Financial Statement Analysis
Study session 7
Financial Statement Analysis: Introduction
Reading 29
SCOPE OF FINANCIAL STATEMENT ANALYSIS
MAJOR FINANCIAL STATEMENT AND OTHER INFORMATION SOURCES
Financial statements and supplementary information
Other sources of information
FINANCIAL STATEMENT ANALYSIS FRAMEWORK
Articulate the purpose and context of analysis
Collect Data
Process Data
Analyze / interpret the processed data
Develop and communicate conclusion / recommendations
Follow up
Reading 30
FINANCIAL REPORTING ANALYSIS
INTRODUCTION
THE CLASSIFICATION OF BUSINESS ACTIVITIES
ACCOUNTS AND FINANCIAL STATEMENTS
Financial statement elements and accounts
Accounting equations
THE ACCOUNTING PROCESS
An illustration
The accounting records
Financial statements
ACCRUALS AND VALUATION ADJUSTMENTS
Accruals 收益,利息, 应计项目
Valuation adjustment
ACCOUNTING SYSTEMS
Flow of information in an accounting system
Debits and credits
USING FINANCIAL STATEMENTS IN SECURITY ANALYSIS
The use of judgment in accounts and entries
Misrepresentations
(is the giving of false information by one party (or her or his agent) to the other before the contract is made, which induces them to make the contract.)
FINANCIAL REPORTING STANDARDS
INTRODUCTION
THE OBJECTIVE OF FINANCIAL REPORTING
FINANCIAL REPORTING STANDARD-SETTING BODIES AND REGULATORY AUTHORITIES
International Accounting Standards Board
International Organization of Securities Commissions
Capital markets regulation in Europe
Capital markets regulation in the United States
CONVERGENCE OF GLOBAL FINANCIAL REPORTING STANDARDS
THE INTERNATIONAL FINANCIAL REPORTING STANDARDS FRAMEWORK
Objective of financial statements
Qualitative characteristics of financial statements
Constraints on financial statements
The elements of financial statements
General requirements for financial statements
CONPARISON OF IFRS 国际会计准则 WITH ALTERNATIVE REPORTING SYSTEMS
U.S. GAAP [美国通用会计准则] (中国会计准则（PRC GAAP）)
Implications of other reporting systems
Reconciliation of financials prepared according to different standards
EFFECTIVE FINANCIAL REPORTING
Characteristics of an effective financial reporting framework
Barriers to a single coherent framework
MONITORING DEVELOPMENTS IN FINANCIAL REPORTING STANDARDS
New products or types of transactions
Evolving standards and the role of CFA institute
Company disclosure
Study session 8
FINANCIAL STATEMENT ANALYSIS: THE INCOME STATEMENT, BALANCE SHEET, AND CASH FLOW STATEMENT
Reading 32
UNDERSTANDING THE INCOME STATEMENT
INTRODUCTION
COMPONENTS AND FORMAT OF THE INCOME STATEMENT
REVENUE RECOGNITION
General principles
Revenue recognition in special cases
Implications for financial analysis
EXPENSE RECOGNITION
General principles
Issues in expense recognition
Implications for financial analysis
NONRECURRING ITEMS AND NONOPERATING非营业性的 ITEMS
Discontinued operations
Extraordinary items
Unusual or infrequent items
Changes in accounting standards
Nonoperating items: investing and financial activities
EARNINGS PER SHARE 每股盈利: 是一种衡量企业价值的传统方法
Simple versus complex capital structure
Basic EPS
Diluted EPS
ANALYSIS OF THE INCOME STATEMENT
Common-size analysis of the income statement
Income statement ratios
COMPREHENSIVE INCOME
Reading 33
UNDERSTANDING THE BALANCE SHEET
INTRODUCTION
COMPONENTS AND FORMAT OF THE BALANCE SHEET
Structure and components of the balance sheet
Format of the balance sheet
MEASUREMENT BASES OF ASSETS AND LIABLITLITIES
Current Assets
Current Liabilities
Tangible Assets
Intangible Assets
Financial instruments: Financial Assets and Financial Liabilities
EQUITY
Components of equity
Statement of changes in shareholders’ equity
USES AND ANYLYSIS OF THE BALANCE SHEET
Common-size analysis of the balance sheet
Balance sheet ratio
Reading 34
UNDERSTANDING THE CASH FLOW STATEMENT
INTRODUCION
COMPONENTS AND FORMAT OF THE CASH FLOW STATEMENT
Classification of cash flows and noncash activities
A summary of differences between IFRS and U.S. GAAP
Direct and indirect cash flow formats for reporting operating cash flow
THE CASH FLOW STATEMENT: LINKAGES AND PREPARATION
Linkages of the cash flow statement with the income statement and valance sheet
Steps in preparing the cash flow statement
Conversion of cash flows from the indirect to the direct method
CASH FLOW STATEMENT ANALYSIS
Evaluation of the sources and uses of cash
Common-size analysis of the statement of cash flows
Free cash flow to the firm and free cash flow to equity
Cash flow ratios
Study session 9
FINANCIAL STATEMENT ANALYSIS: INVENTORIES, LONG-TERM ASSETS, DEFERRED TAXES, AND ON- AND OFF-BALANCE-SHEET DEBT
Reading 35
ANALYSIS OF INVENTORIES
INTRODUCTION
INVENTORY AND COST OF GOODS SOLD: BASIC RELATIONSHIPS
Scenario 1: Stable prices
Scenario 2: Rising prices
COMPARISON OF INFORMATION PROVIDED BY ALTERNATIVE METHODS
Balance sheet information: inventory account
Income statement information: cost of goods sold
LIFO VERSUS FIFO: INCOME, CASH FLOW, AND WORKING CAPITAL EFFECTS
ADJUSTMENT FROM LIFO TO FIFO
Adjustment of inventory balance
Adjustment of cost of goods sold
ADJUSTMENT OF INCOME TO CURRENT COST INCOME
FINANCIAL RATIOS: LIFO VERSUS FIFO
Profitability: gross profit margin
Liquidity: working capital
Activity: inventory turnover
Solvency: debt-to equity ratio
DECLINES IN LIFO RESERVE
LIFO liquidations
Declining prices
INITIAL ADOPTION OF LIFO AND CHANGES TO AND FROM LIFO
Initial adoption of LIFO
Change from LIFO method
LIFO: A HISTORICAL AND EMPIRICAL PERSPECTIVE
Overview of FIFO/ LIFO choice
Summary of FIFO/ LIFO choice
INTERNATIONAL ACCOUNTING AND REPORTING PRACTICES
IASB standard 2
