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Recent financial events have taught us to take a more critical look at the financial disclosures provides by companies. In the Third Edit... MORE of Analysis of Financial Statements, Pamela Peterson-Drake and Frank Fabozzi once again team up to provide a practical guide to understanding and interpreting financial statements. Written to reflect current market conditions, this reliable resource will help analysts and investors use these disclosures to assess a company's financial health and risks.
Throughout Analysis of Financial Statements, Third Edition, the authors demonstrate the nuts and bolts of financial analysis by applying the techniques to actual companies. Along the way, they tackle the changing complexities in the area of financial statement analysis and provide an up-to-date perspective of new acts of legislation and events that have shaped the field.
Whether evaluating a company's financial information or figuring valuation for M&A's, analyzing financial statements is essential for both professional investors and corporate finance executives. The Third Edition of Analysis of Financial Statements contains valuable insights that can help you excel at this endeavor.
About the Authors xiii
The Basics 1
What Is Financial Analysis? 4
Where Do We Find the Financial Information? 8
Who Gets What Type of Information and When? 10
What Does Sarbanes-Oxley Mean to Companies and Investors? 28
What Does the Dodd-Frank Act Mean for Companies and Investors? 32
Financial Statements 37
Accounting Principles: What Are They? 37
What Do the Basic Financial Sta... MORE
Accounting Flexibility 56
How Does Accounting in the United States Differ from Accounting Outside of the United States? 58
The Quality of Financial Information 63
It’s All in the Timing 65
Too Many Choices? 76
So What’s Their Business? 86
Restatements and Financial Analysis 87
Tell-Tale Signs 90
Analysis of Financial Statements 99
Financial Analysis 101
What Are Financial Ratios and How Do We Use Them? 102
What Are the Different Types of Financial Ratios? 105
Analysis of Return-on-Investment Ratios 122
How Can We Use Common-Size Analysis to Analyze Financial Statements? 127
Integrated Ratio Analysis 130
What Are the Pitfalls and Pratfalls of Financial Ratio Analysis? 137
Equity Analysis 147
Price-Earnings Ratio 158
Other Fundamentals 173
Book-to-Market Ratio 175
Cash Flow Analysis 181
Measures of Cash Flow 181
Cash Flows and the Statement of Cash Flows 184
Free Cash Flow 189
The Usefulness of Cash Flows in Financial Analysis 196
Applying Financial Analysis 205
Measuring Company Performance 207
Traditional Performance Measures 210
Measures of Value Added 212
Corporate Credit Analysis 241
Types of Credit Risk 241
Factors to Consider in Corporate Credit Analysis 252
Analysis of Equity Risk Using Fundamentals Factor Models 267
Measuring Risk 267
Asset Pricing Model 271
Factor Models 275
Fundamental Factor Models 276
The Lessons We Learn 283
The Lessons 288
The Future of Financial Analysis in the Post-Crisis Era 298
Answers to End-of-Chapter Questions 301
PAMELA PETERSON DRAKE, PhD, CFA, is the J. Gray Ferguson Professor of Finance and Head of the Department of Finance and Business Law in the College of Business at James Madison University. Prior to joining James Madison, she was an associate dean and professor of finance at Florida Atlantic University and, previous to that, a professor at Florida State University. She has published articles in numerous journals and collaborated with Frank Fabozzi on the previous edition of this book as well as Foundations and Applications of the Time Value of Money, Capital Budgeting, and Financial Management and Analysis, all published by Wiley. She received a BS in accountancy from Miami University and her PhD in finance from The University of North Carolina at Chapel Hill.
FRANK J. FABOZZI, PhD, CFA, CPA, is Professor of Finance at EDHEC Business School and a member of the EDHEC-Risk Institute. Prior to joining EDHEC in August 2011, he held various professorial positions in finance at Yale University's School of Management from 1994 to 2011 and was a visiting professor of finance and accounting at MIT's Sloan School of Management from 1986 to 1992. He is also editor of the Journal of Portfolio Management.