Financial Analysis, Modeling, and Forecasting Techniques

[Pages:430]Financial Analysis, Modeling, and Forecasting Techniques

Course #5710B/QAS5710B Course Material

TECHNIQUES OF FINANCIAL ANALYSIS, MODELING, AND FORECASTING

Delta Publishing Company

Copyright ? 2011 by

DELTA PUBLISHING COMPANY P.O. Box 5332, Los Alamitos, CA 90721-5332 All rights reserved. No part of this course may be reproduced in any form or by any means, without permission in writing from the publisher.

Financial Analysis, Modeling, and Forecasting Techniques (Course #5710B/QAS5710B)

Table of Contents

PART I: TOOLS AND TECHNIQUES FOR FINANCIAL ANALYSIS

Page

Chapter 1: Break-Even and Contribution Margin Analysis I. What Is Cost-Volume-Profit Analysis? II. What Is Operating Leverage? III. Sales Mix Analysis IV. Contribution Margin Analysis V. Conclusion

Review Questions & Solutions

1-1 1-8 1-10 1-11 1-17 1-18

Chapter 2: Understanding and Applying the Time Value of Money Concept

I. Assumptions of Present Value and Future Value Techniques II. Present Value Table III. Future Value Table IV. Both Present Value and Future Value Tables V. Perpetuities VI. Conclusion Review Questions & Solutions

2-1 2-1 2-2 2-2 2-15 2-15 2-16

Chapter 3: How to Assess Capital Expenditure Proposals for Strategic Decision Making

I. Factors to Consider in Determining Capital Expenditure II. Type of Capital Budgeting Decisions to Be Made III. Capital Budgeting Methods IV. How to Select the Best Mix of Projects with a Limited Budget V. How to Handle Mutually Exclusive Investments VI. Risk Analysis in Capital Budgeting VII. Conclusion Review Questions & Solutions

3-3 3-3 3-3 3-8 3-9 3-10 3-14 3-15

Chapter 4: Analyzing Financial Statements for Financial Fitness I. Who Uses Financial Analysis II. Financial Statement Analysis III. Ratio Analysis IV. Limitations of Ratio Analysis

Review Questions & Solutions

4-1 4-2 4-8 4-20 4-21

Chapter 5: Analyzing Quality of Earnings

I. Quality of Earnings

5-1

II. Analysis of Discretionary Costs

5-3

III. Accounting Estimates

5-3

IV. Internal Control and Management Honesty

5-4

V. Auditor Relations and Reports

5-5

VI. Conclusion

5-5

Review Questions & Solutions

5-6

Table of Contents

1

Table of Contents (cont.)

Chapter 6: Analysis of Variance Analysis for Cost Control I. Responsibility Accounting and Responsibility Center II. Standard Costs and Variance Analysis III. General Model for Variance Analysis IV. Flexible Budgets and Performance Reports V. Nonfinancial Performance Measures VI. Conclusion

Review Questions & Solutions

Chapter 7: Analysis of Segmental Performance and Profit Variance I. Segmental Reporting for Profit Centers II. Profit Variance Analysis III. Sales Mix Analysis IV. Conclusion

Review Questions & Solutions

PART II: MANAGING AND CONTROLLING FINANCIAL ASSETS, INVESTING, AND POTENTIAL ACQUISITIONS

Chapter 8: Evaluating Divisional Performance I. Rate of Return on Investment (ROI) II. ROI and Profit Planning III. Residual Income (RI) IV. Investment Decisions Under ROI and RI V. Conclusion

Review Questions & Solutions

Chapter 9: Analyzing Working Capital I. Evaluating Working Capital II. Cash Management III. Management of Accounts Receivable IV. Inventory Management V. Conclusion

Review Questions & Solutions

Chapter 10: Corporate Investments I. Accounting Aspects II. Analytical Implications III. Obtaining Information IV. Risk Versus Return V. Financial Assets VI. Real Assets VII. Portfolio Analysis VIII. Mutual Funds IX. Fundamental Analysis X. Technical Analysis XI. Conclusion

Review Questions & Solutions

Page

6-1 6-2 6-4 6-7 6-9 6-10 6-11

7-1 7-3 7-10 7-10 7-12

8-1 8-3 8-5 8-6 8-7 8-8

9-1 9-2 9-9 9-17 9-23 9-24

10-1 10-2 10-3 10-5 10-6 10-13 10-14 10-14 10-16 10-16 10-24 10-25

Table of Contents

2

Table of Contents (cont.)

