financial statement analysis
DESCRIPTION
FINANCIAL STATEMENT ANALYSIS. LECTURER: DANG THI THU HANG EMAIL:[email protected]. REFERENCES. 1/ The Analysis and Use of Financial Statements (White Sondhi Fried) 2/ Analysis for financial management (Higgins) 3/ Financial Reporting Analysis (CFA program). GUIDLINE FOR TESTING. - PowerPoint PPT PresentationTRANSCRIPT
REFERENCES
1/ The Analysis and Use of Financial Statements (White Sondhi Fried)
2/ Analysis for financial management (Higgins)
3/ Financial Reporting Analysis (CFA program)
2Đặng Thị Thu Hằng
GUIDLINE FOR TESTING
Test in class + Presentation (20% total score) Mid test (30% total score) Final test (50% total score)
3Đặng Thị Thu Hằng
Why are financial statements useful ? Why we must study this course ? What is the main purpose for studying the
financial statements ?
6
QUESTIONS
Đặng Thị Thu Hằng
WHAT IS THE FINANCIAL REPORTING?
“ The objective of financial statement is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions”.
7Đặng Thị Thu Hằng
GENERAL PRINCIPLES AND MEASUREMENT RULES
Financial reporting system is based on data generated from accounting events.
The exchange of cash is not sufficient for the recognition of revenue and expense events.
Financial statements (FS) are prepared using a monetary unit to quantify the operations of the firm
Relies on the going concern assumption
9Đặng Thị Thu Hằng
QUALITATIVE CHARACTERISTIC OF ACCOUNTING INFORMATION Relevance Timeliness Reliability Neutrality
11Đặng Thị Thu Hằng
PRINCIPAL FINANCIAL STATEMENTS
Balance sheet Income statement The statement of cash flows Footnotes And other statements such as: the statement
of stockholder’s equity, contingencies
12Đặng Thị Thu Hằng
THE BALANCE SHEET The balance sheet is a financial snapshot,
reports the firm’s financial position at a point of time. Assets are a firm’s economic resources.
Assets = Liabilities + Shareholders’ Equity What do these items measure? What happens to the numbers in a balance
sheet when a company borrows money from a bank?
What’s Worldwide Sports? Story in Table 1.1?
13Đặng Thị Thu Hằng
QUESTION ?
How much did WS sell? What was the value of WS merchandise
purchases? How much did WS borrow, and what rate of
interest did they pay? Are assets equal to the sum of liabilities and
shareholders’ equity?
15Đặng Thị Thu Hằng
WHAT IS THE INCOME STATEMENT?
Reports on the financial performance of the firm over a period of time. Elements include such as revenues, expenses, gains and losses.
16Đặng Thị Thu Hằng
INCOME STATEMENT FORM (VAS form)
1. Operating revenue
2. Sales deduction (discount, rebate, import export tax, payback goods)
3. Net operating revenue(1) – (2)
4. Cost of goods sold
5. Gross profit
6. Selling expense
7. Administrative expense
17Đặng Thị Thu Hằng
8. Operating income= (5) – (6) – (7)
9. Interest income
10. Interest expense
11. Equity income= (9) – (10)
12. Other income
13. Other cost
14. Other profit: (12) –(13)
15. EBT
16. EAT
18Đặng Thị Thu Hằng
WHAT IS THE CASH FLOW?
Reports the company’s cash receipts and payments. Include operating CF, investing CF and financing CF.
19Đặng Thị Thu Hằng
THE CASH FLOW
Finance and operations are integrated. Cash Fixed Assets Inventory AR
Cash Where is production (operations) in this
cycle? Where does the initial cash come from? Where is the working capital cycle? Where is investment in this cycle?
20Đặng Thị Thu Hằng
MORE QUESTIONS FOR CASH FLOW
What is depreciation? Did we miss AP? If so, where does it fit in?
Cash Fixed Assets Inventory AR Cash Are profits and cash flow the same? Does depreciation have anything to do with
this question?
22Đặng Thị Thu Hằng
CASH FLOW AND NET INCOME Which is the better measure of performance? Net income includes estimates, allocations,
and approximations. Cash flow from operations is actual cash. Low or negative cash flow does not
necessarily imply poor performance.
26Đặng Thị Thu Hằng
WHAT IS THE FOOTNOTES (FS NOTES) Provide further details about the information
summarized in the financial statements. Allow users improve their assessments of the
amount, timing and uncertainty of the estimates reported in the FS.
Provide information about accounting methods, assumption and estimates used by management.
27Đặng Thị Thu Hằng
THE STATEMENT OF COMPREHENSIVE INCOME Report all changes in equity expect for
shareholders transactions ( issuing stock, repurchasing stock, paying dividends)
28Đặng Thị Thu Hằng
MD&A (MANAGEMENT’S DICUSSION AND ANALYSIS) Effect of inflation and changing prices if
material Impact of off balance sheet obligations and
contractual obligations such as purchase commitments
Accounting policies that require significant judgement by management
Forward- looking expenditures and divestitures
29Đặng Thị Thu Hằng
AUDITS OF FINANCIAL STATEMENTS
Unqualified opinion: auditor believes the statements are free from material omissions and errors
Qualified opinion: make any exceptions to the accounting principles
Adverse opinion: statements are not presented fairly or are materially nonconforming with accounting standards
30Đặng Thị Thu Hằng
THE FRAMEWORK FOR FINANCIAL ANALYSIS (6 STEPS) State the objective of the analysis Gather data Process the data Analyze and interpret the data Report the conclusion or recommendations Update the analysis
31Đặng Thị Thu Hằng
QUESTIONS Question 1: Explain the low or negative cash flow does
not necessarily imply poor performance. Give an example
Question 2: During hard or challenging economic times, such as the past 2 years in Vietnam, explain how current assets can become a source of cash.
Question 3: Question Briefly explain how each of the following transactions would affect a company's balance sheet. balance sheet.a. Purchase a new $40 million building, financed 25 percent with cash and 75 percent with a bank loan.b. Purchase a new building for $40 million cash.c. A $10,00 payment to trade creditors.d. Sale of 100,000 of merchandise cash.e. Sale of 100,000 of merchandise credit.
32Đặng Thị Thu Hằng