0% 0.3% 0.0% 0.7%FG 0.0% 4.7% 0.0% 0.0% 0.0% 0.0% 2.9% 0.0% 3.1%

Property, Plant & Equip:At Cost 33.3% 52.8% 37.3% 14.0% 52.9% 22.2% 259.6% 1.1% 87.4%Accum. Dep -8.9% -23.6% -16.0% -5.8% -19.0% -11.9% -11.8% -0.4% -43.9%Net PP&E 24.3% 29.2% 21.3% 8.3% 33.9% 10.3% 247.8% 0.7% 43.6%

Other Assets 28.7% 61.5% 1542.2% 6.7% 15.3% 9.5% 8.4% 2.4% 147.0%Total Assets 152.7% 135.3% 1670.2% 31.9% 53.0% 65.5% 278.4% 38.7% 217.3%

Current Liabilities 12.3% 44.7% 1244.0% 16.9% 12.4% 15.8% 18.1% 21.2% 28.0%Long-term debt 0.0% 22.6% 287.8% 1.0% 17.8% 2.5% 141.9% 0.0% 36.5%Other non-curr liab 15.9% 80.7% 1531.9% 20.7% 34.6% 22.4% 165.0% 21.2% 101.8%Owners' Equity 136.7% 54.6% 138.2% 11.2% 18.4% 43.0% 113.5% 17.5% 115.5%Total Liab. + Equity 152.7% 135.3% 1670.2% 31.9% 53.0% 65.5% 278.4% 38.7% 217.3%

Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Cost of Goods Sold or

Operating Expenses 40.1% 31.2% 0.0% 76.1% 83.6% 56.1% 67.0% 70.9% 59.8%Advertising and Promotion 1.4% 7.6% 1.2% 1.7% 3.1% 11.7% 0.0% 6.7% 13.9%Research & Development 12.7% 16.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Depreciation & Amortization 5.8% 4.3% 4.4% 1.4% 4.3% 1.7% 7.8% 0.3% 5.6%Interest Expense (Revenue) 3.4% -0.9% 0.0% 0.2% -0.7% 0.4% -8.8% -0.1% -1.6%Income Taxes, net 8.9% 4.2% 10.4% 2.0% 2.0% 4.3% -0.2% 1.4% 0.1%Other Expenses, net 2.4% 26.4% 60.6% 15.0% 2.4% 16.5% 17.3% 11.2% 14.3%Net Income 25.3% 11.2% 23.4% 3.5% 5.3% 9.1% 16.8% 9.7% 8.0%

Lecture 1 Introduction Page 4 of 4

new lecture 1 spring 09

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