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CFA - FSA 2 Analyzing Income Statements - Coggle Diagram
CFA - FSA 2 Analyzing Income Statements
Describe general principles of revenue recognition
Specific revenue recognition applications
Gross reporting
Principal → report gross (full sales price)
Net reporting
Agent → revenue = only the fee or commission it keeps
implications of revenue recognition choices for financial analysis
General Principles
Accrual Basis
Net Revenue :pencil2:
General principles of expense recognition
specific expense recognition applications
Implications of expense recognition choices
Capitalized costs
Incremental cost = exists only because the deal was won (e.g., sales commission)
New rule (IASB/FASB, May 2014
): capitalize, then spread over the contract life
Old practice: expense it all immediately
Effect on adoption: year 1 expense ↓, so profit initially ↑
Expensed costs
Financial reporting treatment and analysis of non-recurring items
Changes in accounting policies
Policy change
: When a company changes how it counts something, it has to redo the old numbers the new way, so every year in the report is measured with the same ruler.
Discontinued operations
A whole division or business line that the company has decided to sell or shut down.
Unusual or infrequent items
:pencil2:Ex: Fire : The fire is rare, but the company is still running the same business, so the loss stays in
continuing operations.
Describe how earnings per share is calculated
Company’s basic earnings per share
Basic EPS
= (net income − preferred dividends) ÷ weighted average common shares
Weighted average shares
= time-weighted count of shares outstanding
Company’s diluted earnings per share for companies with
including those with antidilutive securities
Complex structures
Capital structures
Evaluate a company’s financial performance using common-size income statements and financial ratios based on the income statement
Elements of the income statement (IFRS definitions)
Income = revenue + gains → increases in economic benefits (via asset inflows, asset enhancements, or liability decreases) :pencil2: not related to owners’ contributions ( question trick)
Vocab
Incremental Cost
cost that exists only because you won the deal. No deal, no commission. So the commission counts