Financial Analysis and Time Value of Money

Module 1: Financial Analysis

Financial Statements

• Balance Sheet: snapshot of a company's financial position at a specific point in time
• Income Statement: summary of revenues and expenses over a specific period of time
• Cash Flow Statement: summary of cash inflows and outflows over a specific period of time

Ratio Analysis

• Liquidity Ratios: measure a company's ability to pay short-term debts
  • Current Ratio: current assets / current liabilities
  • Quick Ratio: (current assets - inventory) / current liabilities
• Profitability Ratios: measure a company's ability to generate earnings
  • Gross Margin Ratio: (revenue - cost of goods sold) / revenue
  • Return on Equity (ROE): net income / shareholder equity
• Efficiency Ratios: measure a company's ability to use assets and liabilities efficiently
  • Asset Turnover Ratio: revenue / total assets
  • Debt-to-Equity Ratio: total debt / shareholder equity

Module 2: Time Value of Money

Present Value (PV)

• The value of a future cash flow in today's dollars
• Calculated using the formula: PV = FV / (1 + r)^n
  • FV = future value
  • r = interest rate or discount rate
  • n = number of periods

Future Value (FV)

• The value of a present cash flow at a future date
• Calculated using the formula: FV = PV x (1 + r)^n

Annuities

• A series of equal cash flows occurring at regular intervals
• Ordinary Annuity: cash flows occur at the end of each period
• Annuity Due: cash flows occur at the beginning of each period
• Perpetuity: an annuity that lasts indefinitely