Financial Statements Analysis
The aim of the module is to enhance your knowledge of the theory and practice of financial reporting and analysis. To this end, the module will provide a framework for business analysis and valuation based on financial reporting. The module will cover strategic analysis, financial statement analysis, forecasting, valuation theory, equity analysis, credit analysis, and mergers and acquisitions. You are expected to actively search for and use information in annual reports and other corporate communications independently.
Full module specification
|Module title:||Financial Statements Analysis|
|Duration of module:|| Duration (weeks) - term 1: |
This module follows on from the second year financial accounting module, study of which is a prerequisite for entry to this module. The module is practically oriented and requires that you take initiatives on your own and think outside the box. This module has three aims:
- to develop students’ hands-on knowledge and skills by providing a framework on how to use financial reporting for business analysis;
- to provide students with an understanding of the consequences of companies’ strategic choices in terms of sustainable performance; and
- to advance students’ knowledge and skills in how to assess and provide a tool set for equity analysis, credit analysis and distress prediction
ILO: Module-specific skills
- 1. conduct strategic analyses assessing firms choice of industry and choices related to corporate strategies to cope with competition in that industry sector
- 2. adjust reported accounting numbers to facilitate comparisons and undo distortions
- 3. conduct a ratio analysis based on adjusted accounting numbers
- 4. use ratio analysis for prospective forecasting
ILO: Discipline-specific skills
- 5. analyse and draw reasoned conclusions concerning structured problems from a given set of data
- 6. apply logical thinking and numeracy skills to problems and cases by using appropriate accounting knowledge and valuation theories
- 7. critically evaluate arguments and evidence
ILO: Personal and key skills
- 8. demonstrate written communication skills
- 9. use information technology for information retrieval, numerical analysis and report production
Learning activities and teaching methods (given in hours of study time)
|Scheduled Learning and Teaching Activities||Guided independent study||Placement / study abroad|
Details of learning activities and teaching methods
|Category||Hours of study time||Description|
|Scheduled Learning and Teaching||22||Lectures|
|Scheduled Learning and Teaching||11||Workshops/Tutorials|
|Guilded Independent Study||117||Reading and preparation for workshops/tutorials and assessments|
|Form of assessment||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Weekly tutorial problems for discussion||Varying||1-9||Verbal and suggested solutions provided on ELE|
Summative assessment (% of credit)
|Coursework||Written exams||Practical exams|
Details of summative assessment
|Form of assessment||% of credit||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Coursework||80||Maximum 3,000 words excluding any tables, charts or diagrams, and the list of references/bibliography||1-9||In writing|
|MCQ interim Examination||20||1 hour||1-7||Suggested solutions on ELE|
Details of re-assessment (where required by referral or deferral)
|Original form of assessment||Form of re-assessment||ILOs re-assessed||Timescale for re-assessment|
|Coursework and interim examination||Revision and resubmission of coursework||1-9||August assessment period|
Students who fail the module overall will be required to revise and resubmit the original coursework.
- Introduction to financial reporting and analysis and providing a framework for business analysis using financial statements
- Strategic analysis
- Accounting for pensions
- Accounting analysis
- Financial analysis
- Equity security analysis
- Credit and distress prediction
- Mergers and acquisitions
Indicative learning resources - Basic reading
Customised textbook containing the following chapters:
- Palepu, K.G., Healy, P.M., and Peek, E. Business Analysis and Valuation – IFRS edition, latest edition, London: Cengage Learning , chapters 1-6 and 9-11.
- Alexander, D., Britton, A. and Jorissen, A. International Financial Reporting and Analysis. latest edition London: Cengage Learning, chapter 22.
- Alexander, D., Britton, A. and Jorissen, A. (2011) International Financial Reporting and Analysis. 5th ed. London: Cengage Learning.
- Picker, R., Leo, K., Loftus, J., Wise, V., Clark, K. and Alfredson, K. (2013) Applying International Financial Reporting Standards, 3rd ed. Milton, Australia: John Wiley & Sons Australia, Ltd.
Module has an active ELE page?
Indicative learning resources - Web based and electronic resources
Indicative learning resources - Other resources
Relevant articles and readings on ELE.
