Fin 451 Exam 1 Study Guide
Finance 451 Exam 1 Study Guide
Chapter 13: Financial Statement analysis; notes * Having insurance increases the chance of something happening (moral hazard). * Insurance industry… * Hancock Bank got into investments that they couldn’t handle and it back fired; got bought out by Whitney Bank. * Hancock’s investments were “too risky” * Internal evaluation, good ratios vs. bad ratios, analyzing all parts of a company, ratio analysis. * Of interest to shareholders, creditors, firms own management * Long term/short term * Internal/external * Ratio analysis is considered both a science and an art, why? * Ratio analysis is an art, tells me what it means. * Ratio analysis is a science, calculation of numbers. * Common size statements: * Balance sheet as a percentage of assets * Income statement as a percentage of sales * We put everything into a percentage in order to evaluate business based on financial analysis verses mere size. * Problems with ratios: * Single most important ratio: Return on Equity (ROE) 1. Large quantity of accounting numbers and large number of ratios to examine. 2. Must understand what the ratios are telling us. * 5 things to look for when evaluating/screening future employees: 1. GPA 2. Experience (relevant to work) (recruiters like waiters/servers); measured in different ways. 3. Communication skills (grammars, punctuation, style of resume, are a few things that can signal types of common skills on resume). 4. Analytical skills, leadership skills, graduation date, etc. 5. Extracurricular activities. * Percentage of change equation: (ending –beginning)/beginning * Also can be determined using: (ending-increase)/increase * Example: gas price % change * **pay attention to positive and negative percentage changes * Arithmetic average: mean rate of return; calculated by
Chapter 13: Financial Statement analysis; notes * Having insurance increases the chance of something happening (moral hazard). * Insurance industry… * Hancock Bank got into investments that they couldn’t handle and it back fired; got bought out by Whitney Bank. * Hancock’s investments were “too risky” * Internal evaluation, good ratios vs. bad ratios, analyzing all parts of a company, ratio analysis. * Of interest to shareholders, creditors, firms own management * Long term/short term * Internal/external * Ratio analysis is considered both a science and an art, why? * Ratio analysis is an art, tells me what it means. * Ratio analysis is a science, calculation of numbers. * Common size statements: * Balance sheet as a percentage of assets * Income statement as a percentage of sales * We put everything into a percentage in order to evaluate business based on financial analysis verses mere size. * Problems with ratios: * Single most important ratio: Return on Equity (ROE) 1. Large quantity of accounting numbers and large number of ratios to examine. 2. Must understand what the ratios are telling us. * 5 things to look for when evaluating/screening future employees: 1. GPA 2. Experience (relevant to work) (recruiters like waiters/servers); measured in different ways. 3. Communication skills (grammars, punctuation, style of resume, are a few things that can signal types of common skills on resume). 4. Analytical skills, leadership skills, graduation date, etc. 5. Extracurricular activities. * Percentage of change equation: (ending –beginning)/beginning * Also can be determined using: (ending-increase)/increase * Example: gas price % change * **pay attention to positive and negative percentage changes * Arithmetic average: mean rate of return; calculated by