New Lecture 1 Spring 09

Spring 2009

NBA 5060 Lecture 1 - Introduction

I. Administrative details II. Course Description and Introduction III. Ratio Detective Exercise

For 1/22/08: Read Chapter 11, pages 812-815 and 828-834; read Chapter 13, pages 932-945. Read Nichols and Wahlen (2004) handed out in class today.

Lecture 1 – Introduction

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I. Administrative Details Handouts will be available at the front of the classroom, prior to the start of each class. Extra copies will be put on the 5060 shelves across from 304 at the end of the day, and made available on the course home page.

Syllabus and Course Outline Note -- all items in the course schedule are subject to change depending on the speed at which we cover the material.

Lecture 1 – Introduction

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II. Course Description and Introduction The purpose of this course is to introduce the tools for effective analysis of financial statements. We will analyze financial statements in the context of equity valuation for the purpose of making well-informed investment decisions.

STEP 1 Understand the past

STEP 2 Forecast the Future

STEP 3 Estimate Value

1. Collect Information

1. Structured Forecasting

1. Cost of Capital

2. Understand the Business

2. Income Statement Forecasts

3. Accounting Analysis

3. Balance Sheet Forecasts

2. Valuation Models • Residual Income Model • Free Cash Flows Model

4. Cash Flow Forecasts

3. Valuation Ratios

4. Financial Ratio Analysis 5. Cash Flow Analysis

4. Additional considerations

** The assignments are intended to develop the application of the material, while the final exam for the course integrates all of these dimensions.

Lecture 1 – Introduction

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~~ Ratio Detective Exercise ~~ Listed below are selected financial ratios for nine publicly traded companies for fiscal 2007. The figures presented are common-sized and, hence, are a percentage of sales. Using your knowledge about the operating and financial structure of these companies, identify the ninecompanies. The companies are as follows: Best Buy Co., Inc. (BBY); Wells Fargo & Co. (WFC); Brinker International, Inc. (EAT) – operator of restaurants such as Chili’s and Macaroni Grill; Nike, Inc. (NKE); Bidz.com, Inc. (BIDZ) – an online jewelry retailer; Plum Creek Timber Co., Inc. (PCL) – a producer of lumber products; Google, Inc. (GOOG); Bristol-Myers Squibb Co. (BMY); and Molson Coors Brewing Co. (TAP). 1 2 3 4 5 6 7 8 9

COMPANY: Cash & Mkt Securities Accounts Receivable Inventories (Total): RM WIP FG Property, Plant & Equip: At Cost Accum. Dep Net PP&E

85.7% 13.9% 0.0% 0.0% 0.0% 0.0%

11.5% 21.9% 11.2% 2.2% 4.3% 4.7%

71.5% 35.2% 0.0% 0.0% 0.0% 0.0%

3.8% 1.4% 11.8% 0.0% 0.0% 0.0%

1.9% 1.1% 0.7% 0.0% 0.0% 0.0%

17.4% 15.3% 13.0% 0.0% 0.0% 0.0%

14.3% 2.7% 5.2% 2.0% 0.3% 2.9%

2.6% 2.8% 30.3% 0.0% 0.0% 0.0%

6.1% 14.1% 6.5% 2.7% 0.7% 3.1%

33.3% -8.9% 24.3%

52.8% -23.6% 29.2%

37.3% -16.0% 21.3%

14.0% -5.8% 8.3%

52.9% -19.0% 33.9%

22.2% -11.9% 10.3%

259.6% -11.8% 247.8%

1.1% -0.4% 0.7%

87.4% -43.9% 43.6%

Other Assets Total Assets

28.7% 152.7%

61.5% 135.3%

1542.2% 1670.2%

6.7% 31.9%

15.3% 53.0%

9.5% 65.5%

8.4% 278.4%

2.4% 38.7%

147.0% 217.3%

Current Liabilities Long-term debt Other non-curr liab Owners' Equity Total Liab. + Equity

12.3% 0.0% 15.9% 136.7% 152.7%

44.7% 22.6% 80.7% 54.6% 135.3%

1244.0% 287.8% 1531.9% 138.2% 1670.2%

16.9% 1.0% 20.7% 11.2% 31.9%

12.4% 17.8% 34.6% 18.4% 53.0%

15.8% 2.5% 22.4% 43.0% 65.5%

18.1% 141.9% 165.0% 113.5% 278.4%

21.2% 0.0% 21.2% 17.5% 38.7%

28.0% 36.5% 101.8% 115.5% 217.3%

Sales Cost of Goods Sold or Operating Expenses Advertising and Promotion Research & Development Depreciation & Amortization Interest Expense (Revenue) Income Taxes, net Other Expenses, net Net Income

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

40.1% 1.4% 12.7% 5.8% 3.4% 8.9% 2.4% 25.3%

31.2% 7.6% 16.1% 4.3% -0.9% 4.2% 26.4% 11.2%

0.0% 1.2% 0.0% 4.4% 0.0% 10.4% 60.6% 23.4%

76.1% 1.7% 0.0% 1.4% 0.2% 2.0% 15.0% 3.5%

83.6% 3.1% 0.0% 4.3% -0.7% 2.0% 2.4% 5.3%

56.1% 11.7% 0.0% 1.7% 0.4% 4.3% 16.5% 9.1%

67.0% 0.0% 0.0% 7.8% -8.8% -0.2% 17.3% 16.8%

70.9% 6.7% 0.0% 0.3% -0.1% 1.4% 11.2% 9.7%

59.8% 13.9% 0.0% 5.6% -1.6% 0.1% 14.3% 8.0%

Lecture 1 – Introduction

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