What is Financial Analysis?. “Copyright and Terms of Service Copyright © Texas Education Agency....

What is Financial Analysis?

“Copyright and Terms of Service

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What is Financial Analysis?

O What is financial analysis?O Evaluating a company’s performanceO Using past data to predict future

performanceO Analyzing financial statements through

the use of ratio analysis, vertical, and horizontal analysis

O Uses data to assess the wellness of different areas of a business

O Usually a part of the accounting process

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Copyright © Texas Education Agency, 2014. All rights reserved.

Accounting and its Purpose

O Accounting O Is the process of planning, recording,

analyzing ,and interpreting financial information

O Provides internal information for management

O Provides external information for potential investors or stockholders

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Accounting SystemsType Pros Cons

Manual– accounting procedures without the aid of a computer

Costs less Human error, takes more time, more difficult to prepare accounting documents and statements

Computerized– accounting solely on a computer

Less human error, takes less time

Costs more

Single-entry– similar to a checkbook

Simpler, ideal for very small businesses

More errors can be made

Double-entry– each debit must have a credit

More accurate, errors can be easier to identify

More complicated5


Fields of Accounting

Financial

Managerial

Cost

Tax

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Financial AccountingO Provides an overview of a company’s

performanceO Follows GAAP (Generally Accepted

Accounting Principles)O Mainly for external presentation of

information (such as financial statements)

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Managerial AccountingO Primarily for internal information

purposesO Aids management functions such as

O Planning, as in budgetsO Organizing, as in carrying out

objectives and monitoring activitiesO Control purposes, as in implementing

plansO Decision-making, as in all aspects of

product development8


Cost AccountingO Actually part of managerial

accountingO Purpose is the cost of conducting

businessO Costs of products and servicesO Costs of resourcesO Costs associated with departments

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Tax AccountingO Follows IRS rules and regulationsO Used to prepare a multitude of tax

statements and formsO Looks at profit and loss statements

specifically

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The Accounting Process

INPUTS collecting transaction information

through journal entries

PROCESSING posting those

journal entries to the appropriate ledger accounts

OUTPUTS turning the

ledger balance information into

financial statements

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Financial StatementsBalance Sheet– contains assets, liabilities, and owner’s equity accounts

Income Statement– contains revenue and expense accounts

Statement of Changes in Owner’s Equity– shows additions and subtractions to the capital account during an accounting period

Cash Flow Statement– records cash flow from operations, from investing activities, and from financing activities

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Audiences for Financial Analysis

O Outside investors and stockholdersO Internal managementO Creditors, or potential creditorsO SuppliersO Credit rating agencies

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Post-Secondary Education

OFinancial Analysis is important to many different aspects of a person’s future includingO College MajorsO Industry Certifications

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College Majors

Economics

Real Estate

Insurance

Accounting

Finance

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Industry CertificationsChartered Financial Analyst®

Certified Financial Planner®

Certified Manageme

nt Accountant

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Career OpportunitiesO Financial Analysts

O Evaluate the performance of various types of investments

O Budget AnalystsO Help institutions organize their finances and

prepare budget reportsO Insurance Underwriters

O Analyze applications for insurance to determine premium and coverage amounts

O Financial AdvisorsO Help people with investment advice and financial

decisions

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Independent Practice Assignments

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O Financial Analysis Research Assignment #1 O Divide students in groups of three or four, depending upon your class size.

Have students conduct Internet research on accounting and accounting systems. They should record at least 10 facts each. They will then compare each other’s lists and narrow the facts down to one list. The list will be posted in the room along with the other groups’ lists.

O Group Presentation Assignment #2O Divide students into groups of three to four, again depending upon the class

size. Assign each group a topic or let them draw out of a hat (or box). Topics can include the fields of accounting, purposes of financial analysis, GAAP principles, or any other topic. Student groups are to create at least a five-slide presentation with a handout (even if it is a note-taking document such as Cornell Notes) for the other students to complete while they are presenting.

O Career Opportunities Assignment #3 O Students will research careers involving financial analysis on any of the career

websites. They will select three careers and will create a Venn diagram with the three careers in each of the circles. The overlapping sections of the circles should include the duties, job responsibilities, or educational requirements that are the same for those jobs. If all three have the same attribute, that goes in the center overlap. If one particular job has a requirement the same as one of the other jobs, it goes in the overlap between those two jobs, not in the center because it is only particular to two of the three jobs. This can be done on the computer, flip chart paper, or any other medium available.


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