FINANCIAL STATEMENTS

ANALYSISTIME TO PUT OUR ACCOUNTING HAT ON!

Introduction

The process of financial reporting, financial statement

analysis, and valuation is intended to help investors and

analysts to deeply understand a firm’s profitability and risk

and to use that information to forecast future profitability and risk and ultimately value the firm, enabling intelligent

investment decisions. This process lies at the heart of the

role of accounting, financial reporting, capital markets,

investments, portfolio management, and corporate

management in the world economy.

“Big Picture” Framework for Analysis

Overview of Financial Statement Analysis

Step 3: Assess the Quality of the Financial Statements

Accounting Principles

Balance Sheet—Measuring Financial Position

Income Statement—Measuring Operating Performance

Statement of Cash Flows

Important Information with the Financial Statements

Summary of Financial Statements, Notes, MD&A, and Managers’ and Auditors’ Attestations

Step 4: Analyze Profitability and Risk

Tools of Profitability and Risk Analysis

Step 1: Identify the Industry Economic

Characteristics

Tools for Studying Industry Economics

Value Chain Analysis

Porter’s Five Forces Classification

Framework

Economic Attributes Framework

Step 2: Identify the Company Strategies

Framework for Strategy Analysis

Asset and Liability Valuation and

Income Recognition

Introduction to the Mixed Attribute Accounting Model

Asset and Liability Valuation

Historical Value: Acquisition Cost

Historical Value: Adjusted Acquisition Cost

Historical Value: Initial Present Value

Current Values: Fair Value

Current Values: Fair Value Based on Current Replacement Cost

Current Values: Fair Value Based on Net Realizable Value

Income Recognition

Approach 1: Economic Value Changes

Recognized on the Balance Sheet and

Income Statement When Realized

Approach 3: Economic Value Changes

Recognized on the Balance Sheet and the

Income Statement When They Occur

Approach 2: Economic Value Changes

Recognized on the Balance Sheet When

They Occur but Recognized on the Income

Statement When Realized

Asset and Liability Valuation and

Income Recognition

Income Taxes

Overview of Financial Reporting of

Income Taxes

Measuring Income Tax Expense: A Bit

More to the Story (to Be Technically

Correct)

Reporting Income Taxes in the Financial

Statements

Framework for Analyzing the Effects of

Transactions on the Financial

Statements

Overview of the Analytical

Framework

Summary of the Analytical

Framework

Income Flows versus Cash Flows:

Understanding the Statement of Cash

Flows

Understanding the Relations among Net Income,Balance Sheets, and Cash Flows

The Relations among Cash Flows from Operating, Investing, and Financing Activities

The Relation between Cash Balances and Net Cash Flows

The Operating Section of the Statement of Cash Flows

The Relation between Net Income and Cash Flow from Operations

Aside: Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)

Preparing the Statement of Cash Flows

Algebraic Formulation

Classifying Changes in Balance Sheet

Accounts

Illustration of the Preparation Procedure

Using the Statement of Cash Flows to

Assess Earnings Quality

Profitability Analysis

Overview of Profitability Analysis

Earnings Per Share (EPS)

Calculating EPS

Criticisms of EPS

Common-Size Analysis

Percentage Change Analysis

Alternative Definitions of Profits

Comprehensive Income

Operating Income, EBIT, EBITDA, and Other Profit Measures

Segment Profitability

Pro Forma, Adjusted, or Street Earnings

Rate of Return on Assets (ROA)

Two Comments on the Calculation of ROA

Disaggregating ROA

Economic and Strategic Factors in the Interpretation of ROA

Analyzing the Profit Margin for ROA

Analyzing Total Assets Turnover

Supplementing ROA in Profitability Analysis

Rate of Return on Common

Shareholders’ Equity (ROCE)

