FAO - inleiding.pptx

# Introduction to financial analysis of companies This topic introduces the foundational concepts of financial analysis, its significance in understanding a company's financial health, and its place within a business economics curriculum, outlining course objectives and study materials. ### 1.1 Course objectives and structure The primary objective of this course is to equip students with the necessary skills to gather data for a comprehensive financial analysis and to interpret the results derived from various analytical techniques. This involves analyzing a company's past performance and projecting its future. #### 1.1.1 How to achieve course objectives Achieving course objectives requires: * Attending all lectures punctually. * Active participation in class discussions, including thinking along and answering questions. * Keeping up with lecture notes and coming to class adequately prepared. * Mastering the designated study material from textbooks, powerpoints, numerical interpretations, and lectures. * Regularly reviewing the course material. #### 1.1.2 Course positioning within the curriculum Financial analysis of companies is positioned within the business economics curriculum as follows: * **1st Bachelor:** Accounting (Boekhouden) * **2nd Bachelor:** Financial Analysis of Companies, Analytical Cost Calculation * **3rd Bachelor:** Financial Management A solid understanding of accounting principles is a prerequisite for mastering financial analysis. #### 1.1.3 Key prerequisites Students are expected to have a working knowledge of: * The components of annual financial statements. * Accounting principles. * The balance sheet and income statement. ### 1.2 Study materials and examinations #### 1.2.1 Required literature The primary study materials are: * The textbook "Financiële analyse van de onderneming" by Ooghe, Vander Bauwhede, and Van Wymeersch (6th edition, 2 volumes: theory and tables). * Associated powerpoint presentations. * Materials on numerical interpretation. * Lecture notes. #### 1.2.2 Examination format The total score is out of 20 points, divided between theory and exercises/applications. ##### 1.2.2.1 Theory exam * **Format:** Multiple-choice questions. * **Scoring:** Out of 10 points, administered via an MCE-form. * **Content:** Questions are drawn from the textbook, theory powerpoints, numerical interpretation powerpoints, and numerical interpretations from both volumes of the textbook. * **Note:** This exam has a higher passing threshold. ##### 1.2.2.2 Exercises exam * **Format:** Open questions. * **Scoring:** Out of 10 points, administered via an examination booklet. * **Content:** Questions are drawn from the textbook, theory powerpoints, numerical interpretation powerpoints, and numerical interpretations from both volumes of the textbook. #### 1.2.3 General study recommendations * The entire textbook is to be studied for both the theory and exercise exams, including tables and interpretations of figures. * Powerpoints serve as summaries and may not contain all information present in the textbook. * The powerpoints are also crucial for both exams. * The course material relies heavily on understanding and interpreting financial statements. ### 1.3 Core concepts of financial analysis Financial analysis aims to collect and interpret data to understand a company's financial health and performance. This involves analyzing past trends and projecting future outcomes. #### 1.3.1 The role of information Various stakeholders, including the company's management, investors, creditors, and employees, require information to make informed decisions. Financial statements, through analysis, provide this crucial information. #### 1.3.2 Key analytical techniques The course covers several analytical techniques: * Horizontal analysis (time-series comparison). * Vertical analysis (structural analysis). * Analysis for predicting business failure. * Ratio analysis. * Cash flow analysis. #### 1.3.3 Understanding key financial ratios Ratio analysis categorizes performance and position into several areas: * **Profitability (Rendabiliteit):** Measures the return generated by an investment or asset. It relates to costs and revenues from the income statement. * **Liquidity (Liquiditeit):** Assesses a company's ability to meet its short-term liabilities. It involves cash inflows and outflows and is related to the risk of bankruptcy. * **Solvency (Solvabiliteit):** Determines if a company can meet its long-term liabilities. * **Value Added (Toegevoegde waarde):** Refers to the increase in the value of goods or services as a result of a process, as defined earlier in the course. ### 1.4 The Annual Financial Statement #### 1.4.1 Components of the annual financial statement The annual financial statement includes: * **Balance Sheet (Balans):** A snapshot of a