Evaluating Corporate Financial Performance: Tools and Applications

Preface
Contents
List of Figures
List of Tables
1 Primary Financial Statements as the Source of Information for Company’s Financial Analysis
	1.1 Three Primary Financial Statements
	1.2 Separate and Consolidated Financial Statements
	1.3 Content of an Income Statement
		1.3.1 What Is an Income Statement?
		1.3.2 Basic Operating Results
		1.3.3 Other Operating Income and Other Operating Expenses
		1.3.4 Financial Result
		1.3.5 Income Taxes
		1.3.6 Net Earnings
		1.3.7 Components of Corporate Total Income Excluded from Income Statement
	1.4 Content of Balance Sheet
		1.4.1 What Is a Balance Sheet?
		1.4.2 Classes of Assets
		1.4.3 Classes of Fixed (Non-current) Assets
		1.4.4 Classes of Current (Short-Term) Assets
		1.4.5 Classes of Liabilities
		1.4.6 Classes of Shareholders’ Equity
	1.5 Content of a Cash Flow Statement
		1.5.1 What Is a Cash Flow Statement?
		1.5.2 Three Classes of Corporate Cash Flows and Formats of a Cash Flow Statement
		1.5.3 Operating Cash Flows
		1.5.4 Investing Cash Flows
		1.5.5 Financing Cash Flows
		1.5.6 Net Cash Flows
	1.6 EXERCISE—Preliminary Review of Income Statement, Balance Sheet and Cash Flow Statement of Lumentum Holdings
		1.6.1 Tasks and Questions
		1.6.2 Answers
	References
2 Notes to Financial Statements as an Important Source of Information for a Financial Statement Analysis
	2.1 Nature and Purposes of Notes to Financial Statements
	2.2 Notes on Sales Revenues
	2.3 Notes on Other Operating Income and Other Operating Expenses
	2.4 Notes on Financial Income and Financial Expenses
	2.5 Notes on Intangible Assets
	2.6 Notes on Tangible Fixed Assets
	2.7 Notes on Receivable Accounts
	2.8 Notes on Inventories
	2.9 Notes on On-Balance Sheet Liabilities
	2.10 Notes on Provisions
	2.11 Notes on Off-Balance Sheet Liabilities and Contingent Obligations
	2.12 Notes on Financial Statement Consolidation, Non-controlling Interests and Business Combinations
	2.13 Notes on Significant Accounting Policies
	2.14 EXERCISE—Review of Selected Notes to Consolidated Financial Statements of Lumentum Holdings
		2.14.1 Tasks and Questions
		2.14.2 Answers
	Reference
3 Financial Statement Analysis
	3.1 Accounting Ratios as a Primary Tool of a Financial Statement Analysis
	3.2 Profitability Ratios
		3.2.1 Nature and Types of Profitability Ratios
		3.2.2 Profitability of Sales
		3.2.3 Profitability of Assets (ROA) and Shareholders’ Equity (ROE)
	3.3 Financial Risk Ratios
		3.3.1 Nature and Types of Financial Risk Ratios
		3.3.2 Selected Financial Risk Ratios
	3.4 Turnover Ratios
	3.5 Cash Flow Analysis
	3.6 Business Valuation Ratios
	3.7 Multivariable Credit Risk Models
	3.8 Impact of Industry-Specific and Company-Specific Factors on Observed Values of Selected Financial Statement Ratios
	3.9 Fundamental Relationships Between ROE and Its Drivers (DuPont Analysis)
	3.10 Most Important Pitfalls of a Financial Statement Analysis
	3.11 EXERCISE—Retrospective Financial Statement Analysis of Lumentum Holdings
		3.11.1 Tasks and Questions
		3.11.2 Answers
	References
4 Prospective Financial Statement Analysis and Simulations
	4.1 Introduction
	4.2 Analytical Procedure in a Prospective Financial Statement Analysis
