Financial Analysis and Reporting and Interpretation

8/19/2019 Financial Analysis and Reporting and Interpretation

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CHAPTER 17CHAPTER 17

ANALYSISAND

INTERPRETATION OFFINANCIAL STATEMENTS


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Non-accounting majors, especially,shoul relate !ell to this chapter

"t loo#s at accounting in$ormation $romusers% perspecti&e

Relates &ery closely to topics you !illstuy in your $inance course

There$ore, !e !ill use a some!hat 'roaer'rush on this chapter

(hat is $inancial statement analysis)*Tearing apart* the $inancial statements

an loo#ing at the relationships

+inancial tatement Analysis+inancial tatement Analysis


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(ho analy.es $inancial statements) "nternal users /i0e0, management

Eternal users /emphasis o$ chapterEamples)

"n&estors, creitors, regulatory agencies 3 4

stoc# mar#et analysts an

auitors

+inancial tatement Analysis+inancial tatement Analysis526

http://vrpacioli.loyola.edu/ac102/chapter17/3.ramhttp://vrpacioli.loyola.edu/ac102/chapter17/4.ram


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(hat o internal users use it $or)

Planning, e&aluating an controllingcompany operations

(hat o eternal users use it $or)

Assessing past per$ormance an current$inancial position an ma#ing preictions

a'out the $uture pro$ita'ility an sol&ency o$the company as !ell as e&aluating thee$$ecti&eness o$ management

+irst sentence in chapter says000


http://vrpacioli.loyola.edu/ac102/chapter17/4.ram


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"n$ormation is a&aila'le $rom Pu'lishe annual reports

/1 +inancial statements

/2 Notes to $inancial statements

/ 8etters to stoc#holers

/ Auitor%s report /"nepenent accountants

/6 9anagement%s iscussion an analysis Reports $ile !ith the go&ernment

e0g0, +orm 1:-;, +orm 1:-< an +orm =-;

527 52=



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"n$ormation is a&aila'le $rom >ther sources

/1 Ne!spapers /e0g0, Wall Street Journal

/2 Perioicals /e0g0 Forbes, Fortune

/ +inancial in$ormation organi.ations such

as? 9ooy%s,tanar 3 Poor%s, @un 3 rastreet, "nc0,an Ro'ert 9orris Associates

/ >ther 'usiness pu'lications

527 52=



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Hori.ontal Analysis

Bertical Analysis

Common-i.e tatements

Tren Percentages

Ratio Analysis

9ethos o$ 9ethos o$



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Hori.ontal AnalysisHori.ontal Analysis

sing comparati&e $inancialstatements to calculate ollar

or percentage changes in a$inancial statement item $rom

one perio to the net

sing comparati&e $inancialstatements to calculate ollar

or percentage changes in a$inancial statement item $rom

one perio to the net


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Bertical AnalysisBertical Analysis

+or a single $inancialstatement, each item

is epresse as apercentage o$ asigni$icant total,

e0g0, all incomestatement items areepresse as a

percentage o$ sales

+or a single $inancialstatement, each item

is epresse as apercentage o$ asigni$icant total,e0g0, all income

statement items areepresse as a

percentage o$ sales


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Common-i.e tatementsCommon-i.e tatements

+inancial statements that sho!only percentages an no

a'solute rupee amounts

+inancial statements that sho!only percentages an no

a'solute rupee amounts


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Tren PercentagesTren Percentages

ho! changes o&er time ingi&en $inancial statement items

/can help e&aluate $inancialin$ormation o$ se&eral years

ho! changes o&er time ingi&en $inancial statement items

/can help e&aluate $inancialin$ormation o$ se&eral years


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Ratio AnalysisRatio Analysis

Epression o$ logical relationships'et!een items in a $inancialstatement o$ a single perio/e0g0, percentage relationship

'et!een re&enue an net income

Epression o$ logical relationships'et!een items in a $inancialstatement o$ a single perio

/e0g0, percentage relationship'et!een re&enue an net income

1 1


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Hori.ontal Analysis EampleHori.ontal Analysis Eample

The management o$ Clo&er Companypro&ies you !ith comparati&e 'alancesheets o$ the years ene @ecem'er 1,

1DDD an 1DD=0 9anagement as#s you toprepare a hori.ontal analysishori.ontal analysis on the

in$ormation0

17 1



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17 16



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Calculating Change in @ollar Amounts

