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CHAPTER

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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

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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 Risks
Prospects
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

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Credit Analysis
Creditors

Trade Non-trade
Creditors Creditors

Provide goods Bear risk of Provide major Bear risk of

or services default financing default

Usually Usually
Most short- Most long-
implicit explicit
term term
interest interest

Credit Analysis
Credit worthiness: Ability to honor credit obligations
(downside risk)

Liquidity Solvency
Ability to meet short- Ability to meet long-
term obligations term obligations
Focus: Focus:
• Current cash flows • Long-term profitability
• Make up of current • Capital structure
assets and liabilities
• Liquidity of assets

Equity Analysis
Assessment of downside risk and upside potential

Technical analysis / Fundamental Analysis

Charting Determine Intrinsic value
• Patterns in price or without reference to price
volume history of a stock • Analyze and interpret key
• Predict future price factors
movements • Economy
• Industry
• Company

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10

Business Activities
Planning
Investing Activities Financial
Activities Activities

Operating Activities
Revenues and expenses from providing
goods and services

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Financial Statements Reflect Business Activities

Planning
Investing Financing
Current: Operating Current:
• Cash • Notes Payable
• Sales Accounts Payable
• Accounts Receivable • Cost of Goods Sold
•

Inventories • Salaries Payable

• Selling Expense
•

Marketable Securities • Income Tax Payable

• Administrative Expense
•

Noncurrent: Noncurrent:
• Interest Expense

• Land, Buildings, & • Income Tax Expense

• Bonds Payable
Equipment • Common Stock
• Patents • Retained Earnings
• Investments
Net Income

Liabilities & Equity

Income statement
Assets Cash Flow Balance Sheet

Balance Sheet Statement of Statement of

Cash Flows Shareholders’ Equity

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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

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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

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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

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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)

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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

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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.

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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

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1-20

Analysis Preview

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ANALYSIS METHOD

• Comparative analysis
+ Cross - sectional analysis : compares a particular
company to its industry peers

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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

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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.

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Analysis Preview

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Analysis Preview

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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…)
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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 short
term & benchmarking

benchmarking:
comparing a business's performance to
27 other companies in the industry

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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.

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DUPONT

• Split a general ratios into constituent indicators

which have a causal relationship.
ROE = PM x AU x EM

NI
Equity

NI Revenue Total assets

x x
Revenue Total assets Equity

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TEXT BOOK

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

Statement Analysis (10th edition), Mc Graw Hill, 2014.

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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.

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