FINANCIAL ANALYSIS III Flashcards
Auditors opinions (3)
- Unqualified (clean),
- qualified (notes exceptions) and
- adverse
Proxy statements
News about anything requiring a shareholder vote. Changes in management, etc.
8-K
Acquisitions, disposal of major assets or changes in corporate governance
10K / 10Q
Annual (k) and quarterly (q) statements
Owner’s equity formula
Owner’s equity = contributed capital + retained earnings
Ending retained earnings formula
Beginning RE + revenue - expenses - dividends
Contra account
Used for entries that offset some part of the value of another account (e.g. accumulated depreciation or allowance for bad debts)
Required statements (5)
- Balance sheet
- Cash flow statement
- Comprehensive income
- Change in owner’s equity
- Explanatory notes
US GAAP reconciliation
Companies not using GAAP but trading in the US must reconcile their statements back to GAAP
IASB Framework emphasis (2)
- More emphasis to accrual and,
2. Going concern assumption
Long-term contracts: % of completion
- Recognizes revenue as a % of cost incurred
2. Used when cost & rev can be reliability estimated
Long-term contracts: completed contract
- Recognizes revenue only when contract is complete
2. Used when outcome cannot be reliably estimated
Installment sales: normal recognition
If collect ability is reasonably assured
Installment sales: installment method
- Profit recognized as % of payments received
2. Used if customer collections are unreliable
Installment sales: cost recovery method
- Recover all costs before recognizing profit
2. Used if outcome is highly uncertain
Depreciation: double-declining
No salvage value
Use 2x the straight-line % for each period
LIFO
Allowed in GAAP, not allowed in IFRS
Intangible assets w/ indefinite lives
Not amortized, tested for impairment at least annually
Discontinued operations
- after tax
2. Not included in net income from continuing operations
Unusual OR infrequent items
- before tax
2. Included in net income from continuing operations
Unusual AND infrequent items (extraordinary items)
- after tax
2. Not included in income from continuing operations (GAAP), included for IFRS
Changes in accounting methods and errors
Must fix retroactively for all periods reported
Note on EPS and dividends
Stock dividends and SPLITS should be applied prior to weighting the shares if they are retroactive
Other comprehensive income
Transactions that affect equity, but not net income:
- Gains/losses from fx translation
- Pension adjustments
- Unrealized G/L from hedging/derivative transactions
- Unrealized G/L from available for sale securities.
Warrants share adjustment (treasury method)
[ (avg share price - warrant price) / avg share price] * warranty quantity
Balance sheet formats
Account = two columns Report = one column Classified = groups into subtotals
Balance sheet cost or fair value?
Mixture of the two
B.S. Accounts receivable
Net realizable value
B.S. Inventory
Lower of cost or net realizable value
B.S. Tangible noncurrent assets
Historical cost - accumulated depreciation
B.S. Intangible w/ definite lives
Historical cost - accumulated depreciation
B.S. Intangible w/ indefinite lives
Historical cost, tested for impairment annually
B.S. Held-to-maturity
Ammortized cost
B.S. Trading securities
Fair value, unrealized gains/losses hit net income
B.S. Available-for-sale securities
Fair value, unrealized gains/losses are reported in stockholder’s equity (NOT net income)
I.S. Trading securities
Dividends, interest, realized g/l, unrealized g/l
I.S. Available for sale securities
Dividends, interest, realized g/l
I.S. Held-to-maturity securities
Interest , realized g/l
Internal goodwill
Expensed as occurred
