Term
| Roles of Financial Reporting |
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Definition
-Provide information about performance and financial position of company and changes in financial position
-what has happened to the company in the past |
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Term
| Roles of Financial Statement Analysis |
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Definition
-to asses a company's past performance and evaluate its future prospects using financial reports along with other relevant company information. Use assessments to make decisions regarding:
-investment: whether or not to buy shares of a company
-Mergers: Whether or not to merge/acquire a company
-Subsidiaries: Evaluate the performance of the subsidiary
-Creditworthiness: whether or not to make a loan to a company by looking at its financial reports |
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Term
| Roles of Key Financial statements in evaluating a company performance and financial position |
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Definition
-Income Statement; how a company has performed over a given period (profits = revenues - expenses)
-Balance Sheet: tells the picture of a company on a given day. info is used to assess a company's financial position and evaluate its ability to meet ST and LT obligations (Assets = Liabilities + Owners Equity)
-Cash Flow Statement: tells us what has been happening with cash. cash receipts and payments. sources and uses of cash are classified into operating, investing, financing. reflect company's ability to generate cash from its core business activities
-Statement of changes in owners' equity: statement at the end of a financial period that shows how owners' equity has changed over time. useful in understanding changes in the financial position of a company |
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Term
| Importance of Financial Statement Notes (footnotes) |
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Definition
-to really understand situation of company, it is important to study foot notes
-elaborates on financial reports
-assumptions and details
-ex) information about choice of revenue recognition method used and assumptions made to calculate depreciation expense are found here |
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Term
| Importance of Supplementary Schedules |
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Definition
| -provide additional information such as regional sales |
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Term
| Importance of Supplementary Schedules |
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Definition
| -provide additional information such as regional sales |
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Term
| Importance of Management Discussion and Analysis (MD&A) |
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Definition
-gives the managements interpretation and analysis of the financial statement data
-subjective
-not audited |
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Term
| Other Sources of information |
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Definition
Quarterly or semiannual reports
-interim financial repots
-not audited
Proxy Statements'
-matters that are put up for vote
-mgmt and director compensation
-stock performance
-potential conflicts of interest |
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Term
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Definition
-examination by independent accounting firm
-required by law
Objectives:
1) obtain reasonable assurance whether the financial statements are free from material misstatement
2) to report on the financial statements in accordance w the auditors findings |
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Term
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Definition
-Unqualified opinion: financial statements have been presented FAIRLY in accordance with applicable accounting standards
-Qualified opinion: statements have been presented fairly, BUT do contain exceptions to the accounting standard. audit report provides further details and explanations relating to exceptions
-Adverse opinion: stmts have not been presented fairly and significantly deviate from acceptable acctng standards
-disclaimer of opinion: auditor is not able to issue an opinion on the financial statements
***remember that unqualified opinion means the auditor's opinion is not even needed bc the financial statements are good |
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Term
| Importance of effective internal controls |
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Definition
-before company's put up financial reports for external audit, there are procedures in place that ensure the company's process of generating reports is sound
-need to have strong internal controls process to get unqualified opinion |
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Term
| Information Sources analysts use in financial statement analysis besides annual financial statements and supplementary info |
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Definition
Quarterly or semiannual reports
-interim financial repots
-not audited
Proxy Statements'
-matters that are put up for vote
-mgmt and director compensation
-stock performance
-potential conflicts of interest
Press Release
-provide current information about the company
External sources
-provide information about the economy, the industry that the company operates in, company's competitors
-allows analyst to place co. performance in perspective |
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Term
| Steps in Financial Statement Analysis Framework |
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Definition
1. Define Objectives and Context
--> based on objective and context, the type of analysis and type of data gather will be different
2. Gather Data
3. Process Data
--> financial info is converted into ratios, growth rates, common size financial stmts, charts and regressions
4. Analyze and Interpret the processed Data
--> data is interpreted and recommendation is reached
5. Report conclusions or recommendations
6. Update Analysis
-determine whether previously drawn conclusions remain valid |
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