company's assets, liabilities, and equity at a specific point in time. * **Income Statement (Resultatenrekening):** Summarizes a company's revenues, expenses, and profit or loss over a period of time. * **Notes (Toelichting):** Provides additional details and explanations for the items presented in the balance sheet and income statement. * **Social Balance Sheet (Sociale balans):** Details information related to the company's workforce. #### 1.4.2 Accounting versus financial statements It is essential to distinguish between the *accounting* (bookhoudkundige) annual financial statement and the *financial-analytical* (financiële analytische) or restated annual financial statement. The course primarily utilizes the restated statements for analysis. #### 1.4.3 Structure of the balance sheet The balance sheet presents: * **Assets (Activa):** What the company invests its capital in. These are categorized as: * Intangible assets (e.g., founding costs). * Fixed assets (non-current assets). * Current assets (vlottende of courante activa). * **Liabilities and Equity (Passiva):** How the company finances its assets. These are categorized as: * Equity (Eigen vermogen). * Debt (Vreemd vermogen), further divided into: * Long-term debt (Vreemd vermogen LT). * Short-term debt (Vreemd vermogen KT). The fundamental accounting equation is: Assets = Liabilities + Equity. #### 1.4.4 Structure of the income statement The income statement details: * **Revenues (Opbrengsten):** Income generated from the company's operations. * **Expenses (Kosten):** Costs incurred in generating those revenues. The income statement summarizes the company's performance over a fiscal year. #### 1.4.5 Restating the financial statements The process of restating the financial statements involves transforming the accounting figures into a format more suitable for financial analysis. This involves adjustments to reflect economic reality more accurately. ##### 1.4.5.1 Restating the balance sheet The balance sheet is restated to provide a clearer picture of the company's assets and financing structure. Key reclassifications include: * **Assets:** Distinguishing between permanent capital, long-term debt, and short-term debt. * **Liabilities and Equity:** Adjusting equity figures and segregating different types of liabilities. ##### 1.4.5.2 Restating the income statement The income statement is restated to differentiate between recurring and non-recurring items, as well as cash and non-cash items. This allows for a better assessment of the company's ongoing operational performance. Key restatements include: * **Recurrent Operating Result:** This focuses on the core, ongoing business activities. * **Recurrent Financial Result:** Pertains to recurring financial income and expenses. * **Non-Recurrent Result:** Captures extraordinary or one-off events. * **Total Result:** Aggregates all results before taxes. **Key terms in the restated income statement:** * **Recurrent:** Items that are expected to occur repeatedly in the future. * **Non-Recurrent:** Items that are not expected to occur again. #### 1.4.6 Analytical tools The course emphasizes the application of analytical tools to the restated financial statements: ##### 1.4.6.1 Horizontal Analysis * **Concept:** Compares financial data over multiple periods to identify trends and growth rates. * **Methodology:** Typically involves using index numbers, where a base year is set to 100. * **Example:** Comparing the change in financial fixed assets from 18,092 to 21,530 would show an absolute increase and an index increase from 100 to 119. ##### 1.4.6.2 Vertical Analysis * **Concept:** Examines the proportion of each item on a financial statement relative to a base figure within the same period. * **Methodology:** Expresses each item as a percentage of a total (e.g., each asset as a percentage of total assets). * **Example:** If equity consistently represents about one-third of total liabilities and equity, and short-term debt increases from 33% to 53% of total liabilities and equity, this indicates a significant shift in financing structure. **Tip:** While the calculations for horizontal and vertical analysis are not expected to be performed from scratch, a thorough understanding of their interpretation and application is crucial. ### 1.5 Course Structure Overview The course is structured as follows: * Chapter 1: Introduction * Chapter 2: Single Financial Statements according to Company Law (content understood but not examined directly) * Chapter 3: Restructuring of Financial Statements, Horizontal and Vertical Analysis The financial analysis course builds upon the restated balance sheet and income statement. --- # The accounting and financial statements This section explores the structure and content of financial statements, focusing on the balance sheet and income statement, and