Financial Analysis With Microsoft Excel 2002

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ISBN: 9780324178241 | 0324178247
Cover: Paperback
Copyright: 5/27/2003

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FAME, 3rd Edition, is designed to teach learners to use Microsoft and uses Excel 2002 to build spreadsheets to solve financial problems. It starts with the basics in Chapter 1 and quickly moves into more advanced features of Excel. The book covers basic financial statements, ratio analysis, forecasting, time value of money, capital budgeting, and risk and diversification. Many learners will use this book and learn very valuable and highly marketable, skills.

Preface

xiii

Purpose of the Book

xiv

Target Audience

A Note to Students

Organization of the Book

Outstanding Features

xvi

Pedagogical Features

xvii

Supplements

xvii

Typography Conventions

xviii

Changes from the 2nd Edition

xix

A Note on the Internet

Acknowledgments

xxi

Spreadsheet Basics

(40)

Spreadsheet Uses

(1)

Starting Microsoft Excel

(1)

Parts of the Excel Screen

(4)

The Title Bar

(1)

The Menu Bar

(1)

The Toolbars

(1)

The Formula Bar

(1)

The Worksheet Area

(1)

Sheet Tabs

(1)

Status Bar

(1)

Navigating the Worksheet

(9)

Selecting a Range of Cells

(2)

Using Named Ranges

(1)

Entering Text and Numbers

(1)

Formatting and Alignment Options

(3)

Number Formats

(1)

Borders and Shading

(1)

Entering Formulas

(5)

Copying and Moving Formulas

(2)

Mathematical Operators

(1)

Parentheses and the Order of Operations

(1)

Using Excel's Built-In Functions

(5)

Using the Insert Function Dialog Box

(2)

Using Macro Functions

(1)

Creating Graphics

(6)

Creating Charts in a Chart Sheet

(2)

Creating Embedded Charts

(1)

Formatting Charts

(3)

Changing the Chart Type

(1)

Printing

(2)

Saving and Opening Files

(1)

Saving Worksheets for the Internet

(1)

Using Excel with Other Applications

(1)

Quitting Excel

(1)

Summary

(1)

Problems

(2)

Internet Exercise

(2)

The Basic Financial Statements

(26)

The Income Statement

(10)

Building an Income Statement in Excel

(5)

Custom Number Formatting

(2)

Common-Size Income Statements

(1)

Simplifying the Display with Custom Views

(2)

The Balance Sheet

(4)

Building a Balance Sheet in Excel

(2)

Creating a Common-Size Balance Sheet

(1)

Building a Statement of Cash Flows

(5)

Using Excel's Outliner

(1)

Summary

(2)

Problems

(1)

Internet Exercise

(2)

The Cash Budget

(34)

The Worksheet Area

(3)

Collections

(1)

Purchases and Payments

(1)

Collections and Disbursements

(2)

Calculating the Ending Cash Balance

(9)

Using the Cash Budget for Timing Large Expenditures

(1)

The Scenario Manager

(4)

Adding Interest and Investment of Excess Cash

(11)

Calculating Current Borrowing

(2)

Using the Formula Auditing Tools to Avoid Errors

(1)

Debugging Formulas

(4)

Calculating Current Investing

(1)

Working Through the Example

(2)

Summary

(1)

Problems

(6)

Financial Statement Analysis Tools

101

(38)

Liquidity Ratios

102

(3)

The Current Ratio

103

(1)

The Quick Ratio

104

(1)

Efficiency Ratios

105

(4)

Inventory Turnover Ratio

105

(1)

Accounts Receivable Turnover Ratio

106

(1)

Average Collection Period

107

(1)

Fixed Asset Turnover Ratio

108

(1)

Total Asset Turnover Ratio

108

(1)

Leverage Ratios

109

(4)

The Total Debt Ratio

110

(1)

The Long-Term Debt Ratio

110

(1)

The Long-Term Debt to Total Capitalization Ratio

111

(1)

The Debt to Equity Ratio

111

(1)

The Long-Term Debt to Equity Ratio

112

(1)

Coverage Ratios

113

(2)

The Times Interest Earned Ratio

113

(1)

The Cash Coverage Ratio

114

(1)

Profitability Ratios

115

(6)

The Gross Profit Margin

115

(1)

The Operating Profit Margin

115

(1)

The Net Profit Margin

116

(1)

Return on Total Assets

117

(1)

Return on Equity

117

(1)

Return on Common Equity

118

(1)

The Du Pont Analysis

118

(2)

Analysis of EPI's Profitability Ratios

120

(1)

Financial Distress Prediction

121

(3)

The Original Z-Score Model

122

(1)

The Z-Score Model for Private Firms

123

(1)

Using Financial Ratios

124

(6)

Trend Analysis

124

(1)

Comparing to Industry Averages

125

(2)

Company Goals and Debt Covenants

127

(1)

Automating Ratio Analysis

127

(3)

Economic Profit Measures of Performance

130

(3)

Summary

133

(3)

Problems

136

(1)

Internet Exercise

137

(2)

Financial Forecasting

139

(24)

The Percent of Sales Method

140

(9)

Forecasting the Income Statement

140

(2)

Forecasting Assets on the Balance Sheet

142

(3)

Forecasting Liabilities on the Balance Sheet

145

(2)

Discretionary Financing Needed

147

(2)

Other Forecasting Methods

149

(11)

Linear Trend Extrapolation

153

(1)

Regression Analysis

153

(7)

Summary

160

(1)

Problems

160

(1)

Internet Exercise

161

(2)

Break-Even and Leverage Analysis

163

(20)

Break-Even Points

164

(4)

