Financial Statement analysis Flashcards
What are intercoporate investments and what the first three basic categories?
What is the 4th catgeory? what are the catgories of investments in financial assets? How are all measured and what happens with interest and dividends?
Explain how debt and equity are designated to each category of finanical asset?
Summary of evaluation of operations and investing activies?
What are the properties of associates and joint venture, which method is used how is investment initially recorded
How is the investment recorded on the BS and IS moving forward?
Explain the issue when acquisition cost doesn’t equal book value and how it is accounted for?
Explain the issue where NI includes discontinued operations?
Must claim income as earned
Who can use FV option under IFRS/GAAP? Who migt be able to ? If using FV how is the transaction recorded on IS and BS? What happens with impairment for IFRS/GAAP and are reversals allowed?
How are transaction with associates accounted for upstream/downstream
Example with an acquisition and dealing downstream transaction
Example with downstream transaction and inventory sale
Disclosure for associates
What are the issues for analysts?
Business combination: properties and IFRS/GAAP on structure?
How does IFRS define control?
How does GAAP define control, if less than 100% report consolidated basis as parent?
Both IFRS and GAAAP recquired acquisition method
What do both IFRS and GAAP require for al Business combos and what are the three issues?
What is the recognition and measurement for Identifiable assets & liabilities and for contingent liabilities
What is the recognition and measurement for indemnification assets and financial assets
D) Financial Assets/
- will be reclassified from acquiree
to acquirer’s business model
(i.e. FV-PL, FV-OCI, amort. cost)
Describe Issue 2: recognition of goodwill for IFRS and GAAP
100% acquisition example
What is the consolidation process, when does consolidation occur and what is non-controlling minority interest?
How will IFRS and Gaap with non-minority controlling interest?
Gaap vs IFRS MNCI example
IFRS goodwill impairment?
GAAP goodwill impairmnet
IFRS impairment example
GAAP example
How do GAAP and IFRS treat VIE/SPIE, when is an SPIE and VIE for GAAP
What is defined contribution plan?
What is a defined benefit plan?
What happens if plan assets > obligation?
One person pension plan , difference between GAAP and IFRS?
Pension plan example?
How is the pension obligation recorded on FS’s?
How is DB and DC recorded on FS’s?
IFRS service costs, Net interest expense/income, remeasurement
GAAP service costs, Net interest expense/income, remeasurement
What happens with Deferral and amortization
Explain the corridor approach and when its used?
Summary of IFRS/GAAP treatment of service costs, net interest expense, Re-measurements and Actuarial gains/losses
What are the actuarial assumptions that could influence PO?
What can comparability in disclosures be affected by?
Costs summary IFRS vs GAAP
Describe share based compensation and the four types?
What are the main issues with share based compensation and the problem?
Whats do functional currency, presentation currency and local currency mean?
Example when there is reporting during transactions?
With unrealized gains/losses what options do companies have?
How are A/L translated?
Explain what a net asset and Liability BS exposure is and what is the adjustment based on fx strengthen or weaken?
What are the two translation methods?
How to know which method to use and what things determine functional currency?
What happens when for x = functional currency?
What happens when pres currency = funct curr?
How is retained earnings translated?
When will financial ratios differ?
How do IFRS and GAAP deal with hyper inflation? and what is considered hyper inflation?
IFRS GAAP approahc to balance sheet and IS for hyper inflation? (GPI = General Price Index)
What is the incremental tax rate and what must companies disclose?
If subsithe duary tax lower than the parent tax , subsidiary pays tax then when consolidating parent pays difference betbetweenweeen the two
What is organic sales growth?
Growth not related to fx or any decision made by management
What disclosures are reuired for both IFRS and GAAP with regard to exhcnage differences and transaltion adjustments? What does gaap also require for transfers between BS and IS?
Describe systematic importance of financial insitutions, the nature of liabilities and the nature fo assets?
What is the goal of regulation to minimise sytematic risk? What does basel 3 impose regulations on?
Basel 3: * stable funding - longer term deposits, consumer
deposits (vs. Short-term deposits, Interbank runds)
forced banks to focus on asset quality
hold capital against other types of risks
develop improved risk assessment processes
CAMELS: what is capital adequacy and what are the tiers of capital?
CAMELS: describe asset quality and Management capabilities?
CAMELS: describe earnings?
CAMELS: liquidity position, what are the two liquidity standards from Basel 3?
CAMELS: Other two liquidity considerations and sensitivity to market risk?
Other relevant banking specific factors: Governemnt ownership what is the development view?
Other relevant non-banking specific factors:
Describe how insurance companies earn revenue, what are the two main types and describe the business profile of Property and casualty insurance
What are the earning characteristics for P&C insurance companies and what is the expense ratio?
What is the loss reserve and the first 3 profitability ratios (Loss and loss adjustment, underwriting expense and combined) for P&C insurance
Underwriting expense not include loss and loss adjustment expense
What 4,5 for profitability ratios (dividends to policy holders/shareholders and combined ratio after dividends), the investment return properties, liquidity profile and Capitalization profile?
Describe the Business profile, earnings characteristics and investment returns for life and health insurance
Describe the liquidity and capitalization for L&H insurance
What are the properties of reporting quality and earnings quality?
What is the quality spectrum and the stages ranked?
Describe the potential problems in assessing FS?
How can IS, BS, OCI and CFI be rigged?
Motivation behind biased mis-classification and how in an M&A transaction can be bias in classification?
How can impairment/restructuring be misclassified and other aspects can be miss classified
What must you do before you start assessing reporting quality?
What are the general steps in assessing reporting quality?
- Understand company/industry
- basis for understanding act. principles
used (appropriate) & useful/ informative
financial metrics
What is the days receivable index, gross margin index, and asset quality index?
What is the sales growth index, depreciation index and SG&A index?
What is earnings quality and what is recurring earnings?
What is earnings persistence?
Explain earnings mean reversion and revenue recognition?
What should you look for with capitalising expenses?
What factors are used in the bankruptcy probability model Altman?
What are the indicators of cashflow quality ?
Balance sheet quality what does results quality look like?
What does reporting quality look like for balance sheet?
Reporting Quality/
1) Completeness
* relevant items on-balance sheet
off-balance sheet items may understate leverage
(i.e. operating leases, purchase contracts) adjust for
these - PV of future obligations(constructive capitalization)
What are the necessary risk dislcosures from the Auditor, notes to FS, MD&A, Other sources and Media?
4) Other sources
form 8-k
- material events
* capital raising
* change of mamt.
* non-timely filings
* legal disputes
* change of control (M&A)
5) Media
requires independent follow-up/investigation
What are the 6 parts of the analysis framework?
Explain dupont analysis and the equations?
What is the BS accruals and CF accruals ratios?
