In this chapter, we show how investors can use financial data as inputs into stock valuation analysis.
1. Reviewing the basic sources of such date- the income statement, the balance sheet, and the statement of cash flow.
2. Discuss the difference between economic and accounting earnings.
3. Conclude with a discussion of the challenges you will encounter when using financial statement analysis as a tool in uncovering mispriced securities.
The Major Financial Statements
The Income Statement
e.g)
TAEZAPRESENTS
Income statement
For the year ended 31.12.2019
Revenues :
Service Revenue $10,000
Expenses :
Rent expense $2,500
Utilities expense 500
Total expenses $3,000
Net income $7,000
* Other income (expense) is primarily nonrecurring so we have to subtract it.
* EBTI (Earnings Before Interest and Taxes) is a measure of the profitability of the firm's operations, ignoring any interest burden attributable to debt financing.
* Allocation of net income : Dividends, Addition to retained earnings
Plus,
HOW IT WORKS (EXAMPLE):
Let's assume you need $500,000 to buy a house. The "price" of borrowing that money is interest, and it is expressed as a percentage of the amount of money you obtain. The borrower pays the interest to the lender, and those interest payments are the borrower's interest expense. The rate of interest reflects the time value of money, the borrower's credit risk, inflation rates, and a variety of other market conditions.
Interest can be fixed or variable, meaning that the rate either stays the same through or changes according to a predetermined formula. That means interest expense often changes over time.
In banking relationships, when a person deposits money in a savings account or certificate of deposit, the person is acting as a lender to the bank and thus receives interest from the bank. In this case, it is the bank that incurs the interest expense.
From an accounting perspective, it is important to remember that interest expense isn't always the exact amount of money physically paid to a borrower in the accounting period. For example, if Company XYZ borrows money from Bank ABC and makes quarterly interest payments, Company XYZ might only be cutting a check to Bank ABC in, say, March, June, September, and December. However, the accrual method of accounting requires Company XYZ to attribute some of that interest expense to all the other months in the year so that the income statement for, say, January reflects some interest expense even though the company didn't transfer any cash to the lender in that month.
Interest can be fixed or variable, meaning that the rate either stays the same through or changes according to a predetermined formula. That means interest expense often changes over time.
In banking relationships, when a person deposits money in a savings account or certificate of deposit, the person is acting as a lender to the bank and thus receives interest from the bank. In this case, it is the bank that incurs the interest expense.
From an accounting perspective, it is important to remember that interest expense isn't always the exact amount of money physically paid to a borrower in the accounting period. For example, if Company XYZ borrows money from Bank ABC and makes quarterly interest payments, Company XYZ might only be cutting a check to Bank ABC in, say, March, June, September, and December. However, the accrual method of accounting requires Company XYZ to attribute some of that interest expense to all the other months in the year so that the income statement for, say, January reflects some interest expense even though the company didn't transfer any cash to the lender in that month.
WHY IT MATTERS:
When interest expense is too high, it can wreck a company or a household. In general, high interest expense can indicate that a company is overleveraged, which is why analysts and lenders are particularly interested in measuring how much cash a company or individual brings in per month before lending.
Because a company’s failure to meet interest payments (that is, pay its interest expense) usually results in default, the interest coverage ratio is of particular interest to lenders and bondholders and acts as a margin of safety. However, because the interest coverage ratio is based on current earnings and current expenses, it primarily focuses a company’s short-term ability to meet interest obligations.
Some industries tend to have higher interest expenses than others, and cyclical companies in particular can experience significant swings in their interest expense (especially during recessions) because they may need to borrow temporarily to get through seasonal lows during the year. Thus, comparison of interest expense or any ratios involving interest expense is generally most meaningful among companies within the same industry, and the definition of a "high" or "low" ratio should be made within this context.
source: investinganswers
The Balance Sheet
The Liability and shareholder's equity (also called stockholders' equity) section is arranged similarity. First come short-term, or "current", liabilities such as accounts payable, accrued taxes, and debts that are due within 1 year. The difference between total assets and total liabilities is stockholder's equity. This is the net worth, or book value, of the firm.
