Page 21 - Financial Statement Analysis

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xviii Contents

Exploration and Development Costs in 8 Return on Invested Capital
Extractive Industries 358 and Profitability
Supplementary Employee Analysis 444
Benefits 359
Importance of Return on Invested
Overview of Supplementary Employee
Capital 446
Benefits 359
Measuring Managerial Effectiveness 446
Employee Stock Options 359
Measuring Profitability 447
Interest Costs 365
Measure for Planning and Control 447
Interest Computation 365
Components of Return on Invested
Interest Capitalization 366
Capital 447
Analyzing Interest 366
Defining Invested Capital 448
Income Taxes 366
Adjustments to Invested Capital
Accounting for Income Taxes 366
and Income 449
Income Tax Disclosures 370
Computing Return on Invested
Analyzing Income Taxes 372
Capital 449
Appendix 6A:
Analyzing Return on Net Operating
Earnings per Share: Computation
Assets 454
and Analysis 374
Disaggregating Return on Net Operating
Appendix 6B:
Assets 454
Accounting for Employee
Relation between Profit Margin and Asset
Stock Options 377
Turnover 455
Analyzing Return on Common
7 Cash Flow Analysis 400
Equity 462
Statement of Cash Flows 402
Disaggregating the Return on Common
Relevance of Cash 402
Equity 463
Reporting by Activities 403
Computing Return on Invested
Constructing the Cash Flow
Capital 465
Statement 403
Assessing Growth in Common Equity 469
Special Topics 408
Appendix 8A:
Direct Method 409
Challenges of Diversified Companies 470
Analysis Implications of Cash
Flows 411 9 Prospective Analysis 490
Limitations in Cash Flow Reporting 411 The Projection Process 492
Interpreting Cash Flows and Net Projecting Financial Statements 492
Income 411 Application of Prospective Analysis in the
Analysis of Cash Flows 413 Residual Income Valuation Model 499
Case Analysis of Cash Flows of Campbell Trends in Value Drivers 502
Soup 414 Appendix 9A:
Inferences from Analysis Short-Term Forecasting 504
of Cash Flows 414
Alternative Cash Flow Measures 415 10 Credit Analysis 526
Company and Economic Conditions 416 Section 1: Liquidity 528
Free Cash Flow 417 Liquidity and Working Capital 528
Cash Flows as Validators 418 Current Assets and Liabilities 529
Specialized Cash Flow Working Capital Measure
Ratios 418 of Liquidity 530
Cash Flow Adequacy Ratio 418 Current Ratio Measure of Liquidity 530
Cash Reinvestment Ratio 419 Using the Current Ratio for Analysis 532
Appendix 7A: Cash-Based Ratio Measures
Analytical Cash Flow Worksheet 419 of Liquidity 536