4.7 Disclosure and Analytics

Question 1

What is the purpose of disclosures in financial statements?

Answer 1

Disclosures provide background and explanatory information in notes to financial statements, supplementing the main statements. They ensure clarity and context for financial data.

Question 2

What should be included in the notes to financial statements?

Answer 2

Accounting policies

Sources of estimation uncertainty

Information about the capital of the company

Additional information like dividends, legal form, country of incorporation, and preparation basis.

Question 3

What aspects of financial statements are typically analyzed by financial analysts and investors?

Answer 3

Accounting policies

Notes to financial statements

Measurement uncertainty

Complexity of financial statements

Income statement

Cash flow statement

Statement of financial position

Other external factors like industry trends and risks

Question 4

What are non-GAAP measures, and how should they be presented?

Answer 4

Non-GAAP measures modify GAAP financial information by adjusting for nonrecurring or non-operating items.

They must be clearly disclosed, reconciled to net income, and presented consistently from year to year.

Question 5

How is the Price-Earnings (P/E) ratio calculated?

Answer 5

Price-Earnings Ratio = Market Price per Share / Earnings per Share (EPS)

Question 6

What is the price-earnings ratio if shares of Thinker Limited are trading at $120 per share, and the EPS is $10?

Answer 6

P/E = $120 / $10 = 12