differentiating between their accounting and financially analytical versions. ### 2.1 Introduction to financial statements Financial statements are crucial tools for analyzing a company's financial health. They provide essential information to various stakeholders, enabling them to make informed decisions. The core financial statements include the balance sheet, the income statement, and the statement of cash flows. ### 2.2 The balance sheet The balance sheet presents a company's financial position at a specific point in time. It outlines what a company owns (assets) and how these assets are financed (liabilities and equity). #### 2.2.1 Accounting balance sheet structure The accounting balance sheet adheres to legal and accounting standards. * **Assets:** These are resources owned by the company that are expected to provide future economic benefits. They are typically classified as: * **Oprichtingskosten (Formation costs):** Expenses incurred during the initial establishment of the company. * **Vaste activa (Fixed assets):** Long-term assets not expected to be consumed within one year, such as property, plant, and equipment. * **Vlottende of courante activa (Current assets):** Short-term assets expected to be converted to cash or used up within one year, including inventory and accounts receivable. * **Liabilities and Equity (Passiva):** This section shows how the company's assets are financed. * **Eigen vermogen (Equity):** The owners' stake in the company. * **Vreemd vermogen (Liabilities):** Obligations of the company to external parties. * **Langlopend vreemd vermogen (Long-term liabilities):** Debts due in more than one year. * **Kortlopend vreemd vermogen (Short-term liabilities):** Debts due within one year. The fundamental accounting equation is: $$ \text{Assets} = \text{Liabilities} + \text{Equity} $$ #### 2.2.2 Financially analytical balance sheet structure The financially analytical balance sheet restructures the accounting balance sheet to provide a clearer view of the company's financial resources and their application, focusing on economic substance over legal form. * **Activa (Assets):** * **Vast of niet realiseerbaar vermogen (Fixed or non-realizable assets):** Includes formation costs, long-term investments, and tangible and intangible fixed assets. * **Vlottend of realiseerbaar vermogen (Current or realizable assets):** Includes inventories, receivables, and short-term financial assets. * **Passiva (Liabilities and Equity):** * **Eigen vermogen (Equity):** Represents the permanent capital invested in the company. * **Langlopend vreemd vermogen (Long-term liabilities):** Includes long-term debts and provisions with a maturity of more than one year. * **Kortlopend vreemd vermogen (Short-term liabilities):** Includes short-term debts and provisions with a maturity of one year or less. > **Tip:** The financially analytical balance sheet aims to provide a more practical view for financial analysis by reclassifying items based on their liquidity and maturity. #### 2.2.3 Reclassifications in the analytical balance sheet Key reclassifications include: * **Vast activa (Fixed assets):** All assets that are not current assets. * **Vlottende activa (Current assets):** Assets expected to be converted into cash within one year. * **Eigen vermogen (Equity):** Permanent capital. * **Langlopend vreemd vermogen (Long-term liabilities):** Liabilities with a term of more than one year. * **Kortlopend vreemd vermogen (Short-term liabilities):** Liabilities with a term of one year or less. ### 2.3 The income statement The income statement (or profit and loss account) summarizes a company's revenues, expenses, gains, and losses over a specific period, usually one fiscal year, to show its profitability. #### 2.3.1 Accounting income statement structure The accounting income statement presents revenues and expenses in a format prescribed by accounting standards. * **Bedrijfsopbrengsten (Operating revenues):** Income generated from the company's primary business activities. * **Bedrijfskosten (Operating expenses):** Costs incurred in the normal course of business operations. * **Bedrijfsresultaat (Operating result):** The difference between operating revenues and operating expenses. * **Financiële opbrengsten (Financial revenues):** Income from financial investments and activities. * **Financiële kosten (Financial expenses):** Costs related to financing, such as interest expenses. * **Financieel resultaat (Financial result):** The difference between financial revenues and financial expenses. * **Winst/verlies voor belastingen (Profit/loss before taxes):** The sum of the operating result and the financial result. * **Belastingen (Taxes):** Corporate income taxes. * **Winst/verlies na belastingen (Profit/loss after taxes):** The net profit or loss for the period. #### 2.3.2 Financially