Asset section
current asset
cash : available at any time
accounts receivable : money to be received from customers
inventories : List of goods to be sold
prepaid expenses : Sum paid in advance
non current asset : Lon Term Assets ( few years )
* on the balance sheet for a one year or less
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Liability
Current Liability (less than a year)
Account payable : sum to be paid to suppliers e.g) 카드값 다음달 지출
Accrued Expenses : such as payroll and tax
Non Current Liability (more than a year)
Long term - debt
Equity
Owner's Equity
Retained Profits
stocks issued by the organisation
The Statement of Cash Flows
Cash flow from Operations
Net income
Depreciation and amortisation
Unrealised gain on marketable securities
Decrease (Increase) in deferred taxes
Net increase (decrease) in receivable, inventories, prepaids, payables
- Total Cash Flows from Operations
Cash flow for Investing
Purchases ( not reflected in the income statement)
Cash flow from Financing
How cash are increased or decreased
Bargaining Cash : A
Ending Cash : B
Change in Cash : B - A
* Net income + Depreciation
* People get paid through the cash flow
* The Statement of Cash Flow tracks the cash implications of transactions.
*
- Increases in accounts receivable are in effect an investment in working capital, and therefore reduce the cash flows realised from operations.
- Increases in accounts payable Merna that expenses have been recognised, but cash has not yet left the firm. Any payment delay increases the company's net cash flows in the period.
회계용어 정리
1. AR(account Receivable - 매출채권)
매출채권은 외상매출금과 받을어음을 일컫는 말. 즉 기업이 재화·용역 등을 외상으로 판매하고 그 대가로 미래에 현금을 수취할 수 있는 권리를 획득하거나, 다른 기업에 자금을 빌려주고 그 대가로 차용증서나 어음 등을 수취하는 경우에 발생하는 채권을 포괄적으로 수취채권(receivables)이라 한다. 특히 매출채권이란 기업의 중요한 영업활동과 관련하여 상품을 판매하거나 용역을 제공하는 과정, 즉 일반적인 상거래에서 발생하는 채권을 말한다.
# Account Payable (외상매입/지급계정) 업무
거래처 매입 청구 관리
프로젝트/서비스별 매입 원가관리
각종세금신고
월결산, 연결산 / 기말감사
2. AP(account payable - 매입채무)
기업이 제품이나 원자재를 살 때 현물을 받고서도 아직 그 대금을 치르지 않은 단기 미지급금
쉬운 정의: 회사에서 물건을 구입한 것에 대한 영수증을 처리하는 곳
AP (Accounts Payable, 외상매입금/미지급금)의 주된 업무
- 회사에서 외상으로 구입한 자재(외상매입금)와 회사에서 지불하여야 하는 각종 bills (invoices)를 A/P로 기재 - 전표로 외상매입금을 정리하는 일
AP는 회계부서에서 AR과 함께 매우 중요한 포지션.어떤 시점에 회사에서 지불하여야 할 정확한 외상매입금의 금액을 잡아내는 것이 중요.
3. Treasury
현금 및 현금성 자산
Treasury 직무는 사업 계획을 바탕으로 자금사용을 계획하고 집행하여 Daum 재무의 안전성과 효율적인 자금관리를 담당.
Treasury 주요 업무
*지급결제 시스템 및 금융계좌의 통제 및 관리
*단기자금 운용에 대한 총괄 및 집행
*해외투자를 위한 외화자금 거래 프로세스 및 관련 규정 확립
*원화/외화 자금의 현금흐름 예측 및 분석
*금감원, 한국은행, 생보협회 등 현금 및 예치금의 대외기관 관련 보고서 총괄
*본사 또는 지역본부 Treasury 보고서 총괄
*차세대 통합자금관리시스템 Set up 및 New Treasury System Set up
source : jobindexworld
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