Financial statementien valmistelu analyysiä varten

Question 1

Preparing financial statements for analysis

Answer 1

Ability of the firm to generate value is the main issue we focus on.

We need to reformat balance sheet and income statement to highlight the distinction between:

a) Operating items
b) Financial items

Question 2

Why operating activities are important?

Answer 2

For non-financial companies, operating activities are the source of value, not financial activities!
-> That is, ordinary firms do not create value from financial activities

SIKSI -> We need to focus on operating activities, because they create value

Question 3

When preparing financial statements for analysis, what do we need to do for operating and financing activities?

Answer 3

We need to separate operating activities from financing activities in financial reports.

Question 4

Why is it hard to separate operating activities from financing activities in financial reports?

Answer 4

This distinction is not always easy to make due to several factors:
1. The definition of operations is not clear-cut
The specifications in the 2. income statement and the balance sheet do not clearly distinguish between operating and financing activities
3. The notes are not sufficiently informative

Reformation depends on the business model and the characteristics of the firm
Items that are sometimes categorised as belonging to ‘operations’ may at other times be classified as belonging to ‘financing’

Question 5

How to calculate:

Net operating profit after taxes (NOPAT)

Answer 5

Sales (Revenues)
− Cost of sales
= EBITDA
− Depreciations and amortizations
= EBIT
− Operating taxes
= NOPAT

Question 6

How to get net earnings from NOPAT?

Answer 6

NOPAT
− Financial expenses, net
+ Tax savings from debt financing
= Net earnings

Question 7

Net operating profit after taxes (NOPAT)

Answer 7

Adjust non-operating items, if needed
-> Do these adjustments consistently for all firms you are analyzing

Net operating profit after taxes (NOPAT)
-> Distinguishes between profit from operations and financial income

Taxes are deducted from EBIT
-> Taxes are calculated using the corporate tax rate or the effective tax rate of a given company

Question 8

Effective tax rate

Answer 8

Effective tax rate (%) = Income taxes / Earnings before taxes

Question 9

Invested capital

Answer 9

• In financial ratio analysis, we usually focus on the invested capital in the right-hand side of balance sheet

Question 10

What invested capital tells us?

Answer 10

• Invested capital tells us how much equity investors and debt investors (on a net basis) have invested in the firm to which investors can require return.

Question 11

Calculating invested capital (selitettynä ensin)

Answer 11

• Invested capital includes equity and interest-bearing debt from the right-hand side of balance sheet (eli EI non-interest bearing liabilities)
• Financial assets (and cash) from the left-hand side of balance sheet are often deducted from invested capital

Question 12

Calculating invested capital (ihan laskettuna)

Answer 12

Equity
+ Non-current liabilities -> Interest-bearing debt
+ Current liabilities ->Interest-bearing debt
− Financial assets (long maturity)
− Financial assets (short maturity)
− Cash

= Invested capital