analytical income statement structure The financially analytical income statement aims to distinguish between recurring and non-recurring items to provide a clearer picture of sustainable profitability. * **Recurrent operating result:** Reflects the profit from the company's core, ongoing business activities. * **Recurrente bedrijfsopbrengsten excl subsidies (Recurring operating revenues excluding subsidies):** Revenues from regular business operations. * **Bruto toegevoegde waarde excl subsidies (Gross value added excluding subsidies):** Includes revenues and changes in inventory, less the cost of purchased goods and services. * **Personeelskosten (Personnel costs):** Wages, salaries, and employee benefits. * **Andere recurrente bedrijfskosten (Other recurring operating expenses):** Other ongoing operational costs. * **Recurrent bruto bedrijfsresultaat voor niet-kaskosten (Recurring gross operating result before non-cash expenses) or REBITDA:** This metric represents recurring operating earnings before interest, taxes, depreciation, and amortization. * **Recurrente niet-kaskosten van bedrijfsaard (Recurring non-cash operating expenses):** Expenses like depreciation and amortization related to core operations. * **Recurrent netto bedrijfsresultaat na niet-kaskosten (Recurring net operating result after non-cash expenses) or REBIT:** This represents the recurring operating profit after non-cash expenses. * **Recurrent financial result:** Reflects income and expenses from financial activities that are expected to continue. * **Recurrente financiële kasopbrengsten (Recurring financial cash revenues):** Regular income from financial assets. * **Recurrente andere financiële kaskosten (Recurring other financial cash expenses):** Regular costs associated with financing. * **Recurrent bruto financieel resultaat voor niet-kaskosten (Recurring gross financial result before non-cash expenses):** Financial income and expenses before non-cash items. * **Recurrente financiële niet-kaskosten (Recurring financial non-cash expenses):** Non-cash financial expenses. * **Recurrent netto financieel resultaat na niet-kaskosten (Recurring net financial result after non-cash expenses):** Net recurring financial result. * **Non-recurrent result:** Includes one-off gains or losses that are not expected to occur regularly. * **Niet-recurrente kasopbrengsten (Non-recurring cash revenues):** One-time cash inflows. * **Niet-recurrente kaskosten (Non-recurring cash expenses):** One-time cash outflows. * **Niet-recurrent bruto resultaat voor niet-kaskosten (Non-recurring gross result before non-cash expenses):** Non-recurring gains and losses before non-cash items. * **Niet-recurrente niet-kaskosten (Non-recurring non-cash expenses):** One-time non-cash expenses. * **Niet recurrent netto resultaat na niet-kaskosten (Non-recurring net result after non-cash expenses):** Net non-recurring result. * **Total Result:** Aggregates all results. * **Totaal bruto resultaat voor niet-kaskosten voor financiële kosten en voor belastingen (Total gross result before non-cash expenses, financial expenses, and taxes) or EBITDA:** Earnings Before Interest, Taxes, Depreciation, and Amortization. * **Totale niet kaskosten (Total non-cash expenses):** Sum of all non-cash expenses. * **Totaal netto resultaat na niet-kaskosten voor financiële kosten en voor belastingen (Total net result after non-cash expenses, before financial costs and taxes) or EBIT:** Earnings Before Interest and Taxes. * **FKVV:** Financial costs. * **Winst of verlies boekjaar voor belastingen (Profit or loss for the fiscal year before taxes).** * **Winst of verlies boekjaar na belastingen (Profit or loss for the fiscal year after taxes).** * **Te bestemmen winst van het boekjaar (Profit for the fiscal year to be allocated).** > **Tip:** Understanding the distinction between recurring and non-recurring items is crucial for accurately assessing a company's sustainable earning power. ### 2.4 Differences between accounting and financial analytical statements The primary differences lie in their purpose and presentation: | Feature | Accounting Financial Statements | Financially Analytical Statements | | :------------------- | :---------------------------------------------------------------- | :-------------------------------------------------------------------- | | **Purpose** | Compliance with legal and accounting standards. | Providing insights for financial analysis and decision-making. | | **Focus** | Legal form and specific accounting rules. | Economic substance and future earning potential. | | **Classification** | Based on legal definitions and accounting principles. | Reorganized for analytical clarity (e.g., recurring vs. non-recurring). | | **Detail Level** | Standardized formats (e.g., NBB templates). | More flexible, tailored for analytical