Last revision date
More coursework: 1 - A | B | C | D | E | F | G | H | I - J | K - L | M | N - O | P - S | T | U - Y
General motors financial analysis
General Motors - Financial Ratio Analysis
I. General Motors History Highlights
In its early years the automobile industry consisted of hundreds of firms, each producing a few models. William Durant, who bought and reorganized a failing Buick Motors in 1904, determined that if several automobile makers would unite, it would increase the protection for the group. He formed the General Motors Company in Flint, Michigan, in 1908.
Durant had bought 17 companies (including Oldsmobile, Cadillac, and Pontiac) by 1910, the year a bankers' syndicate forced him to step down. In a 1915 stock swap, he regained control through Chevrolet, a company he had formed with race car driver Louis Chevrolet. GM created the GM Acceptance Corporation (auto financing) and acquired a number of businesses, including Fisher Body, Frigidaire (sold in 1979), and a small bearing company, Hyatt Roller Bearing. With the Hyatt acquisition came Alfred Sloan, an administrative genius who would build GM into a corporate colossus.
Sloan, president from 1923 to 1937, implemented a decentralized management system, now emulated worldwide. The auto maker competed by offering models ranging from luxury to economy, colors besides black, and yearly style modifications. By 1927 it had become the industry leader.
GM introduced a line of front-wheel-drive compacts in 1979. Under Roger Smith, CEO from 1981 to 1990, GM laid off thousands of workers as part of a massive companywide restructuring and cost cutting program.
In 1984 GM formed NUMMI with Toyota as an experiment to see if Toyota's manufacturing techniques would work in the US. The joint venture's first car was the Chevy Nova. GM bought Ross Perot's Electronic Data Systems (1984) and Hughes Aircraft (1986). In 1989 the company bought 50% of Saab Automobile.
In 1990 GM launched Saturn, its first new nameplate since 1926, reflecting a new companywide emphasis on quality. Two years later it made the largest stock offering in US history, raising $2.2 billion. Culminating a period of boardroom coups (relating to the company's lagging effort to reduce costs) in the early 1990s, John Smith replaced Robert Stempel as CEO.
NBC apologized in 1993 for improprieties in its expose alleging that GM pickups equipped with "sidesaddle" gas tanks tended to explode upon side impact. The government nonetheless asked the company to recall 4.7 million trucks. A unanimous federal appeals court in 1995 overturned the settlement of a national class action suit involving the pickups. That year GM sold its National Car Rental business to a group of investors led by former Chrysler executive William Lobeck.
In 1996 the United Auto Workers struck at 2 GM plants in Ohio over the company's increasing its outsourcing of brake parts. The strike lasted 17 days, idling 24 of the automaker's 29 North American plants (reflecting the vulnerability of just-in-time supply chains), and ended with neither side satisfied.
GM sued Volkswagen in 1996, alleging the German automaker encouraged former GM executive Ignacio Lopez to defect to Volkswagen with boxes of proprietary company information. The bitter dispute led to Lopez's resignation from Volkswagen and was resolved in early 1997 when VW agreed to pay GM $100 million and purchase $1 billion of parts from GM over 7 years. In 1996 GM spun off EDS (with a market value of $27 billion) to shareholders. Also that year GM agreed to sell 4 of its parts plants to Peregrine Inc. (formed by investment firm Joseph Littlejohn & Levy) for an undisclosed amount. In late 1996 GM began producing Chevrolet Blazers in Russia.
II. General Information
BMW, British Aerospace, Chrysler, Daimler-Benz, Fiat, Ford, Honda, Hyundai, Kia, Motors, Mazda, Mitsubishi, Nissan, PSA Peugeot Citroen, Renault, Suzuki, Toyota, Volkswagen and Volvo.
Buick, Cadillac, Chevrolet, Geo, GMC, Oldsmobile, Opel/Vauxhall, Pontiac and Saturn.
