...Financial Statements: Foundational Accounting Principles and Terminology Shane R. Wagner TUI University Module 1 Case Study 29 August 2010 Abstract This paper will discuss the common fundamental accounting principles and analyze the financial statements of three major businesses. A basic understanding of the General Accepted Accounting Principles and the standards established within these practices, allow for investors to obtain an accurate snapshot of the financial health of a business. The different methods of documenting both current and future transactions, can have an impact on the information portrayed by the financial statements of an organization. In addition, the basic format of the financial statements can disclose additional considerations of the business, as will be discussed in the analysis of three major businesses within this paper. Information for the analysis portion was retrieved from the financial statements included in the assignment. Keywords: Accrual Basis Accounting; Cost Basis Accounting; Current Assets and Liabilities; Double Entry Accounting; Financial Accounting Standards Board (FASB); General Accepted Accounting Principles (GAAP); Historic Cost; Non-current Items; Security Exchange Commission (SEC); Financial Statements: Foundational Accounting Principles and Terminology Introduction The basic of understanding of an organizations financial statement requires one to be familiar with fundamental accounting principles...
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...Business Analysis and Valuation Report Prepared By: Version # Updated on ------------------------------------------------- Acknowledgments ------------------------------------------------- If applicable, include acknowledgement to contributing individuals: ------------------------------------------------- ------------------------------------------------- Analyst’s Name | Number | E-Mail Address | | | | Document Name | | Date Created | | Milestone 1 date submitted | | Milestone 2 date submitted | | Milestone 3 date submitted | | Finalization date | | | | | | | | REPORT VERSION RECORD The Business Analysis and Valuation Report is a managed document with tracking of versions, changes, and release dates for each of the three milestones. Version Name | Version Number | Date | Author(s) Name(s) | Change Description | | | | | Document created | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Milestone versions of the report are issued including the complete document with the sections completed to date to reflect the work to date by the analyst team. The milestone versions of the document are authorized for release only after the analyst’s signature has been obtained. Milestone 1 PREPARED: DATE:___/___/___ (for acceptance) (, signature) POSITION: ___ Milestone 2 PREPARED: DATE:___/___/___ ...
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...Introduction: Financial Statement Analysis is used by interested parties such as inventors, creditors, and management to evaluate the past, current and projected condition and performance of the firm. Its analysis helps user make better desiccations. Ration analysis is the most common form of financial analysis. It provides relative measures of the firm’s conditions and performance. Horizontal analysis and Vertical analysis are also popular forms. Horizontal analysis is used to evaluate the trend in the accounts over the years, while vertical analysis, also called a common size Financial Statement discloses the internal structure of the firm. It indicates the existing relationship between sales and each income statement account. It shows the mix of assets debt that produces income and the mix of the sources of capital, where by current or long-term debt of by equity funding. Financial Statement Analysis prepared for the internal auditors, Many different financial measures are used to analyze financial statements and rank the performance of competing investment opportunities, including growth in sales, return to stockholders, profit margin, and return on equity. These are just four possible measures considered and evaluated by investors and creditors. Financial statements presented in various formats to help facilitate analysis. A classified set of financial statements groups items with similar characteristics together. Groupings include categories such as current assets; property...
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...School of Accounting and Finance AF 4331 Business Valuation 2015/2016 Semester One Course Outline Subject Code : AF4331 Subject Title : Business Valuation Level : 4 Credits : 3 Mode of Study : Seminars 39 hours Pre-requisites : Corporate Finance (AF4320) Instructor ; Emmie SIU Office Phone : 27666340 E-mail : emmie.siu@polyu.edu.hk Consultation : Monday 2:30 pm to 6:30 pm Role and Purpose This subject aims to introduce an analytical framework for carrying out business analysis and valuation by using financial statements for valuing different kind of businesses. It contributes to the achievement of the BBA Programme Outcomes by enabling students to identify and resolve ethical issues contained in the financial statements (Outcome 4), apply basic accounting and financial theories to analyze financial reports and to identify potential problems and risks (Outcome 7). By the end of this subject, students will become a professional user of financial statements to advance further into the field of business valuation as investment analysis. It requires students to present and communicate effectively in English for general business communication (Outcome 1). Learning Outcomes Upon completion of the subject, students will be able to: a. Develop the ability to critically assess a firm’s financial condition...
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...Financial analysis Accountancy Financial analysis (also referred to as financial statement analysis or accounting analysis) refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Continue or discontinue its main operation or part of its business; Make or purchase certain materials in the manufacture of its product; Acquire or rent/lease certain machineries and equipment in the production of its goods; Issue stocks or negotiate for a bank loan to increase its working capital; Make decisions regarding investing or lending capital; Other decisions that allow management to make an informed selection on various alternatives in the conduct of its business. Financial analysts often assess the firm's: 1. Profitability -its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-term; 3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations; Both 2 and 3 are based on the company's...
