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PowerpointPresentation Chapter 9
PowerpointPresentation Chapter 9
PowerpointPresentation Chapter 9
Chapter 9
P. Quiry,
M. Dallocchio, Y. LeFur, A. Salvi
Corporate Finance. Theory and Practice
John Wiley & Sons, London, 2009
Corporate FINANCE. Theory and practice Chapter 9– MARGIN ANALYSIS: STRUCTURE
TOPICS
•Margin analysis
•Comprehensive income
•Financial assessment
MARGIN ANALYSIS
Margin analysis:
analysis
MARGIN ANALYSIS
The purposes of the margin analysis are:
• to calculate the rate of change in revenue and costs to
examine their respective trends and
• to account for the relative change in the margins over the
period
Personnel expense
Cost control indicator:
Average headcount
VALUE ADDED
− TAX OTHER THAN CORPORATE INCOME TAX
− PERSONNEL COST AND PAYROLL CHARGES
− IMPAIRMENT LOSSES ON CURRENT ASSETS AND ADDITION
TO PROVISIONS FOR OPERATING LIABILITIES AND CHARGES
+ OTHER OPERATING REVENUES
− OTHER OPERATING COSTS
= EBITDA
© 2009 - John Wiley & Sons 11
Quiry, Dallocchio, LeFur, Salvi - Corporate Finance. Theory and Practice
Corporate FINANCE. Theory and practice Chapter 9– MARGIN ANALYSIS: STRUCTURE
Depreciation, Amortisation
It is independent of the operating cycle in a given period
It depends on the company’s investment policy
© 2009 - John Wiley & Sons 12
Quiry, Dallocchio, LeFur, Salvi - Corporate Finance. Theory and Practice
Corporate FINANCE. Theory and practice Chapter 9– MARGIN ANALYSIS: STRUCTURE
EBITDA
− DEPRECIATION AND AMORTISATION
+ WRITEBACKS OF DEPRECIATION AND
= AMORTISATION
EBIT
SALES
− COST OF SALES
− SELLING, GENERAL AND ADMINISTRATIVE COSTS
− RESEARCH AND DEVELOPMENT COSTS
± OTHER OPERATING INCOME AND COSTS
= EBIT
Nonrecurring items
They are defined on a case-by-case basis
The purpose of their analysis is the understanding of their origin
It is not possible (and nonsense) to predict their future trend
© 2009 - John Wiley & Sons 15
Quiry, Dallocchio, LeFur, Salvi - Corporate Finance. Theory and Practice
Corporate FINANCE. Theory and practice Chapter 9– MARGIN ANALYSIS: STRUCTURE
COMPREHENSIVE INCOME
Charges
Revenues
Time
Profits Losses
The
Thecost
cost
ofof
aaproduction
productionfactor
factor
Revenues
Revenues fall
fall
slightly
slightly
while
while
increases
increasessignificantly
significantly
while
while
revenues
revenues
charges
chargesremain
remainunchanged
unchanged
are
are
slower
slowertoto
increase
increaseowing
owingtoto
inertia
inertia
charges
charges
revenues
revenues charges
charges
revenues
revenues
......to
toexcellence
excellence
Revenues
Revenuespost
poststrong
strong growth
growth Revenues
Revenuespost
postslow
slowgrowth
growth while
while
exceeding
exceedingthat
thatinincharges
charges charges
chargesdecline
declineslightly
slightly
revenues
revenues
revenues
revenues
charges
charges
charges
charges
FINANCIAL ASSESSMENT
The scissors effect
The scissors effect may be attributable to failures in the
market in which the company operates, such as:
• economic rents
• monopolies
• regulatory changes
• pre-emptive action
• inertia
FINANCIAL ASSESSMENT
The stability principle holds that a company’s earnings are
much more stable than we would expect and are not necessarily
upset by external factors.
But a company’s margins also depend to a great extent on those
of its rivals. The purpose of financial analysis is to understand
why they are above or below those of its rivals
FINANCIAL ASSESSMENT
Pre-emptive actions occurs when a company immediately
reflects expectations of an increase in the cost of a production
factor by charging higher selling prices
FINANCIAL ASSESSMENT
CONCLUSIONS