@ollar

Change

Current ear

+igure

ase ear

+igureF G


17 15


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Calculating Change in @ollar Amounts

ince !e are measuring the amount o$the change 'et!een 1DD= an 1DDD, the

ollar amounts $or 1DD= 'ecome the'ase* year $igures0

@ollar

Change

Current ear

+igure

ase ear

+igureF G


17 17


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Calculating Change as a Percentage

Percentage

Change

@ollar Change

ase ear +igure 1::IF J


17 1=


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K12,::: G K2,6:: F K/11,6::


17 1D


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/K11,6:: L K2,6:: J 1::I F =0DI


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8et%s apply the sameproceures to the

lia'ility an stoc#holers%eMuity sections o$ the

'alance sheet0


17-22


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C8>BER C>RP>RAT">N

Comparati&e alance heets

@ecem'er 1, 1DDD an 1DD=

"ncrease /@ecrease1DDD 1DD= Amount I

8ia'ilities an toc#holers EMuity

Current lia'ilities?

Accounts paya'le 57,:::K ,:::K 2,:::K 620

Notes paya'le ,::: 5,::: /,::: /6:0:

Total current lia'ilities 7:,::: 6:,::: 2:,::: :0:

8ong-term lia'ilities?

ons paya'le, =I 76,::: =:,::: /6,::: /50

Total lia'ilities 16,::: 1:,::: 16,::: 1106

toc#holers eMuity?

Pre$erre stoc# 2:,::: 2:,::: - :0:

Common stoc# 5:,::: 5:,::: - :0:

Aitional pai-in capital 1:,::: 1:,::: - :0:

Total pai-in capital D:,::: D:,::: - :0:

Retaine earnings =:,::: 5D,7:: 1:,:: 10=

Total stoc#holers eMuity 17:,::: 16D,7:: 1:,:: 50

Total lia'ilities an stoc#holers eMuity 16,:::K 2=D,7::K 26,::K =07

17-2


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No!, let%s apply theproceures to theincome statement0


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C8>BER C>RP>RAT">N

Comparati&e "ncome tatements+or the ears Ene @ecem'er 1, 1DDD an 1DD=

"ncrease /@ecrease

1DDD 1DD= Amount I

Net sales 62:,:::K =:,:::K :,:::K =0

Cost o$ goos sol 5:,::: 16,::: 6,::: 10

Oross margin 15:,::: 156,::: /6,::: /0:

>perating epenses 12=,5:: 125,::: 2,5:: 201

Net operating income 1,:: D,::: /7,5:: /1D06

"nterest epense 5,:: 7,::: /5:: /=05

Net income 'e$ore taes 26,::: 2,::: /7,::: /210D

8ess income taes /:I 7,6:: D,5:: /2,1:: /210DNet income 17,6::K 22,::K /,D::K /210D

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C8>BER C>RP>RAT">N


"ncrease /@ecrease

1DDD 1DD= Amount I

Net sales 62:,:::K =:,:::K :,:::K =0

Cost o$ goos sol 5:,::: 16,::: 6,::: 10

Oross margin 15:,::: 156,::: /6,::: /0:



"nterest epense 5,:: 7,::: /5:: /=05



ales increase 'y =0I !hile net

income ecrease 'y 210DI0

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C8>BER C>RP>RAT">N


"ncrease /@ecrease

1DDD 1DD= Amount I

Net sales 62:,:::K =:,:::K :,:::K =0

Cost o$ goos sol 5:,::: 16,::: 6,::: 10

Oross margin 15:,::: 156,::: /6,::: /0:



"nterest epense 5,:: 7,::: /5:: /=05



There !ere increases in 'oth cost o$ goossol /10I an operating epenses /201I0These increase costs more than o$$set the

increase in sales, yieling an o&erallecrease in net income0

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Bertical Analysis EampleBertical Analysis Eample

The management o$ ample Company as#syou to prepare a &ertical analysis&ertical analysis $or the

comparati&e 'alance sheets o$ the

company0

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K=2,::: L K=,::: F 17I roune

K:,::: L K=7,::: F =I roune

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K75,::: L K=,::: F 15I roune

17-1


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Tren Percentages EampleTren Percentages Eample

(heeler, "nc0 pro&ies you !ith the $ollo!ingoperating ata an as#s that you prepare a

tren analysis0

17-2


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Tren Percentages EampleTren Percentages Eample

(heeler, "nc0 pro&ies you !ith the $ollo!ingoperating ata an as#s that you prepare a

tren analysis0

K1,DD1 - K1,=2: F K171K1,DD1 - K1,=2: F K171

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Tren line

$or ales

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