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...three years and also shows the forecast of the company for financial year 2012. This would help investors and researchers to decide on investing to SWM or not. SWM has been analyzed step by step in order to find out its true value in the industry. The analysts have first looked into SWM business and strategy where it has been noted that SWM was a result of merger of seven group holdings and Australian West Newspaper in order to expand and use their resources efficiently. Secondly, SWM accounting policies and procedures have been analyzed where they showed that the company is following the accounting standards and using their flexibility that was given by the standard in order to measure some accounts in the financial statement. This flexibility was compared to the industry where it has noted that the company is valuing these accounts in a proper way. Thirdly, a financial analysis was also undertaken. It has been understood that the company, though there was a merger, is managing their resources well that resulted to positive book and cash returns. Lastly, the forecasts of the said company, where the analyst has determined the company’s value and the full set of financial statement for 2012, were estimated and calculated intelligently. With the help of the four steps of business analysis, the group has recommended that it is safe to invest to seven west media even if merger has occurred twice in the last three financial year. I. INTRODUCTION In order for a business...
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...Airways Ltd: A case study for Financial Statement Analysis Peter Wells* and Anna Wright. 12 February 2004 Not to be used or cited without the permission of the authors * Corresponding author: School of Accounting, University of Technology, Sydney, Broadway NSW 2007 Australia Tel: 61-2-9514 5295 Fax: 61-2-9514 5515 Email: peter.wells@uts.edu.au 6. Financial Analysis The aim of financial analysis is to present and summarise information contained in the financial statements in a manner that facilitates an understanding of the activities of the firm, and ultimately, forecasting future period financial statements. 6.1 Reformatting of financial statements A major problem with general purpose financial reports is the intertwining of the operating (and investing) and financing activities of the firm. Furthermore in the accounting analysis previously undertaken (section 5) accounting practices will be identified that are considered inappropriate or that obscure actual firm performance. These issues can be addressed through the reformatting or recasting of the financial statements of the firm. A consequence of the intertwining of the operating and financial activities of the firm is that summary measures of firm performance will reflect both operating and financial activities and management decisions, with this making interpretation of such measures problematic. Accordingly, a necessary first stage of financial analysis is the separation of operating...
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...[pic] Center for Management and Leadership Master of Business Administration MODULE: FINANCIAL ACCOUNTING Lecturer Ryan Isebia Subject Financial Accounting Objective of this module The objective of this module is to help the students develop a sufficient understanding of the basic concepts underlying financial statements so that they can apply the concepts to new and different situations. Furthermore, this module seeks to train students in accounting terminology and methods so that they can interpret, analyze, and evaluate financial statements published in corporate annual reports. The text for this module presents the concepts of financial accounting in a logical format. Essential topics are covered in sufficient depth to substantiate basic technical understanding and to support the application of the material to organizational problems. Each chapter begins with the learning objectives of the chapter. The chapters contain an in-depth presentation of the subjects. To aid the students, the chapters also contain at the end of each section some questions, exercises, problems and cases. Furthermore, at the end of each chapter the key terms and concepts that have been addressed in the chapters are presented. These sections serve as excellent means for the students to review and master the material. Class format: The module will consist: ▪ Class lectures ▪ Selfstudy ▪ Assignments – in class and...
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...WRITING A FINANCIAL STATEMENT ANALYSIS REPORT FOR A POTENTIAL USER The financial analyst should research, analyse and evaluate the company’s consolidated financial results. He/she should then compare such analysis and evaluation with that of a competitor or more working in the same industry group. The competitor should have the similar size (measured by total assets, sales turnover, number of employees, and/or capital employed) of the main company. The competitor should also have the same legal form as that of the main company (e.g. both companies should be Public Limited Company). It is essential that a financial analyst should write out a well-organised and structured financial statements analysis report in an appropriate format and style to an identified user of accounting information, using headings and sub-headings to indicate topics discussed. This report should include the key groups of ratios, and identify the key issues, explanations, and main findings obtained from the calculated ratios, horizontal and vertical analyses, and other sources of information. Then, the analyst should come to appropriate conclusions, implications, limitations, and recommendations. A suggested approach to write a good report is demonstrated below. I. Abstract * Report Objective; * Main Findings. II. Summary of the Basic Company Information Before looking at any of the different analysis techniques, it is good to spend some time doing a little bit of background research...
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...Journal of Accounting and Economics 11 (1989) 295-329. North-Holland FINANCIAL STATEMENT ANALYSIS AND THE PREDICTION OF STOCK RETURNS* Jane A. O U Santa Clara university, Santa Clara, CA 95053, USA Stephen H. P E N M A N Universi(v of California, Berkeley, CA 94720, USA Received January 1988, final version received April 1989 This paper performs a financial statement analysis that combines a large set of financial statement items into one summary measure which indicates the direction of one-year-ahead earnings changes. Positions are taken in stocks on the basis of this measure during the period 1973-1983, which involve cancelling long and short positions with zero net investment. The two-year holding-period return to the long and short positions is in the order of 12.5%. After adjustment for 'size effects' the return is about 7.0%. These returns cannot be explained by nominated firm risk characteristics. 1. Introduction F i n a n c i a l s t a t e m e n t analysis identifies aspects of financial statements that a r e r e l e v a n t to investment decisions. O n e goal of the analysis is to assess firm value from financial statements. M u c h empirical a c c o u n t i n g research has a t t e m p t e d to discover value-relevant accounting attributes in o r d e r to enhance financial s t a t e m e n t analysis. T h e a p p r o a c h taken in this work assumes that m a r k e t price is sufficient for d e t e r m i n i n g firms' values a n d thus serves as a b e n...
