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Banking and Finance > Financial Statements > Flashcards

Financial Statements Flashcards

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0
Q

Additional disclosures include

A
  1. Footnotes
  2. Example Footnotes
  3. Schedules and Attachments
  4. Where disclosure is made is optional
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1
Q

Statement of Cash Flows classifies sources and uses of cash into

A
  1. Operating Activities
  2. Investing Activities
  3. Financing Activities
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2
Q

Financial Statement Analysis Options and Tools

Situation: Consumer Loan
Tools?
Approach?

A

Tools: Consumer Loan Calculation Worksheet

Approach: Debt to Income (DTI) based upon Gross monthly income and Monthly Debt Service

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3
Q

Financial Statement Analysis Options and Tools

Situation: Consumer Loans for Business Purposes

Tools?
Approach?

A

Tools: Personal Cash Flow and CRE Loan Underwriting Worksheet

Approach: Debt to Income (DTI) based upon Monthly income (personal plus business) and Monthly Debt service (personal and business)

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4
Q

Financial Statement Analysis Options and Tools

Situation: Loans directly to Business (Small C&I (LTE $500M)

Tools?
Approach?

A

Tools: Global Cash Flow Worksheet (Tax Returns)

Approach: Global Debt Service Coverage (DSC) including Annual income (personal and business) and Annual debt service (personal and business)

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5
Q

Financial Statement Analysis Options and Tools

Situation: Loans directly to Business

Tools?
Approach?

A

Tools: Global Cash Flow Worksheet (Tax Returns)

Approach: Global DSC to include Annual income (personal and business) and Monthly debt service (personal and business)

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6
Q

Financial Statement Analysis Options and Tools

Situation: Loans Directly to Business (Large C&I GT $500M)

Tools?
Approach?

A

Tools: Business Financial Spread (by credit analyst) plus Business Loan Underwriting Worksheet plus Personal Cash Flow Worksheet or Global Cash Flow Worksheet (Guarantors)

Approach: Various Annualized Ratios based upon Business Financials including DSC and DSC based upon Annual prpoerty net property income (NOI) and Annual debt coverage plus Other ratios/items including Supportable loan amount, breakeven interest rate and breakeven vacancy

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7
Q

Financial Statement Analysis Options and Tools

Situation: Loans Directly to Business Income Producing or Investment Real Estate

A

Tools: Personal Cash Flow Worksheet or Global Cash Flow Worksheet plus CRE Loan Underwriting Worksheet

Approach: DSC based upon Annual property net property income (NOI) and Annual/ debt service plus other ratios/items including supportable loan amount, breakeven interest rate and breakeven vacancy

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8
Q

What are Financial Statements

A

a report card of the financial effects of decisions made by management.

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9
Q

What are the three methods of accounting?

A
  1. Cash basis
  2. Tax basis
  3. Accrual basis
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10
Q

What are the attributes that describe Accrual Accounting?

A
  1. Transactions will be measured by historical cost
  2. Revenues will be recognized when earned
  3. Expenses will be matched with the revenues they produce
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11
Q

What is a complete set of financial statements?

A
  1. Accountants Cover Letter (if applicable)
  2. Balance Sheet
  3. Income Statement (P&L Statement)
  4. Reconciliation of owner’s equity
  5. Statement of Cash Flows
  6. Footnotes
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12
Q

Structure and Purposes of Financial Statements

Balance Sheets

A
  1. Statement of financial position at a point in time
  2. Summarizes resources (assets) and claims against resources (liabilities and net worth)
  3. Reflects basic accounting equation A=L+E
  4. Assets and Liabilities are classified into current and non-current
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13
Q

Source Balance Sheet Information Tax Forms

A

Schedule L of federal Tax return

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14
Q

Structure and Purposes of Financial Statements

Income Statement

A
  1. Profit and Loss Statement or Statement of Earnings
  2. Reports on the company’s economic performance during a period of time
  3. Reflects the sales or revenues minus expenses equals profits (or loss)
  4. Generally in a multi-step format
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15
Q

Source Income Statement information Tax Returns

A

Forms 1120, 1120S or 1065

16
Q

Structure and Purposes of Financial Statements

Reconciliation of Owners Equity (or Net Worth)

A
  1. Sometimes shows as an extension of income
  2. Dividends Disclosed
    3.
17
Q

Structure and Purpose of Financial Statements

Statement of Cash Flows

A

Classifies sources and uses into
1. Operating Activities
2. Investing Activities
3. Financing Activities
Starts with net income, adds back depreciation, then
Focuses on changes in balance sheet accounts

18
Q

Structure and Purposes of Financial Statements

Additional Disclosures

A
  1. Footnotes
  2. Example Footnotes
  3. Schedules and Attachment to the tax return
  4. Where disclosure made is optional
19
Q

Generally Accepted Accounting Principles abbreviation

A

GAAP

20
Q

Generally Accepted Accounting Principles

Three Broad Standards

A
  1. Conservatism
  2. Consistency and comparability
  3. Materiality
21
Q

Accrual Methods Compared to Others

Three Broad Standards

A
  1. Conservatism
  2. Consistency and comparability
  3. Materiality
22
Q

Conservatism

A
  1. When cost/benefit analysis or industry practice can’t resolve an issue or accounting method choice…
  2. When in doubt, chose the solution that will least likely overstate assets or income
23
Q

Consistency and comparability

A
  1. Principles will be applied consistently from period to period
  2. Departure/choices will be clearly disclosed
24
Q

Materiality

A
  1. Any item that would have an effect on a decision maker

2. For other items show if plus or minus 10% of a larger category

25
Q

Types of Unaudited Financial Statements

A 
Review
Compilation
Company Prepared
Cash Basis
Income Tax Basis
26
Q

Audited Statement types

A

Unqualified
Qualified
Adverse
Going Concern

27
Q

Basis of presentation

A

Single entity

Multiple entities

28
Q

Factors for the Timing and receipt of financial statements

A

Business fiscal year
Business or Guarantor Tax Return or other
Time Lag for preparation
Getting on correct cycle

29
Q

Importance of interim statements

A

Reveal seasonality
Track performance against budget or plans
Show cash flow and peak borrowing needs
Reveal problem loans early warning signals much earlier

Banking and Finance (5 decks)

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