ECON 1 Lecture Notes - Lecture 13: Income Statement, Operating Expense, Operating Cash Flow
Document Summary
The goal of financial analysis is to assess the performance of a firm in the context of its stated goals and strategy. Two tools of financial analysis: ratio analysis and cash flow analysis. Ratio analysis: analysis of financial statement ratios to evaluate the four drivers of firm performance. The four drivers of firm performance are: (1) operating policies, (2) investment policies, (3) financing policies, and (4) dividend policies. The four levers managers can use to achieve their growth and profit targets are: (1) operating management, (2) investment management, (3) financing strategy, and (4) dividend policies. In ratio analysis, the analyst can: (1) compare ratios for a firm over several years, (2) compare ratios for the firm and other firms in the industry, and (3) compare ratios to some absolute benchmark. Time-series comparison: the analyst holds firm-specific factors constant and examines the effectiveness of a firm"s strategy over time.
