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CHAPTER 1: OVERVIEW OF FINANCIAL STATEMENT ANALYSIS :red_flag: : unnamed,…

- - - - Consist of company objectives& tactics, market demands, competitive analysis, sales strategies, managements performance and financial projections.
  - - - Accounting equation(also called the balance sheet identity is the basis of the accounting system
        
        Assets = Liabilities + Equity
    - - Measures a company's financial performance over a period of time
        
        Earnings are determined using the accrual basis of accounting
    - - Useful identifying reasons for changes in equity holders' claims on the assets of a company
        
        Contributed capital called as share capital
    - - Report cash inflows and outflows separately for a company’s operating, investing, and financing activities over a period of time
  - - - Companies with publicly traded debt and equity securities are required by the Securities and Exchange Commission to file a MD&A.
    - - Purposes of this report: 1) senior management's responsibilities for the company's financial and internal control system. 2)the shared roles of management, directors and the auditorin preparing financial statements.
    - - Financial statement analysis requires a review of the auditor's report to ascertain whether the company received an unqualified opinion.
    - - The technical nature of notes creates a need for a certain level of accounting knowledge on the part of financial statement analysts.
    - - Contains information necessary for shareholders in voting on matters for which the proxy is solicited.
- - - - The evaluation of the creditworthiness of a company
  - - - Accounting
        Analysis
        
        Financial
        Analysis
        
        Profitability
        Analysis
        
        Analysis of Cash
        Flows
        
        Risk
        Analysis
        
        Cost of
        Capital Estimate
        
        Prospective
        Analysis
        
        Intrinsic Value
  - - - Mergers, acquisitions, and divestitures
        
        Financial management.
        
        Directors
        
        Regulators
        
        Labor unions.
        
        Customers
        
        1 more item...
        
        To negotiate.
        
        To audit tax returns
        
        To check the reported amounts.
        
        To protect shareholders’ interests.
        
        To evaluate the impact of financing decisions, dividend policy, profitability & risk.
        
        To identify targets & determine additional value
      - To provide clues to strategic changes in operating, investing & financing activities.
      - To evaluate a competitor’s profitability & risk.
      - To evaluate relative strengths & weaknesses
      - To benchmark performance.
- - - - Sources of financing (current liabilities, non-current liabilities & equity)
      - Composition of assets (current & non current assets)
    - - Areas of Ratio Analysis
        
        Credit (risk) Analysis
        
        Liquidity
        
        Capital structure and solvency
        
        Profitability Analysis
        
        Return on investment
        
        Operating performance
        
        Asset utilization
        
        Valuation
    - - 1 year to year change analysis
      - index number trend analysis
    - - Net Cash Flows from Operating Activities
      - Net Cash Flows from Investing Activities
      - Net Cash Flows from Financing Activities