Chapter 11: Obtaining Funds: Short-Term and Long-Term Financing I. Financial Planning II. Short-Term Financing III. Intermediate-Term Financing: Term Loans and Leasing IV. Types of Long-Term Debt V. Cost of Capital VI. Conclusion

Review Questions & Solutions

Chapter 12: Analyzing Mergers and Acquisitions I. Mergers II. Deciding on Acquisition Terms III. Acquisition of Another Business IV. Impact of Merger on Earnings Per Share and Market Price Per Share V. Risk VI. Holding Company VII. Conclusion

Review Questions & Solutions

Chapter 13: Forecasting and Financial Planning I. Who Uses Forecasts? II. Forecasting Methods III. Selection of Forecasting Method IV. The Qualitative Approach V. Common Features and Assumptions Inherent in Forecasting VI. Steps in the Forecasting Process

Review Questions & Solutions

Chapter 14: Forecasting Methodology I. Na?ve Models II. Smoothing Techniques III. Forecasting Using Decomposition of Time Series IV. Conclusion

Review Questions & Solutions

Chapter 15: Forecasting with Regression and Markov Methods I. The Least-Squares Method II. Trend Analysis III. Regression Statistics IV. Statistics to Look for in Multiple Regressions V. Checklists ? How to Choose the Best Forecasting Equation VI. Use of a Computer Statistical Package for Multiple Regression VII. Measuring Accuracy of Forecasts VIII. Forecasting Sales with the Markov Model IX. Conclusion

Review Questions & Solutions

Page

11-1 11-1 11-7 11-8 11-9 11-15 11-16

12-2 12-4 12-5 12-8 12-10 12-11 12-12 12-13

13-2 13-3 13-4 13-5 13-8 13-9 13-10

14-1 14-2 14-7 14-13 14-14

15-1 15-4 15-8 15-12 15-14 15-15 15-24 15-26 15-29 15-30

Table of Contents

3

Table of Contents (cont.)

Chapter 16: Financial Forecasting and Budgeting Tools I. Forecasting External Financing Needs ? The Percent-of-Sales Method II. Budgeting and Financial Planning III. How the Budget Works: An Example IV. Zero Base Budgeting V. The Certified Public Accountants' Involvement and Responsibility with Prospective Financial Statements VI. Conclusion

Review Questions & Solutions

Page

16-1 16-3 16-7 16-21

16-22 16-26 16-27

Chapter 17: Forecasting Cash Flows I. Markov Approach II. Lagged Regression Approach III. Conclusion

Review Questions & Solutions

17-1 17-5 17-9 17-11

PART III: BUILDING FINANCIAL MODELS FOR BUDGETING AND PLANNING

Chapter 18: How to Use Corporate Planning Models I. Types of Analysis II. Typical Questions Addressed Via Corporate Modeling III. Types of Models IV. Current Trends in Modeling V. MIS, DSS, EIS, and Personal Computers VI. The Future of Corporate Planning Models VII. Conclusion

Review Questions & Solutions

18-2 18-2 18-3 18-4 18-8 18-9 18-10 18-11

Chapter 19: Financial Modeling for "What-if" Analysis I. A Financial Model II. Applications and Uses of Financial Modeling III. Putting Financial Modeling into Practice IV. Quantitative Methods Used in Financial Models V. Developing Financial Models VI. Model Specification VII. Comprehensive Financial Model VIII. Conclusion

Review Questions & Solutions

19-1 19-2 19-2 19-3 19-4 19-5 19-9 19-12 19-13

Chapter 20: Using Optimization Techniques to Build Optimal Budgets I. Use of Linear Programming II. Use of Goal Programming (GP) III. Conclusion

Review Questions & Solutions

20-1 20-7 20-11 20-12

Table of Contents

4

Table of Contents (cont.)

Chapter 21: Using Spreadsheet and Financial Modeling Packages I. Using Spreadsheet Programs II. Forecasting Financial Distress with Z Score III. Budgeting and Planning Software IV. The Latest Generation of Budgeting and Planning Software IV. Conclusion

Review Questions & Solutions

Chapter 22: Using Management Games for Executive Training I. Executive Management Games II. Validating the Game III. A New Role for Computerized Executive Games IV. Conclusion V. References and Additional Readings

Review Questions & Solutions

Glossary

Index

Page

21-1 21-6 21-11 21-13 21-14 21-15

22-5 22-13 22-14 22-14 22-14 22-17

Table of Contents

5

PART I.

TOOLS AND TECHNIQUES FOR FINANCIAL ANALYSIS

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