Overview of the Chapter

Business Analysis and relation with Financial statement analysis Different types of business analysis Component of business analysis Basis of Business analysis Relevant analysis information beyond financial statements Several basic financial statement analysis tools Basic valuation models

Introduction to Business Analysis

Business Environment and strategy analysis Review of Annual Report Management discussion and analysis- MD& A Questions before investment: Future prospect? Strength and weakness Earnings potential-drivers of earnings Current financial condition-vulnerability Comparison with its competitors What is the reasonable price of stock

Types of Business Analysis

Credit Analysis-is the evaluation of credit worthiness of the company i.e. ability to honor obligations Equity Analysis-Identification of intrinsic value of the stock of the company Technical Analysis-charting, searching for patterns in the price or volume history of stock to predict future price movement Fundamental Analysis-is the process of determining value of a company by analyzing and interpreting key factors for the economy, industry, and the comapny

Users of Business Analysis

Managers Merger, acquisition and divestitures Financial Management Directors Regulators Labor Unions Customers Investors

Components of Business Analysis

Business environment and strategy analysis-Industry analysis Accounting analysis-economic reality Financial analysis-Financial position and performance Prospective analysis Valuation

Basis of Analysis

Planning activities Financing activities Investing activities Operating activities Understanding components of financial statementbalance sheet, income statement, cash flow statement, statement of shareholders equity

Additional Information

Management Discussion and analysis (MD&A) Management Report Auditor Report Explanatory notes Supplemenatry Information

Analysis Tools

Comparative financial statement analysis Common-size financial statement analysis Ratio analysis Cash flow analysis Valuation