Delphi Automotive Systems (vehicle components)
General Motors Acceptance Corporation (financing and insurance)
Hughes Electronics Corporation (electronic systems)
International Operations (autos for foreign markets)
North American Operations (autos for North America)
III. Statistics & Financial Summary
$ mil. % of total
Manufactured products 143,666 85
Financial services 11,664 7
Computer systems services 8,531 5
Other 4,968 3
Total 168,829 100
1995 Vehicle Unit Deliveries
No. (000's) % of total
US 4,895 59
Europe 1,725 21
Latin America, Africa & the Middle East647 8
Asia & Pacific 624 7
Canada 385 5
Mexico 48 0
Total 8,324 100
1993 1994 1995
Sales ($ mil.) 133,622 150,592 163,861
Net income ($ mil.) 2,466 5,659 6,933
Income as % of sales 1.8% 3.8% 4.2%
Earnings per share ($) 2.13 6.20 7.28
Stock price - high ($) 57.13 65.38 53.13
Stock price - low ($) 32.00 36.13 37.25
Stock price - close ($) 54.88 42.13 52.88
P/E - high 27 11 7
P/E - low 15 6 5
Dividends per share ($) 0.80 0.80 1.10
Book value per share ($) 5.28 11.64 18.05
Employees 750,000 692,800 709,000
1995 Year End
* Debt ratio: 61.1%
* Return on equity: 29.7%
* Cash ($ mil.): 11,044
* Current ratio: 1.70
* Long-term debt ($ mil.): 36,675
* No. of shares (mil.): 753
* Dividend yield: 2.1%
* Dividend pay out: 15.1%
* Market value ($ mil.): 39,819
IV. Financial Ratios
Net Working Capital (000's)
Current Assets - Current Liabilities
Current Assets / Current Liabilities
(Current Assets - Inventory) / Current Liabilities
Cost of Goods Sold / Inventory
Average Collection Period
Accounts Receivable / Avg Sales Per Day
Average Payment Period
Fixed Asset Turnover
Sales / Net Fixed Assets
Total Asset Turnover
Sales / Total Assets
Total Liabilities / Total Assets
Debt Equity Ratio
Long Term Debt / Stock Holders Equity
Times Interest Earned Ratio
Earnings before interest & Taxes / Interest
Fixed Payment Coverage Ratio
Gross Profit Margin
(Sales - Cost of Goods Sold) / Sales
Operating Profit Margin
Operating Profits / Sales
Net Profit Margin
Net Profits After Taxes / Total Assets
Return on Total Assets (ROA)
Net Profits After Taxes / Stockholders Equity
Return on Equity (ROE)
Net Profits after Taxes / Stockholders Equity
Earnings per Share
Market Price P/ Share of Common Stock / EPS
Price/Earnings Ratio (P/E)
Note : Financial Statements are attached
V. Ratio Analysis
General Motors overall liquidity has decreased when compared to 1994, but is still at a much higher level when compared to 1993. Their net working capital has increased 516% compared to 1993.
Their ability to meet short term obligations is also higher than 1993 by 12 basis points, but is lower than 1994 mainly because their current liabilities increased in a higher pace than their current assets.
The Quick Ratio otherwise did not follow the same trend as the previous ratios, where the difference to 1993 is of only 1 basis point. The difference here is mainly because of the higher amount in inventories that may indicate an increase in inventory prices or volume.
The inventory liquidity has been declining for the last two years, while the cost of goods sold increased during the same period. This trend indicates that the inventory cost or volume has increased.
The accounts receivable has improved when compared to 1993, where it decreased from 53 to 49 days.
The fixed asset turnover has decreased from 3.90 in 1993 to 2.50 in 1995, which may indicate a higher investment in fixed assets which are not being maximized in productivity.
The Total Asset Turnover has been improving for the last two years because of the better management of current assets..
The Debt Ratio has decreased for the last two years going from 0.96 to 0.88 mainly due to the reduction of the total liabilities, indicating that the level of creditor financing has improved.
The stock holders equity has increased dramatically indicating the better management of the companies equity.
The EBIT has improved for the last two year mainly because the level of interest paid has decreased due to the reduction of liabilities.
The Gross Profit Margin has increased from 1993 to 1994 as the cost of goods sold did not increase at the same level that the sales increased. The Operating Profit Margin ratio was stable in 1995 when compared to 1994 and the Net Profit Margin has also been improving for the last two years.
The Return on Total Assets has increased due the increase in the companies profitability, while Return on Equity has decreased on the last two years as the stockholders equity increased
It is clear that the profitability of the company has been increasing for the last 2 years, mainly due to the decrease in liabilities, improvement in accounts receivable and better management of the company debt..
The company also demonstrates that the profitability can be improved even further by having better inventory management and productivity maximization on their fixed assets.
Financial Statements (America On Line)
Last Quote (America On Line)
Stock Graph (2 Years - America On Line)
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