1. What is financial analysis and how can it be used for a recommendation for a company asking for a loan? An equity investment decision? 2. Give an example of an internal financial analysis decision. An external decision. 3. Assume you are asked to develop a financial analysis strategy for a 40 year old manager who is restructuring her 401K retirement portfolio. Identify the purpose of the analysis and key points needed. 4. You are asked to evaluate the chemical industry as part of a corporate overview of Dow Chemical. How would you go about this analysis? 5. What are quantitative financial analysis techniques important for both internal and external financial analysis projects? 6. Why is specific accounting knowledge important for external financial analysis? 7. What is comprehensive analysis and why is it a necessary step in the financial analysis process? 1 Financial analysis is the use of financial and other information to make recommendations and decisions. It is a six step process: Purpose, Overview, Quantitative Financial Analysis, Detailed Accounting Analysis, Comprehensive Analysis, and Financial Analysis Decisions. Credit Decisions: determine line of credit, interest rate, and other terms. Equity Decisions: Buy/Sell based on earnings growth, and other ratios. 2 Internal Analysis: What Managers do to operate and prepare statements. External Analysis: Six Step Approach by outsiders of a company, ratio analysis, etc. 3 In making equity decisions for an older individual, dividend distribution and low-risk may be more desirable and should be analyzed. Her criteria differ from younger investors who may have a focus on long-term appreciation as opposed to dividends and may care less about dividends. 4 Fortune 500 industries are broken into 62 categories. Using Standard Industrial Classification (SIC) codes. These should be used to designate Dow’s industry. Once accomplished, analysts should conduct a thorough analysis of competitors. Knowledge about Dow should help answer questions such as: What do the companies in this industry do? What is the specific industry? How concentrated is it (competition)? What factors are unique to the industry (legal)? How do US and global economic conditions affect