In: Finance
6. Financial Statements Analysis extracts historical information
(in this case from 1995—2001), and projects for the future
(2002—2011) to value the firm. What do you feel about the accuracy
of the projection?
7. Why does the current outstanding debt value have to be
subtracted from the enterprise value to get to price per share?
Financial statement analysis is the process which involves analysis of financial statements for decision making and planning for future.
Projections from the analysis of financial statements is a crucial and careful works as it gives a picture for the future and for that to be happen in future we have to plan accordingly, that's why it matters a lot.
The question is about analysis of Financial statements from (1995-2001) and projections from it for (2002 -2011), if we see the number of years for planning and projections there is a huge difference & and for projection it also matters. As the time changes many factors to production & others also changes.
Projections for the future from past data helps the companies while planning for future business. Whether they are going to get more profit than past years or not. It also helps in planning cash for the future also known as working capital management.
If we talk about the accuracy of the projections it depends upon the quality of work that we are doing while analysing the statements.
To be more accurate in the projected results we need to consider all the factors that can affect the projection.
The outcome of the projected results are always presented in range and generally the actual outcome comes under that range, but again future is uncertain, it all depends the careful analysis and consideration of all possible factors into it.
If we are going to project for a long duration of years(2002 - 2011) from short duration (1995 - 2001) of past information it will definitely have variations in the projected outcome, as certain factors changes with time and we should consider that.