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...9-193-029 REV: SEPTEMBER 13, 2004 WILLIAM BRUNS Introduction to Financial Ratios and Financial Statement Analysis There is almost always a reason why someone picks up an organization’s financial statements and begins to analyze them. Lenders or creditors may be interested in determining whether they will be repaid money they have lent or may lend to the organization. Investors may be interested in comparing a potential investment in one organization with that of another. Employees may want to compare the current performance or financial status of their employer with earlier periods. Regulatory agencies often need to assess organizational or industry financial health and performance. Financial analysis is always based on a set of questions, and the specific questions requiring answers depend on who the financial statement user is and the reasons for his or her analysis. Financial analyses based on accounting information consistently involve comparisons. Amounts or ratios may be compared with industry norms, the same measurement in a prior period, the same measurement in a competitor’s organization, or with planned and budgeted amounts previously established. Figuring out which comparisons will best answer the questions motivating the analysis is one of the necessary steps in making the best use of accounting information. Financial ratios can help describe the financial condition of an organization, the efficiency of its activities, its comparable profitability...
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...Business Analysis & Valuation Project The objective of this project is to apply financial statement analysis techniques in a typical (equity) investment decision-making context. You should assume that you are required to make an investment recommendation to a fund manager. The fund manger wishes to add a stock to a diversified portfolio. The investment manager has a strategy of maximizing investor returns over the long term. Consistent with the course objectives, the project is an essential part of the course and aimed at developing your understanding of, and practical skills in financial statement analysis and valuation. It is also designed to enhance teamwork, and analytical and communication skills. To maximize the benefits of the project, you are required to progressively complete the project as the techniques are examined in the course. The project comprises two components: (1) an industry and company analysis, (2) a detailed project report, and Getting Started (Weeks 1-2) By the end of Week 2 you are required to: (1) Form groups of ideally 4 or 5 members. For part-time students who have difficulties in finding common free time for group meetings, groups of 2 or 3 are acceptable. (2) Select a company that is listed on the Australian Securities Exchange (ASX). Your companies must have at least three years of annual reports available – it is your responsibility to pick a company with the required information available); (3) Enroll your group members online through Blackboard...
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...Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of finance) refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is the process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment One of the most common ways of analyzing financial data is to calculate ratios from the data to compare against those of other companies or against the company's own historical performance. Thus, return on assets is a common ratio used to determine how efficient a company is at using its assets and as a measure of profitability. This ratio could be calculated for several similar companies and compared as part of a larger analysis. Kuala Lumpur Kepong Berhad Finance Essay Properly comparing a balance sheet with the corresponding profit and loss account to determine the strengths and weaknesses of a business describes financial statement analysis. “In a technical sense, financial statements summarize the accounting process and provide a tabulation of account titles and amounts of money,” reports Reference for Business. Financial statements help to communicate what financial decisions have been made and how they affect the bottom line. Financial analysis and strategies moves by the firm result in the performance of any corporation. Whenever a firm focuses on maximization of shareholders wealth get proper care of...
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...2 Graduate Thesis By Teia R. Merring Copenhagen Business School Strategic and financial analysis and valuation of B&O 0 1 Executive Summary................................................................................2 Introduction............................................................................................6 1.1Motivation.................................................................................................................. 6 1.2Problem Specification................................................................................................ 8 1.3Problem Identification................................................................................................ 8 1.4Problem Handling .................................................................................................... 10 1.5Structure and Methodology...................................................................................... 12 1.5.1Introduction and Presentation........................................................................... 12 1.5.2Strategic Analysis............................................................................................. 12 1.5.3Financial Statement Analysis ........................................................................... 13 1.5.4Prognoses and Budgets..................................................................................... 14 1.5.5Valuation.......................................
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...Week 1 Financial reporting and its analysis has an important role in the information intermediaries (auditors, press, financial analysts) and financial intermediaries (banks, insurance companies, mutual funds) functioning. Information intermediaries and financial intermediaries use the information from the financial reports to investigate the investment opportunities and find the “good” ones (Palepu, Healy & Peek, 2013). The “lemons” problem explains the problem in identifying the “good” and “bad” ideas being offered in the market (Holod & Peek, n.d.). The “bad” ideas are valued by investors at an average level, as they know that in the market there are both types of ideas. This approach, unfortunately, leads to less attractive conditions of financing to the owners of “good” ideas; the proportion of “bad” ideas increases. The identification of “good” investments can be performed by following the four steps (Palepu, Healy & Peek, 2013): * Business strategy analysis * Accounting analysis * Financial analysis * Prospective analysis All the above analysis get the information from the financial statements, publically data available, from business application context that consists of credit analysis, debt analysis, general business analysis and other details on corporate business (Palepu, Healy & Peek, 2013). The business strategy analysis is a tool to form the performance expectations using industry data and competitive strategy data. Accounting analysis assess...
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