objectives. | | **Presentation** | Strict adherence to prescribed formats. | May involve reclassifications and breakdowns for better understanding. | | **Key Metrics** | Statutory profit, book value of assets. | REBITDA, REBIT, cash flow from operations, adjusted profit. | ### 2.5 Analysis of financial statements Financial statements can be analyzed using various techniques to gain deeper insights into a company's performance and position. #### 2.5.1 Horizontal analysis Horizontal analysis compares financial data over multiple periods to identify trends and changes. This is often done using index numbers, where a base year is set to 100 and subsequent years are expressed as a percentage of the base year. * **Formula for index calculation:** $$ \text{Index}_t = \frac{\text{Value}_t}{\text{Value}_{\text{base year}}} \times 100 $$ Where: * $ \text{Index}_t $ is the index for period $ t $. * $ \text{Value}_t $ is the value of the item in period $ t $. * $ \text{Value}_{\text{base year}} $ is the value of the item in the base year. > **Example:** If a company's sales were 100,000 dollars in year 1 (base year) and 120,000 dollars in year 2, the index for sales in year 2 would be $ \frac{120,000}{100,000} \times 100 = 120 $. This indicates a 20% increase in sales compared to the base year. #### 2.5.2 Vertical analysis Vertical analysis examines the relative proportions of different accounts within a single financial statement for a single period. It involves expressing each line item as a percentage of a base figure (e.g., total assets for the balance sheet, total revenues for the income statement). * **For the balance sheet:** Each asset, liability, and equity account is expressed as a percentage of total assets. * **For the income statement:** Each revenue and expense item is expressed as a percentage of total revenue. > **Tip:** Vertical analysis helps in understanding the internal structure of a company's financial statements and how different components contribute to the overall picture. #### 2.5.3 Other analytical tools * **Ratio analysis:** Involves calculating various financial ratios (e.g., profitability, liquidity, solvency ratios) to assess different aspects of a company's performance. * **Cash flow analysis:** Focuses on the movement of cash in and out of the company. * **Falingspredictie (Failure prediction):** Using financial data to predict the likelihood of a company's future financial distress. ### 2.6 Structure and content of financial statements The financial statements are typically presented in tables, with specific numbering and formats, such as those provided by the National Bank of Belgium (NBB). These formats can range from large company structures to simplified "micro-models" for smaller entities, characterized by thresholds in employee numbers, turnover, and balance sheet total. The accompanying notes or "toelichting" provide further detail and explanations for the figures presented in the main statements. --- # Financial analysis techniques This topic explores methods for analyzing financial statements, focusing on horizontal and vertical analysis to understand changes over time and the composition of financial elements within a single reporting period. ### 3.1 Introduction to financial analysis Financial analysis is crucial for understanding a company's financial health and performance. It involves collecting and interpreting data from financial statements to make informed decisions and predictions about the company's future. Key parties requiring this information include various stakeholders who rely on the financial statements for insights. ### 3.2 The financial statements The foundation of financial analysis lies in understanding the core financial statements: * **Balance Sheet (Balans):** This statement provides a snapshot of a company's assets, liabilities, and equity at a specific point in time. It answers the question of what a company owns and what it owes. * **Assets:** Resources controlled by the company from which future economic benefits are expected to flow. These are categorized into: * Founding costs * Fixed assets (non-current assets) * Current assets (inventory, receivables, cash) * **Liabilities:** Obligations of the company to external parties, representing what the company owes. These are categorized into: * Long-term liabilities * Short-term liabilities * **Equity:** The owners' stake in the company, representing the residual interest in the assets after deducting all its liabilities. * **Income Statement (Resultatenrekening):** This statement summarizes a company's revenues, expenses, and profits or losses over a specific period, typically a fiscal year. It answers the question of how much profit or loss a company has generated. * Revenues (Opbrengsten): The income generated from the company's primary operations. * Expenses (Kosten): The costs incurred in generating revenue. * Profit/Loss: The difference between revenues and expenses. * **Notes to the Financial Statements (Toelichting):** These provide supplementary information that clarifies or expands upon the figures presented in the balance sheet and income statement. * **Social Balance Sheet (Sociale Balans):** While mentioned, its specific content for analysis is less emphasized for this topic compared to the balance sheet and income statement. ### 3.3 Reorganizing financial statements For effective financial analysis, financial statements are often "reworked" or "reorganized" to present a clearer financial picture. This involves adapting the accounting-based statements into financially analytical statements. * **Accounting vs. Financial Analytical Balance Sheet and Income Statement:** The accounting statements follow specific legal and accounting rules, while financially analytical statements are adjusted to better reflect economic reality and aid in analysis. The course primarily uses the reorganized (financially analytical) statements. * **Key Differences:** The reworked statements categorize items differently to highlight operational and financial performance more distinctly. For instance, recurring and non-recurring items are separated in the income statement. **Reorganization of the Balance Sheet:** The reworked balance sheet often distinguishes between permanent capital (equity and long-term debt) and short-term capital, and how these are invested in assets. **Reorganization of the Income Statement:** The reworked income statement distinguishes between: 1. **Recurrent operating result:** Reflects the ongoing business activities. * Recurrent operating revenues * Recurrent operating expenses * Recurrent gross operating result before non-cash costs (REBITDA) * Recurrent net operating result after non-cash costs (REBIT) 2. **Recurrent financial result:** Reflects recurring financial income and expenses. * Recurrent financial revenues * Recurrent financial expenses * Recurrent gross financial result before non-cash costs * Recurrent net financial result after non-cash costs 3. **Non-recurrent result:** Reflects extraordinary or one-off events. * Non-recurrent revenues * Non-recurrent expenses * Non-recurrent gross result before non-cash costs * Non-recurrent net result after non-cash costs 4. **Total Result:** Aggregates all components. * Total gross result before non-cash costs (EBITDA) * Total net result after non-cash costs before financial costs and taxes (EBIT) * Profit/Loss for the year before taxes * Profit/Loss for the year after taxes > **Tip:** Understanding the distinction between recurring and non-recurring items is crucial for assessing a company's sustainable profitability and future performance. ### 3.4 Horizontal analysis Horizontal analysis, also known as trend analysis, involves comparing financial data over multiple accounting periods. This helps identify trends, growth patterns, and significant changes in the company's financial position. * **Method:** This analysis typically works with index numbers or percentage changes. Each period's figures are compared to a base period (usually set to 100). * **Calculation:** * **Absolute Change:** The difference between the current period's value and the base period's value. * **Index Number (Percentage Change):** $$ \text{Index Number} = \left( \frac{\text{Current Period Value}}{\text{Base Period Value}} \right) \times 100 $$ * **Interpretation:** An index number greater than 100 indicates an increase from the base period, while an index number less than 100 indicates a decrease. > **Example:** If a company's sales were 1,000,000 dollars in year 1 (base year) and 1,200,000 dollars in year 2, the index for year 2 would be $(1,200,000 / 1,000,000) \times 100 = 120$. This signifies a 20% increase in sales from year 1. ### 3.5 Vertical analysis Vertical analysis, also known as common-size analysis, examines the relationship between different line items within a single financial statement for a specific accounting period. It helps understand the composition and relative importance of each item. * **Method:** This analysis expresses each line item as a percentage of a base figure within the same statement. * **Balance Sheet:** Each asset item is expressed as a percentage of total assets. Each liability and equity item is expressed as a percentage of total liabilities and equity. * **Income Statement:** Each revenue and expense item is expressed as a percentage of total revenue. * **Calculation:** $$ \text{Percentage} = \left( \frac{\text{Specific Item Value}}{\text{Base Figure Value}} \right) \times 100 $$ Where the base figure is typically total assets or total liabilities and equity for the balance sheet, and total revenue for the income statement. > **Example:** If a company's