19: Introduction to Financial Statement Analysis Flashcards
(40 cards)
the process of examining a company’s performance in the context of its industry and economic environment in order to arrive at a decision or recommendation
financial analysis
provide information about a company’s performance, financial position and changes in financial position that is useful to a wide range of users in making economic decisions
financial statements
use financial reports prepared by companies, combined with other information, to evaluate the past, current, and potential performance and financial position of a company for the purpose of making investment, credit, and other economic decisions
financial statement analysis
the ability to meet short-term obligations
liquidity
the ability to meet long-term obligations
solvency
the combination of liabilities and equity used to finance its assets
capital structure
presents a company’s financial position by disclosing the resources the company controls (assets) and its obligations to lenders and other creditors (liabilities) at a specific point in time
balance sheet
represents the excess of assets over liabilities, the owners’ residual interest in the company’s assets after deducting its liabilities
owners’ equity
account equation
assets = liabilities + owner’s equity
presents information on the financial performance of a company’s business activities over a period of time
income statement
amounts charged for the delivery of goods or services in the ordinary activities of a business
revenue
gains that may or may not arise in the ordinary activities of the business
other income
reflect outflows, depletions of assets, and incurrences of liabilities that decrease equity
expenses
revenue + other income - expenses
net income
primarily serves to report changes in the owners’ investment in the business over time
statement of changes in equity
disclosing the sources and uses of cash helps creditors, investors, and other statement users evaluate the company’s liquidity, solvency, and financial flexibility
statement of cash flows
the ability of the company to react and adapt to financial adversity and opportunities
financial flexibility
generally involve the cash effects of transactions involved in the determination of net income and comprise the day-to-day operations of the company
operating activities
associated with the acquisition and disposal of long-term assets such as property, plant, and equipment
investing activities
relate to obtaining or repaying capital to be used in the business
financing activities
provide information that is essential to understanding the information provided in the primary statements- the basis of preparation, the accounting policies, methods, and estimates used, financial instruments and their risks, commitments and contingencies, legal proceedings, related-party transactions, subsequent events, business acquisitions and disposals and operating segments performance
financial statement notes (footnotes)
publicly held companies typically include a section in their annual report where management discusses a variety of issues, including the nature of the business, past results, and future outlook
management discussion and analysis (MD&A)
the IFRS includes a framework to provide guidance rather than set forth requirements, including: the nature of the business, management’s objectives and strategies, the company’s significant resources, risks, and relationships, results of operations, and critical performance measures
*typically unaudited
management discussion and analysis (MD&A)
in the US, the SEC requires that management discusses and favorable or unfavorable trends, any significant events and uncertainties that affect the company’s liquidity, capital resources, and results of operations; must also provide information on the effects of inflation, changing prices, off-balance sheet obligations and contractual commitments and critical accounting policies
management discussion and analysis (MD&A)
