Financial analysis

The traditional approach to credit analysis concentrated heavily on financial analysis. The more modern approach involves a review of the industry the company is operating in first, discussed previously, before considering financial considerations. Generally, the financial analysis of the issuer is conducted in three phases, namely  

There are a number of investor ratios that can be calculated. In themselves, ratios do not present very much insight, although there are various norms that can be applied. Generally, ratio analysis is compared to the levels prevalent in the industry, as well as historical values, in an effort to place the analysis in context and compare the company with those in its peer group. The ratios that can be considered are  

Pre-tax income from continuing operations Gross interest 

Long-term debt as % of capitalization =-----Long term debt-----  

The agencies make available data that may be consulted by the public for example, Standard Poors has a facility known as CreditStats, which was introduced in 1989. It contains the main financial ratios for a large number of companies, organized by their industry sectors. 

Capadty Utilization Variable Cost Fixed Cost Average Total Unit Cost 

Assuming that the product price is US 170/tonne, the production would become nonviable at about 79% capacity utilization. 

Determing the price of a product which is not on the market can be achieved by utilizing price comparison with imported products on a nutrient basis. For multiple nutrient products, new product prices can be determined by calculating the price based on imported component materials. For example, the price of a new multinutrient -produGt-4 -25i -Gan-be-determined as follows  

Risk and uncertainty have to be taken into account in financial analysis because returns on investments are related to future cash flows. Risk is present when probabilities of outcomes can be assigned on the basis of past performance when risk probabilities have to be assigned subjectively, then uncertainty exists. 

From the estimates for fixed capital cost and working capital cost, a schedule of total investment costs can be prepared. Then the sources and costs of financing these investments must be examined in order to prepare a flow of financial resources statement and a debt servicing statement. 

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Simplified Profitability Criteria. Approximate profitabihty criteria that do not require a detailed year-by-year financial analysis are sometimes employed as simple figure-of-merit measures. 

The difference between equity financing and debt financing is not always clear-cut. For example, preferred stock can be classified as stockholders equity or debt, depending on who is doing the financial analysis. 

In this section, we review the basic terminology and concepts needed to making a financial analysis of an investment. 

Although the reasoning seems sound, opportunity costs are not really expenses. Though it is true that the cash will be unavailable for other investments, opportunity cost should be thought of as a comparison criteria and not an expense. The opportunity forgone by using the cash is considered when the project competes for funds and is expressed by one of the financial analysis factors discussed earlier (net value of present worth, pay back period, etc.). It is this competition for company funds that encompasses opportunity cost, so opportunity cost should not be accounted directly against the project s benefits. 

Labor Expenses. In the majority of situations, projects will cause a company s labor requirements to change. This change could be a positive effect that increases available productive time, or there could be a decrease in employees production time depending upon the practice. When computing labor expenses, the Tier 1 costs could be significant. Labor expense calculations can be simplistic or comprehensive. The most direct and basic approach is to multiply the wage rate by the hours of labor. More comprehensive calculations include the associated costs of payroll taxes, administration, and benefits. Many companies routinely track these costs and establish an internal burdened labor rate to use in financial analysis. 

Value driver analysis, a development of financial analysis visualizations first created at DuPont [19], provides an intuitive, graphical way of breaking down the sources of value (Fig. 11.4) and, in conjunction with stochastic models of the project process, can be used to quantify the likely contribution of different kind of change. 

This is where financial analysis comes into play. It is the process through which one decides whether the time to computerize the lab has come, and if so, how much or how iittle cost is justified by the anticipated benefits. It is also the process by which one can access whether or not a particular system being considered is worth its price. 

Having developed estimates of benefits as well as costs, these values must be compared. Since costs and benefits are not necessarily experienced in the same time frames, the same financial analysis methods used by the firm to make its other capital investment decisions must be used to justify the LIMS acquisition. The LIMS which is desirable from the technical and operational viewpoint can then be shown to be a truly beneficial capital investment and not just another corporate overhead expense. 

Having familiarity with the tools of financial analysis, those seeking the introduction of LIMS technology into their laboratory environments will be well prepared if such financial considerations are the ultimate arbiters of budget approval decisions. A... 

Section 1 of the guidelines establishes the context of the submission. It asks for a description of the drug, its use on the PBS and the therapies that wiU be co-administered or substituted. Section 2 asks for the best available evidence on the clinical performance of the drug, including the scientific and statistical rigour of randomised trials, and a preliminary economic evaluation based on evidence from the randomised trials. Section 3 describes when extrapolation beyond the preliminary economic evaluation maybe made and how adjustments can be made in a modelled economic evaluation. Section 4 requests a financial analysis from the perspective of the PBS and government health budgets. 

The third milestone is usually during or at the end of phase 2 when a decision has to be made to embark on expensive and resource intensive phase 2b and or pivotal phase 3 trials. Obviously not only a comprehensive medical/scientific analysis including a judgment on the expected profile of the compound, but also a full financial analysis is part of this milestone. 

Financial Analysis. One objective of this research project was to determine if, in the last several years, there have been any changes in the R D expenditure patterns by the firms in the... 

Financial analysis of new technology can get fairly sophisticated, and detailed business plans can contain a variety of means of projecting revenues, but the most useful starting point for thinking about the finances of a technology oppormnity is simple breakeven analysis. 

In assessing technology opportunities, it is important to understand what the opportunity is, whether it represents a sustainable competitive advantage, the market for the opportunity, a preliminary financial analysis, and a discussion of personnel who are key to exploiting the opportunity. 

In writing a preliminary financial analysis, the main point is to determine whether the business has sufficient margins and volume to justify a business. This can range from a simple back-of-the-envelope breakeven analysis to a more complete set of 3-year pro forma. More formal texts on entrepreneurship (Timmons, 1999), business planning short courses and workbooks (www.fasttrac.org), and business planning software (www.bplan.com) can be used on the more formal end of this planning spectrum. 

Consider a technology opportunity that might lead to a new business. Investigate and write a preliminaiy financial analysis for the idea. 

Many of the most promising options will require significant levels of funding to proceed. The preliminary financial analysis will help estimate the cash needs to get started, but the entrepreneurial engineer s tendency toward optimism will, in this case, tend to underestimate cash needs. 

To calculate a financial analysis of owning versus renting, add up all the costs associated with home ownership. This includes the direct costs of taxes, insurance, and maintenance, plus the opportunity cost of earnings on the capital tied up in the home. Then, compare this figure to what it would cost you to rent adequate housing. 

However thorough the financial analysis and however rigorous the operational and organizational improvements are, every success story is underpinned by dedicated and competent people. Highly skilled and motivated management teams lead companies that have been acquired by financial sponsors. Such management teams seek entrepreneurial freedom, but they also seek entrepreneurial success. 

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