Calculating Break-Even Points in Excel

166

(1)

Other Break-Even Points

167

(1)

Using Goal Seek to Calculate Break-Even Points

168

(1)

Leverage Analysis

169

(9)

The Degree of Operating Leverage

170

(3)

The Degree of Financial Leverage

173

(2)

The Degree of Combined Leverage

175

(1)

Extending the Example

176

(2)

Summary

178

(2)

Problems

180

(2)

Internet Exercise

182

(1)

The Time Value of Money

183

(30)

Future Value

184

(3)

Using Excel to Find Future Values

185

(2)

Present Value

187

(1)

Annuities

188

(13)

Present Value of an Annuity

189

(3)

Future Value of an Annuity

192

(1)

Solving for the Annuity Payment

193

(2)

Solving for the Number of Periods in an Annuity

195

(1)

Solving for the Interest Rate in an Annuity

196

(2)

Deferred Annuities

198

(3)

Uneven Cash Flow Streams

201

(3)

Solving for the Yield in an Uneven Cash Flow Stream

203

(1)

Non-Annual Compounding Periods

204

(5)

Continuous Compounding

208

(1)

Summary

209

(1)

Problems

210

(3)

Valuation and Rates of Return

213

(42)

What Is Value?

214

(1)

Fundamentals of Valuation

215

(1)

Determining the Required Rate of Return

216

(5)

A Simple Risk Premium Model

217

(1)

CAPM: A More Scientific Model

218

(3)

Valuing Common Stocks

221

(10)

The Constant-Growth Dividend Discount Model

222

(5)

The Two-Stage Growth Model

227

(3)

The Three-Stage Growth Model

230

(1)

Bond Valuation

231

(5)

Bond Return Measures

236

(6)

Current Yield

236

(2)

Yield to Maturity

238

(1)

Yield to Call

238

(2)

Returns on Discounted Debt Securities

240

(2)

Bond Price Sensitivities

242

(6)

Changes in the Required Return

242

(3)

Changes in Term to Maturity

245

(3)

Preferred Stock Valuation

248

(2)

Summary

250

(2)

Problems

252

(1)

Internet Exercises

253

(2)

The Cost of Capital

255

(26)

The Appropriate ``Hurdle'' Rate

256

(3)

The Weighted Average Cost of Capital

257

(1)

Determining the Weights

258

(1)

WACC Calculations in Excel

259

(2)

Calculating the Component Costs

261

(4)

The Cost of Common Equity

261

(2)

The Cost of Preferred Equity

263

(1)

The Cost of Debt

263

(2)

Using Excel to Calculate the Component Costs

265

(2)

The After-Tax Cost of Debt

265

(1)

The Cost of Preferred Stock

266

(1)

The Cost of Common Stock

266

(1)

The Role of Flotation Costs

267

(4)

Adding Flotation Costs to the Worksheet

269

(1)

The Cost of Retained Earnings

270

(1)

The Marginal WACC Curve

271

(6)

Finding the Break-Points

276

(1)

Summary

277

(1)

Problems

278

(1)

Internet Exercise

279

(2)

Capital Budgeting

281

(44)

Estimating the Cash Flows

282

(9)

The Initial Outlay

283

(1)

The Annual After-Tax Cash Flows

284

(1)

The Terminal Cash Flow

285

(1)

Estimating the Cash Flows: an Example

286

(5)

Making the Decision

291

(14)

The Payback Method

291

(2)

The Discounted Payback Period

293

(2)

Net Present Value

295

(103)

The Profitability Index

398

(1)

The Internal Rate of Return

399

Problems with the IRR

300

(2)

The Modified Internal Rate of Return

302

(3)

Sensitivity Analysis

305

(4)

NPV Profile Charts

305

(1)

Scenario Analysis

306

(3)

The Optimal Capital Budget

309

(10)

Optimal Capital Budget Without Capital Rationing

310

(2)

Optimal Capital Budget Under Capital Rationing

312

(7)

Other Techniques

319

(1)

Summary

319

(1)

Problems

320

(5)

Risk, Capital Budgeting, and Diversification

325

(52)

Review of Some Useful Statistical Concepts

326

(5)

The Expected Value

326

(2)

Measures of Dispersion

328

(1)

The Variance and Standard Deviation

328

(2)

The Coefficient of Variation

330

(1)

Using Excel to Measure Risk

331

(29)

The Freshly Frozen Fish Company Example

332

(3)

Introducing Uncertainty

335

(1)

Sensitivity Analysis

336

(5)

Scenario Analysis

341

(3)

Calculating Expected Values in Excel

344

(1)

Calculating the Variance and Standard Deviation

344

(3)

Monte Carlo Simulation

347

(9)

The Risk Adjusted Discount Rate Method

356

(1)

The Certainty Equivalent Approach

357

(3)

Portfolio Diversification Effects

360

(3)

Determining Portfolio Risk and Return

363

(6)

Expected Portfolio Return

363

Portfolio Standard Deviation

360

(8)

Portfolios with More Than Two Securities

368

(1)

Summary

369

(2)

Problems

371

(4)

Internet Exercise

375

(2)

APPENDIX A Excel 2002 Menu Descriptions

377

(10)

The File Menu

378

(1)

The Edit Menu

379

(1)

The View Menu

380

(1)

The Insert Menu

380

(1)

The Format Menu

381

(1)

The Tools Menu

382

(1)

The Data Menu

383

(1)

The Window Menu

384

(1)

The Help Menu

384

(3)

Index

387

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Financial Analysis With Microsoft Excel 2002

Summary

Table of Contents

Supplemental Materials