Final Financial Statement Analysis Univariate Model

UNIVARIATE MODEL

BY:

IMAS RAHAYU CHANDRA

36110005

3A D-3 Ak

A.     Overview of Financial Statement Analysis

Financial statement analysis (or financial analysis) is the process of understanding the risk and profitability of a firm (business, sub-business or project) through analysis of reported financial information, by using different accounting tools and techniques.

Financial statement analysis consists of:

1.      Reformulating reported financial statements,

2.      Analysis and adjustments of measurement errors, and

3.      Financial ratio analysis on the basis of reformulated and adjusted financial statements.

The first two steps are often dropped in practice, meaning that financial ratios are just calculated on the basis of the reported numbers, perhaps with some adjustments. Financial statement analysis is the foundation for evaluating and pricing credit risk and for doing fundamental company valuation.

B.      Objectives of Financial Statement Analysis

The major objectives of financial statement analysis are as follows:

1.      Assessment of Past Performance

Past performance is a good indicator of future performance. Investors or creditors are interested in the trend of past sales, cost of good sold, operating expenses, net income, cash flows and return on investment. These trends offer a means for judging management's past performance and are possible indicators of future performance.

2.      Assessment of current position

Financial statement analysis shows the current position of the firm in terms of the types of assets owned by a business firm and the different liabilities due against the enterprise.

3.      Prediction of profitability and growth prospects

Financial statement analysis helps in assessing and predicting the earning prospects and growth rates in earning which are used by investors while comparing investment alternatives and other users in judging earning potential of business enterprise.

4.      Prediction of bankruptcy and failure

Financial statement analysis is an important tool in assessing and predicting bankruptcy andprobability of business failure.

5.      Assessment of the operational efficiency

Financial statement analysis helps to assess the operational efficiency of the management of a company. The actual performance of the firm which are revealed in the financial statements can be compared with some standards set earlier and the deviation of any between standards and actual performance can be used as the indicator of efficiency of the management.

C.      Types of Analysis

1.      Business Activity Analysis

2.      Liquidity Analysis

3.      Solvency Analysis

4.      Profitability Analysis

5.      Cash Flow Analysis

6.      Risk Analysis

7.      Investment Analysis

8.      Bankruptcy Prediction Analysis

D.     Bankruptcy Prediction Analysis

Empirical studies of bankruptcy attempt to distinguish the financial characteristics of firms that file for bankruptcy from those that do not, a dichotomous outcome. the objective is to develop a model that predicts which firms will likely file for bankruptcy one or more years before the filing.

E.      Models for Bankruptcy Prediction Analysis

There are two models for Bankruptcy Prediction Analysis:

1.      Univariate Model

2.      Multivariate Model

F.      Univariate Model

Univariate models examine the relation between a particular financial statement ratio and bankruptcy. Early research on bankruptcy prediction in the mid 1960s used univariate analysis. Univariate models examine the relation between a particular financial statement ratio and bankruptcy. William Beaver studied 29 financial statement ratios for the five years preceding bankruptcy using a sample of 79 bankrupt and 79 nonbankrupt firms. The objective was to identify the ratios that best differentiated between these two groups of firms and to determine how many years prior to bankruptcy the differences in the ratios emerged.

G.     Formula

According to William Beaver (mid 1960s):

1.      Net income plus depreciation, depletion, and Amortization divided total liabilities (long term solvency risk)

2.      Net income divided total assets (profitability)

3.      Total debt divided total assets (long-term solvency risk)

4.      Net working capital divided total assets (short-term liquidity risk)

5.      Current assets divided current liabilities (short-term liquidity risk)

6.      Cash, marketable securities, accounts receivable divided operating expenses excluding depreciation, depletion, and amortization (short-term liquidity risk)

H.     Financial Statement of PT Bakrie & Brothers Tbk

 

Note: ****) Not count because data is not available

These ratio show that all of liabilities can fulfill from operation cash flow about 2,2% in 2011 and 0,8% in 2012. the higher amount of the ratio, the smaller long term solvency risk for company.

I.        Conclusion

Univariate analysis helps identify factors related to bankruptcy, it is useful step in the initial development of predictors of bankruptcy risk.