Page 26 - Financial Statement Analysis

sub79433_ch01.qxd 4/7/08 11:20 AM Page 3

Analysis Feature

Something to Smile About?

NEW YORK, NY—Colgate has almost 200 countries and sales rev- pricing power in the viciously
been creating smiles the world enues of above $12 billion. Its competitive consumer products’
over for the past 200 years. How- brand name—most famously asso- markets. A total consumer orienta-
ever, the smiles are not limited to ciated with its toothpaste—is one of tion, constant innovation, and re-
users of its immensely popular the oldest and best recognized lentless quest for improving cost
toothpaste. Colgate’s financial and brands in the world. In fact, the efficiencies have been Colgate’s
stock price performance during the brand has been so successful that hallmarks to success.
past decade has given plenty for its “Colgate” has become a generic Another key feature in Col-
shareholders to smile about. Stock word for toothpaste in many coun- gate’s strategy has been its ex-
price has more than doubled over tries, spawning imitations over tremely generous dividend policy;
this period, generating average re- which the company has been en- over the past 10 years Colgate has
turns for Colgate’s stockholders to gaged in bitter legal disputes. paid out almost $11 billion to its
the tune of about 12.5% per year, Colgate leverages the popular- shareholders through cash divi-
almost double that on the S&P 500 ity of its brand as well as its interna- dends and stock buybacks, which
over a comparable period. Earn- tional presence and implements a is significantly more than the
ings have doubled even though business strategy that focuses on money it has raised from its share-
shareholder capital actually de- attaining market leadership in cer- holder’s in its entire history! Col-
clined, indicating that the earnings tain key product categories and gate’s dividend policy reflects its
growth has been fueled by improv- markets where its strengths lie. For management philosophy of stay-
ing productivity with which Col- example, Colgate controls almost a ing focused on generating superior
gate uses its capital. third of the world’s toothpaste shareholder returns rather than
One of the world’s oldest cor- market where it has been gaining pursuing a strategy of misguided
porations, Colgate today is a truly market share in the recent past! growth. Small, in Colgate’s case,
global company, with a presence in Such market leadership allows it has certainly been beautiful!
Source: Company’s 10 Ks.

PREVIEW OF CHAPTER 1

Financial statement analysis is an integral and important part of the broader field
of business analysis. Business analysis is the process of evaluating a company’s eco-
nomic prospects and
risks. This includes an-
Overview of Financial Statement Analysis
alyzing a company’s
business environment,
its strategies, and its
financial position and Financial
performance. Business Statements— Financial Statement Textbook
analysis is useful in a Business Analysis Basis of Analysis Analysis Preview Organization
wide range of busi- Introduction to Business activities Analysis tools Part 1: Overview
ness decisions such as business analysis Financial Basic valuation Part 2: Accounting
whether to invest in Types of business statements and models analysis
equity or in debt se- analysis business activities Analysis in an Part 3: Financial
Additional
efficient market
analysis
Components of
curities, whether to business analysis information
extend credit through
short- or long-term
3