total assets are 500,000 dollars and its inventory is 50,000 dollars, then inventory represents $(50,000 / 500,000) \times 100 = 10\%$ of total assets. This shows the proportion of assets tied up in inventory. > **Tip:** Vertical analysis is particularly useful for comparing the financial structure of companies within the same industry, even if they have different sizes. Horizontal analysis is best for tracking a company's performance over time. Both techniques are essential for a comprehensive financial assessment. --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Financial analysis of the company | The systematic examination and evaluation of a company's financial statements and other relevant data to assess its performance, financial position, and future prospects. | | Annual financial statements | A set of financial reports, including the balance sheet, income statement, and cash flow statement, that provide a comprehensive overview of a company's financial activities over a specific accounting period. | | Balance sheet | A financial statement that reports a company's assets, liabilities, and equity at a specific point in time, providing a snapshot of its financial position. It follows the accounting equation: Assets = Liabilities + Equity. | | Income statement | A financial statement that reports a company's revenues, expenses, and profits or losses over a specific period, such as a quarter or a year. It shows the profitability of a company. | | Cash flow analysis | The process of evaluating a company's cash inflows and outflows over a period to understand its liquidity and ability to generate cash. It is crucial for assessing a company's financial health. | | Added value | The increase in the worth of a product or service created by a business through its operations, often calculated as the difference between the selling price and the cost of inputs. | | Profitability | A measure of a company's ability to generate earnings relative to its revenue, operating costs, and other expenses. It is typically assessed through various ratios derived from the income statement. | | Solvency | A company's ability to meet its long-term financial obligations, such as repaying long-term debt. It indicates the long-term financial stability of the business. | | Liquidity | A company's ability to meet its short-term financial obligations using its most liquid assets. It reflects the ease with which assets can be converted into cash to cover immediate debts. | | Agency relationship | A situation where one party (the agent) acts on behalf of another party (the principal), often involving the management of assets or information. In finance, this often refers to the relationship between management and shareholders. | | Horizontal analysis | A financial statement analysis technique that compares financial data over multiple accounting periods to identify trends and changes. It often involves calculating percentage changes or index numbers. | | Vertical analysis | A financial statement analysis technique that expresses each line item in a financial statement as a percentage of a base figure within the same statement (e.g., each asset as a percentage of total assets on the balance sheet). | | Accounting financial statement | Financial statements prepared according to generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS). | | Financially analytical (or reworked) financial statement | Financial statements that have been adjusted from their accounting presentation to better reflect the economic reality and operational performance of the company, often removing non-operational items. | | Recurrent | Refers to income or expenses that are expected to occur regularly and predictably in the normal course of business operations. | | Non-recurrent | Refers to income or expenses that are unusual, infrequent, or not expected to occur again in the normal course of business operations. | | REBITDA (Recurrent Earnings Before Interest, Taxes, Depreciation, and Amortization) | A measure of a company's operating performance that excludes non-recurring items, interest, taxes, depreciation, and amortization, providing a view of recurring operational profitability. | | REBIT (Recurrent Earnings Before Interest and Taxes) | A measure of a company's recurring operating profitability after accounting for non-recurring items, interest, and taxes, but before depreciation and amortization. | | EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) | A measure of a company's overall financial performance, representing its profitability before accounting for non-cash expenses (depreciation and amortization), interest, and taxes. | | EBIT (Earnings Before Interest and Taxes) | A measure of a company's operating profit, representing its profitability before accounting for interest expenses and income taxes. |