financial statement analysis Flashcards
financial reporting
the way companies show their performance info to the public
role of financial statement analysis
The role of financial statement analysis is to 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 decision
liquidity
ability to meet short term obligation
solvency
ability to meet long term obligation
standard setting bodies
establish the financial reporting standards
regulatory authorities
legal authority to enforce the standards
IASB
sets financial reporting standards
IFRS and its purpose
IFRS specifies how businesses need to maintain and report their accounts. Created to establish a common accounting language, the goal of the international financial reporting standards is to make financial statements coherent and consistent across different industries and countries.
FASB and its purpose
The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB
US GAAP and its purpose
The specifications of GAAP, which is the standard adopted by the U.S. Securities and Exchange Commission (SEC), include definitions of concepts and principles, as well as industry-specific rules. The purpose of GAAP is to ensure that financial reporting is transparent and consistent from one organization to another.
Which are the two standard setting bodies and the bodies regulate who
FASB & IASB
FASB sets forth GAAP & IASB sets forth IFRS
which are the regulatory authorities
SEC in US & Financial Conduct Authority in UK
IOSCO International Organization Of Securities Commissions
members of IOSCO regulate 95% of world’s financial markets. it is not a regulatory body
SEC form S-1
Securities Offerings Registration Statement
an SEC registration required for U.S. companies that want to be listed on a national exchange. It is basically a registration statement for a company that is usually filed in connection with an initial public offering.
Forms 10-K, 20-F, and 40-F
Annual form
These are forms that companies are required to file annually. Form 10-K is for US registrants, Form 40-F is for certain Canadian registrants, and Form 20-F is for all other non-US registrants
Annual Report:
most companies prepare an annual report to shareholders. This is not a requirement of the SEC. The annual report is usually viewed as one of the most significant opportunities for a company to present itself to shareholders and other external parties.
Proxy Statement/Form DEF-14A
The SEC requires that shareholders of a company receive a proxy statement prior to a shareholder meeting. A proxy is an authorization from the shareholder giving another party the right to cast its vote. Shareholder meetings are held at least once a year, but any special meetings also require a proxy statement. Proxies, especially annual meeting proxies, contain information that is often useful to financial analysts. Such information typically includes proposals that require a shareholder vote, details of security ownership by management and principal owners, biographical information on directors, and disclosure of executive compensation. Proxy statement information is filed with the SEC as Form DEF-14A.
Forms 10-Q and 6-K
interim reports
These are forms that companies are required to submit for interim periods (quarterly for US companies on Form 10-Q, semiannually for many non-US companies on Form 6-K). The filing requires certain financial information, including unaudited financial statements and a MD&A for the interim period covered by the report. Additionally, if certain types of non-recurring events—such as the adoption of a significant accounting policy, commencement of significant litigation, or a material limitation on the rights of any holders of any class of registered securities—take place during the period covered by the report, these events must be included in the Form 10-Q report. Companies may provide the 10-Q report to shareholders or may prepare a separate, abbreviated, quarterly report to shareholders.
Form 8-K
Form 8-K (6-K for non-US registrants) is the “current report” companies must file with the SEC to announce such major events as acquisitions or disposals of corporate assets, changes in securities and trading markets, matters related to accountants and financial statements, corporate governance and management changes, and Regulation FD disclosures
Forms 3, 4, 5 and 144
Forms 3, 4 and 5 are required to report beneficial ownership of securities. These filings are required for any director or officer of a registered company as well as beneficial owners of greater than 10 percent of a class of registered equity securities. Form 3 is the initial statement, Form 4 reports changes, and Form 5 is the annual report. Form 144 is notice of the proposed sale of restricted securities or securities held by an affiliate of the issuer. These forms can be used to examine purchases and sales of securities by officers, directors, and other affiliates of the company, who collectively are regarded as corporate insiders
Form 11-K
This is the annual report of employee stock purchase, savings, and similar plans. It might be of interest to analysts for companies with significant employee benefit plans because it contains more information than that disclosed in the company’s financial statements.
Two bodies related to securities regulation established by the European Commission are
the European Securities Committee (ESC) and the European Securities and Market Authority (ESMA)
The ESC consists of high-level representatives of member states and advises the European Commission on securities policy issues. ESMA is an EU cross-border supervisor established to co-ordinate supervision of the EU market. As noted earlier, regulation still rests with the individual member states and, therefore, requirements for registering shares and filing periodic financial reports vary from country to country. ESMA is one of three European supervisory authorities; the two others supervise the banking and insurance industries