Benchmarks for ROCE

Relating ROA to ROCE

Disaggregating ROCE

Interpreting Financial

Statement Ratios

Comparisons with Earlier

Periods

Comparisons with Other

Firms

Risk Analysis

Analyzing Short-Term Liquidity Risk

Current Ratio

Quick Ratio

Operating Cash Flow to Current Liabilities Ratio

Working Capital Turnover Ratios

Revenues to Cash Ratio

Days Revenues Held in Cash

Summary of Short-Term Liquidity Risk

Disclosures Regarding Risk and Risk Management

Firm-Specific Risks

Commodity Prices

Financial Statement Analysis of Risk

Analyzing Financial Flexibility: Alternative Approaches to Disaggregate ROCE

Summary of Financial Flexibility

Analyzing Long-Term Solvency Risk

Debt Ratios

Interest Coverage Ratios

Operating Cash Flow to Total Liabilities Ratio

Summary of Long-Term Solvency Risk

Analyzing Credit Risk

Circumstances Leading to Need for the Loan

Credit History

Cash Flows

Collateral

Capacity for Debt

Contingencies

Character of Management

Communication

Conditions or Covenants

Summary of Credit Risk Analysis

Risk Analysis

Market Equity Beta Risk

Financial Reporting Manipulation Risk

Motivations for Earnings Manipulation

Empirical Research on Earnings Manipulation

Application of Beneish’s Model to a company

Summary of Earnings Manipulation Risk

Financing Activities

Equity Financing

Investments by Shareholders: Common Equity Issuance

Distributions to Shareholders: Dividends

Distributions to Shareholders: Share Repurchases

Equity Issued as Compensation: Stock Options

Fair Value Method and Required Disclosures

Net Income, Retained Earnings, Accumulated Other

Comprehensive Income, and Reserves

Summary and Interpretation of Equity

Debt Financing

Principles of Liability Recognition

Principles of Liability Valuation

Application of Criteria for Liability Recognition

Contingent Obligations

Financing with Long-Term Debt

Financial Reporting of Long-Term Debt

Measuring Fair Value

Reducing Debt

Troubled Debt

Additional Issues in Liability Recognition and Debt Financing

Hybrid Securities

Off-Balance-Sheet Financing Arrangements

Leases

Operating Lease Method

Capital Lease Method

Choosing the Accounting Method

Converting Operating Leases to Capital Leases

Impact of Accounting for Operating Leases as Capital Leases

Investing Activities

Investments in Long-Lived Operating Assets

Are the Acquisition Costs “Assets”?

What Choices Are Managers Making to

Allocate Acquisition Costs to the Periods

Benefited?

What Is the Relationship between the

Book Values and Market Values of Long-

Lived Assets?

When Will the Long-Lived Assets Be

Replaced?

Investments in Securities

Percentage of Ownership

Minority, Passive Investments

Minority, Active Investments

Majority, Active Investments

Consolidation of Unconsolidated Subsidiaries

and Affiliates

Joint Ventures: Proportionate Consolidation of

Unconsolidated Subsidiaries and Affiliates

Operating Activities

Accomplishments (Revenue Recognition)

Criteria for Revenue Recognition

Application of Revenue Recognition Criteria

Revenue Recognition at the Time of Sale (Delivery)

Delaying Revenue Recognition When Substantial Performance Remains

Income Recognition under Long-Term Contracts

Revenue Recognition When Cash Collectability Is Uncertain

Investment in Working Capital: Accounts Receivable and Deferred Revenues

Efforts (Expense Recognition)

Criteria for Expense Recognition

Cost of Sales

Reporting Changes in the Fair Market Value of Inventory

Accounting Quality: Cost of Sales and Inventory

Investment in Working Capital: Inventory and Accounts Payable

SG&A (Selling, General, and Administrative) Costs

Operating Profit

Accounting Quality

Accounting Quality

High Quality Reflects Economic Information Content

High Quality Leads to Earnings Persistence over Time

Specific Events and Conditions That Affect Earnings Quality

Discontinued Operations

Extraordinary Gains and Losses

Changes in Accounting Principles

Other Comprehensive Income Items

Impairment Losses on Long-Lived Assets

Restructuring and Other Charges

Changes in Estimates

Gains and Losses from Peripheral Activities

Summary of Accounting Data Adjustments

Restated Financial Statement Data

Accounting Classification Differences

Financial Reporting Worldwide

Earnings Management

Incentives to Practice Earnings

Management

Disincentives to Practice Earnings

Management

Boundaries of Earnings Management

Training Desktop

Date : see at the website “futurum corfinan” (3-day training)

Venue : Hotel at Jakarta Pusat

Note :

Presentation slides will be distributed in softcopy

Minimum participants = 10 persons

After the training, participants are allowed to discuss about the

training materials via email in the website

Contact email : futurumcorfinan@gmail.com

Visit Website and Training Testimonials : google “futurum corfinan”