Framework for Financial Analysis Business risk relates to the risk inherent in the Analysis or the funds needs of the firm operations of the firm Analysis of the financia Examples: condition and profitability ot the tir Volatility in sales 3. Analysis of the business risk of the firm Volatility in costs Proximity to break-even point 6-11
6-11 Framework for Financial Analysis Examples: Volatility in sales Volatility in costs Proximity to break-even point 1. Analysis of the funds needs of the firm. 2. Analysis of the financial condition and profitability of the firm. 3. Analysis of the business risk of the firm. Business risk relates to the risk inherent in the operations of the firm
Framework for Financial Analysis A Financial Manager must 1. Analysis of the funds needs of the firm Determining consider all 2. Analysis of the financial the three jointly condition and profitability financing when needs of of the firm the firm determining 3. Analysis of the business the risk of the firm financing needs of the 6-12 firm
6-12 Framework for Financial Analysis A Financial Manager must consider all three jointly when determining the financing needs of the firm. Determining the financing needs of the firm. 1. Analysis of the funds needs of the firm. 2. Analysis of the financial condition and profitability of the firm. 3. Analysis of the business risk of the firm
Framework for Financial Analysis 1. Analysis of the funds needs of the firm Determining Negotiations 2. Analysis of the financial the with condition and profitability financing needs of suppliers of of the firm the firm capital 3. Analysis of the business risk of the firm 6-13
6-13 Framework for Financial Analysis Negotiations with suppliers of capital. Determining the financing needs of the firm. 1. Analysis of the funds needs of the firm. 2. Analysis of the financial condition and profitability of the firm. 3. Analysis of the business risk of the firm
Use of Financial ratios A Financia/ ratio is Types of an index that relates Comparisons two accounting numbers and is Internal obtained by dividing Comparisons one number by the External other Comparisons 6-14
6-14 Use of Financial Ratios Types of Comparisons Internal Comparisons External Comparisons A Financial Ratio is an index that relates two accounting numbers and is obtained by dividing one number by the other
External Comparisons and Sources of Industry Ratios This involves EXamples comparing the ratios Robert Morris of one firm with those Associates of similar firms or with industry averages Dun Bradstreet Almanac of Similarity is important Business and as one should Industrial compare apples to Financial ratios 6-1 apples?
6-15 External Comparisons and Sources of Industry Ratios Examples: Robert Morris Associates Dun & Bradstreet Almanac of Business and Industrial Financial Ratios This involves comparing the ratios of one firm with those of similar firms or with industry averages. Similarity is important as one should compare apples to apples?