Financial Analysis
Financial Analysis
Financial Analysis
Set of flashcards Details
| Flashcards | 288 |
|---|---|
| Language | English |
| Category | Finance |
| Level | University |
| Created / Updated | 06.01.2017 / 10.03.2017 |
| Weblink |
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Financial Analysis Framework
Context of the analysis --> Collected data --> Process data --> Analyze / Interpret --> Communicate Conclusion --> Follow up
Role of Financial Reporting
provide information about the companies performance, financial position and changes in financial position over the reported period
Primary Financial Statements (3)
- Income statement
- Balance sheet
- Cash flow statement
Secondary Financial Statements
- Statement of shareholder's equity
- financial notes and supplementary schedules
- management's discussion and analysis
- auditor's report
Standard-Setting Bodies + Reporting Standards (for region)
- USA: Financial Accounting Standards Board (FASB) --> United States Generally Accepted Accounting Principles U.S. GAAP
- EU: International Accounting Standards Board (IASB) --> International Financial Reporting Standards (IFRS)
IFRS Framework - Underlying assumptions
- Accrual Basis --> reflects business transactions when they actually occur not necesserarily when cash movements occur
- Going Concern --> refers to the assumption that the company will business for the foreseeable future
IFRS - Qualitative Characteristics
- Understandibility
- Relevance
- Reliability
- Comparability
Understandibility
info should be understandable to users with basic knowledge of business, economic activities, accounting, and who have the willingness to study the info with reasonable diligence
Relevance
influence of info at hand which must be material
Reliability
- faithful representation
- substance over form
- neutrality
- prudence
- completeness
Comparability
info should be presented in a consistent manner over time and between entities
Classification of Business Activities
- Operating activities --> day-to-day business functioning of an entity
- Investing activities --> acqusition and disposal of long-term assets
- Financing activities --> related to obtaining or repaying capital
Balance sheet provides info about
a company's financial position at a point in time
Income statement provides info about
a company's profitability over a period of time
Statement of cash flows provides info about
a company's cash flows over a period of time
Balance Sheet: Owner's Equity =
Assets - Liabilities
Income Statement: Net income =
Revenue - Expenses
Statement of cash flows: (delta)Cash =
CFI + CFF + CFO
Statement of shareholder's euqity provides info about
the composition and changes in owners' equity during a period of time
Statement of shareholder's euqity: Owners' equity =
Contributed Capital + Retained Earnings
Statement of shareholder's euqity: RE_End =
NI - Div + RE_Beg
Notes
explain accunting methods, assumptions and estimates
Management discussion and analysis (MD&A)
(Required by; Content example)
- Required by SEC
- Effects of currently known trends
Classify and derive which element of financial statement is affected
Assets (A); Equity (E); Revenue (R); Liabilities (L); Expenses (X)
- Sales of goods and services to customers
- Issuance or repayment of debt
- Income tax
- Purchase of other entities' equity or debt securities
- Payment of dividends
- Cost of goods sold
- Sale of property, plant and equipment (PP&E)
- Holding a short-term asset used in manufacturing
- Issuing preferred stock
- Operating activity (R)
- Financing activity (L)
- Operating activity (X)
- Investing activity (A)
- Financing activity (E)
- Operating activity (X)
- Investing activity (A)
- Operating activity (A)
- Financing activity (E)
Explain the difference between the accounting principles accrual basis and cash basis. Which is used for financial accounting?
Accrual basis is used for financial accounting. Accrual basis reflects business when it actually occurs. Cash basis reflects business when cash movement occurs.
Accounting income could best be described as
matching of expenses with the revenues generated by those expenses
YourCo sold products on 30 June 2008 for $ 10k. The payment is due in 30 days, GoGS were $ 8k. What is the net changes in assets on 30 June 2008 related to the transaction?
The sale of products without the receipt of cash would result in an increase in accounts receivable (an asset) by $ 10k and a decrease in inventory by $ 8k. The net increase in assets is $ 2k.
The foundation of a company is founded with $ 500k. The most likely accounting effect at the time of formation is
If a company reports fictitious revenues it would most likely cover the fraud by
Calculate RE_End
- NI: $ 200
- Div: $ 100
- RE_Beg: $ 1400
RE_End = NI - Div + RE_Beg = 200 - 100 + 1400 = $ 1500
Balance Sheet
- Report format
lists assets, liabilities, and equity in a single column
Balance Sheet
- The account format
follows the pattern of the traditional general ledger accounts
with assets on the left and liabilities and equity on the right of a central dividing
line
classified balance sheet
- order of listing assets, liabilities and equity
lists assets in order of liquidity (most to least), liabilities are listed in order of when they become due, equity is presented with
contributed (or paid-in) capital first and retained earnings last
Classified Balance Sheet
Assets
(description, intertpretation, examples)
defined as economic resources controlled by the company and can be interpreted as a storage of wealth
i.e. Current assets, Cash, Short-term investments, Accounts receivable, Notes receivable, Inventory, prepaid expenses, Property, plant, and equipment, Intangible assets
Classified Balance Sheet
Liabilities
explanation + examples
amounts received which have not been reported on the income statement as revenues or income and have to be repaid
- Current liabilities
- Accounts payables
- Wages, rent, and other payables
- Notes payable
- Dividends payable
- Current portion of long-term debt
- Long-term liabilities
Classified Balance Sheet
Equity
(Explanation, Examples (4))
represents the portion belonging to the shareholder of a business
- Contributed capital (paid-in-capital)
- Common stock
- Other paid-in-capital
- Retained earnings
Which of the of the folowwing is not a current account?
Explain the difference between report format and account format of a balance sheet
The account format lists assets left and liabilities and equity on the right of a T-account. The more common report format lists all accounts in one column
Calculate total assets at year-end; there has been no distribution to owners
Liabilities_End: USD 1000
Contributed Capital: USD 500
RE_Beg: USD 600
Revenue: USD 5000
Expenses: USD 4300
Assets_End = Liabilities_End + Contributed Capital_End + RE_End
= 1000 + 500 + [600 + (5000 - 4300)] = $ 2800
Fair value
def
amount at which an asset could be exchanged or liability settled in an arm’s length transaction