	4.3 Past (Historical) Financial Statements as a Departure Point in a Prospective Financial Statement Analysis
	4.4 Context of a Prospective Financial Simulation and Its Underlying Assumptions
	4.5 Preliminary Income Statement and Preliminary Balance Sheet
	4.6 Equalizing Left-Hand Side and Right-Hand Side of Balance Sheet
		4.6.1 Closing Balance Sheet Gap via Cash and Current Financial Assets
		4.6.2 Closing Balance Sheet Gap via an Issuance of New Equity
		4.6.3 Closing Balance Sheet Gap via Financial Liabilities (Borrowings)
	4.7 Impact of Considered Scenarios on Prospective Financial Statement Ratios
	4.8 Simulation and Analysis of Prospective Cash Flow Statement
	4.9 Exercise–Prospective Financial Statement Analysis of Lumentum Holdings
		4.9.1 Tasks and Questions
		4.9.2 Answers
	Reference
5 Real-Life Case Study: A Flight to a Bankruptcy of Norwegian Air Shuttle
	5.1 Introduction
	5.2 The Norwegian’s Growth and Economic Performance in Fiscal Years 2014 Through 2016
	5.3 Evaluation of Norwegian’s Financial Performance in Fiscal Years 2015–2016
		5.3.1 Condensed Income Statement and Balance Sheet
		5.3.2 Analysis of Selected Financial Statement Ratios
		5.3.3 Analysis of Reported Cash Flows
		5.3.4 Assessment of the Company’s Credit Risk Based on Selected Multivariate Models
		5.3.5 Summary of Findings of the Norwegian’s Retrospective Financial Statement Analysis
	5.4 Preliminary Prospective Income Statement Simulated for Fiscal Year 2017
		5.4.1 Forecast of Sales Revenues
		5.4.2 Forecast of Aviation Fuel Expense
		5.4.3 Forecast of Non-Fuel Operational Expenses
		5.4.4 Forecast of Depreciation and Amortization Expense
		5.4.5 Assumptions and Forecasts of Other Income Statement Items
		5.4.6 Preliminary Prospective Income Statement (Before Its Further Adjustments)
	5.5 Preliminary Prospective Balance Sheet Simulated for Fiscal Year 2017
		5.5.1 Forecast of Carrying Amount of Property, Plant and Equipment (Including Prepayments to Aircraft Manufacturers)
		5.5.2 Forecast of Carrying Amount of Other Noncurrent (Long-Term) Assets
		5.5.3 Forecast of Carrying Amount of Inventory and Receivable Accounts
		5.5.4 Assumptions and Forecasts of Other Asset Items
		5.5.5 Forecast of Carrying Amount of Equity
		5.5.6 Forecast of Carrying Amount of Liabilities
		5.5.7 Preliminary Prospective Balance Sheet (Before Its Further Adjustments)
		5.5.8 Preliminary Prospective Operating Cash Flows
	5.6 Consideration of Available Options for Bridging an Uncovered Funding Gap
		5.6.1 Issuance of New Equity Shares
		5.6.2 Further Increase in Indebtedness
		5.6.3 Reduction of the Company’s Asset Base
		5.6.4 Combination of More Than One of the Options
	5.7 Actual Developments in Fiscal Years 2017 and 2018
		5.7.1 Oil Price Change and Norwegian’s Accounting Earnings in Fiscal Year 2017
		5.7.2 Norwegian’s Actual Funding Gaps and Cash Flows in Fiscal Years 2017 and 2018
		5.7.3 Norwegian’s Ultimate Bankruptcy and “Epitaph”
	Appendix: Published Financial Statements of Norwegian Air Shuttle for Fiscal Years 2015 and 2016
	References
6 Correction to: Real-Life Case Study: A Flight to a Bankruptcy of Norwegian Air Shuttle
	Correction to:  Chapter 5 in: J. Welc, Evaluating Corporate Financial Performance,  https://doi.org/10.1007/978-3-030-97582-1_5
References
Index