financial statements analysis tiezhu zhang ph.d cpa
TRANSCRIPT
Financial Statements AnalysisFinancial Statements Analysis
Tiezhu ZhangTiezhu Zhang
Ph.D CPA
Weightage of Assessment:
• Midterm 20%• Final Exam 60%• Quiz and participation 20%• 100%
3
Course Schedule:
4
SEMESTER WEEK DATE TOPICS & ACTIVITIESWEEK 1 Feb.21 Chapter 1: Framework For Financial Statement Analysis
WEEK 2 Feb.28 Chapter 1: Framework For Financial Statement AnalysisWEEK 3 Mar.7 Chapter 2: Accounting Income and AssetsWEEK 4 Mar.14 Chapter 2: Accounting Income and AssetsWEEK 5 Mar.21 Chapter 3: Analysis of Cash FlowWEEK 6 Mar.28 Chapter 3: Analysis of Cash FlowWEEK 7 Apr. 4 Chapter 4: Foundation of Ratio and Financial AnalysisWEEK 8 Apr. 11 Chapter 4: Foundation of Ratio and Financial AnalysisWEEK 9 Apr. 18 Chapter 6: Analysis of Inventories
WEEK 10 Apr. 25 Midterm ExamWEEK 11 May. 2 Labor Day/ May DayWEEK 12 May. 9 Chapter 6: Analysis of InventoriesWEEK 13 May. 16 Chapter 7:Analysis of Long-lived Assets (Part1)WEEK 14 May. 23 Chapter 8:Analysis of Long-lived Assets (Part2)WEEK 15 May. 30 Chapter 9: Analysis of Income Taxes
WEEK 16 Jun. 6 Dragon Boat FestivalWEEK 17 Jun. 13 Chapter 10: Analysis of Financial Liabilities
WEEK 18 Jun. 20 Chapter 11: Lease and Off-balance-sheet DebtWEEK 19 Jun. 27 Final Exam
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Oil Painting by YVARAL
Financial Data: 用友软件、粤电力 A 、四川长虹和招商银行
6
交易性金融资产 1541200 1% 9665 0% 0 0% 6050 2%
存货 0 0% 600782 21% 92907 4% 1448 0%
可供出售金融资产 20633200 13% 16642 1% 27867 1% 27621 9%
无形资产 238100 0% 274710 10% 38654 2% 32529 10%
固定资产 1167600 1% 350225 12% 1317748 534% 51030 16%
总资产 157179700 100% 2872514 100% 2462920 100% 310997 100%
Units: 10000 RMB
What is Financial Statements Analysis?
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2. 664. 68
0. 97
28. 38
18. 4
4. 46
0
5
10
15
20
25
30
总资产 主营业务收入 股本
19962000
该公司 1998~2000 年间的净资产收益率更是高达28.9％、 29.3％、 19.8％，每股收益分别为 0.82元、 1.15元和 0.97元，位于上市公司的最前列 。该公司 2000年主营业务收入18.4亿元，总资产 28.38亿元，净利润 4.32亿元。
蓝田股份（ 600709）于 1996年上市，从公布的年度报告来看，该公司上市后一直保持着优异的经营业绩：
一、经营活动产生的现金流量 销售商品、提供劳务收到的现金 82,857,068.59
收到的其他与经营活动有关的现金 145,179,790.53
现金流入小计 228,036,859.12
购买商品、接受劳务支付的现金 66,370,172.90
支付给职工以及为职工支付的现金 25,591,141.23
支付的各项税费 42,580,257.52
支付的其他与经营活动有关的现金 240,050,395.35
现金流出小计 374,591,967.00
经营活动产生的现金流量净额 -146,555,107.88
二、投资活动产生的现金流量 现金流入小计 0
购建固定资产等支付的现金 158,236,407.74
投资支付的现金 10,200,000.00
现金流出小计 168,436,407.74
投资活动产生的现金流量净额 -168,436,407.74
三、筹资活动产生的现金流量 借款所收到的现金 693,000,000.00
现金流入小计 693,000,000.00
偿还债务所支付的现金 286,350,000.00
分配股利或偿还利息所支付的现金
24,403,348.68
现金流出小计 310,753,348.68
筹资活动产生的现金流量净额 382,246,651.32
四、汇率变动对现金的影响五、现金及现金等价物净增加额 67,255,135.70
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CFE: Initial Detection of Fraud CFE: Initial Detection of Fraud
Detection of Fraud– Employee Report 26.3%
– Accidentally Discover 18.8%– Internal Control 18.6%– Internal Audit 15.4%– External Audit 11.5%– Customer Report 8.6%– Anonymous Report 6.2%– Supplier Report 5.1%– Supervisor Report 1.7%
Framework for Financial Statements Analysis
1CHAPTER
OutlineFinancial Statements;
Financial Reporting System;
Financial Statements Analysis:
•Financial Statements Users;
•Information Used in Financial Statements Analysis;
•Focuses of Financial statements;
•Techniques & Tools Used in Analyzing Process.
Role of the Auditor.
Financial Statements1. Business activities
InvestingActivities
FinancingActivities
Operating Activities
PlanningActivities
Revenues and expenses from providing goods and services
Planning Activities: Goals& Objectives
Factors:
• Competition
• Pricing
• Market demands
• Tactics
• Distribution
• Promotion
• Managerial performance
• Opportunities
• Obstacles
…
Financial Activities
Financing
Financing activities:
Owner (equity)
Nonowner (liabilities)
Investment Activities
Investing Financing
Investing activities:
Buying resources
Investing = Financing
Financial Statements Reflect Business Activities
PlanningInvesting
Current:• Cash• Accounts Receivable• Inventories• Marketable SecuritiesNoncurrent:• Land, Buildings, &
Equipment• Patents• Investments
Assets
Balance Sheet
FinancingCurrent:• Notes Payable• Accounts Payable• Salaries Payable• Income Tax PayableNoncurrent:• Bonds Payable• Common Stock• Retained Earnings
Liabilities & Equity
Balance Sheet
Statement of Shareholders’ Equity
Operating
• Sales• Cost of Goods Sold• Selling Expense• Administrative Expense• Interest Expense• Income Tax Expense
Net Income
Income statement
Cash Flow
Statement of Cash Flows
2.Principal Financial Statements
(1) Balance sheet
(2) the income statement
(3) Statement of cash flows
(4) Statement of Stockholders’ Equity
(5) Financial Statement Links
(1) Balance sheet
The balance sheet reports major classes and amounts of assets, liabilities, and stockholders’ equity and their relationships at specific points in time.
E.g. December 31,2009Financial position
Equation:
Assets = Liabilities + Stockholders’ Equity
April 19, 2023Prepared by ZHANG Tiezhu, All rights Reserved. Shanghai Institute of
Foreign Trade
Liabilities: Probable future sacrifices of economic benefits
arising from present obligations of a particular
entity to transfer assets or provide services to
other entities in the future as a result of past
transactions or events.
Stockholders’ equity: the residual interest in the net assets of
an entity that remains after deducting
its liabilities.
① Elements of the balance sheet
Assets: Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions.
Balance Sheet
Dec 31, 2008 (In millions)
Liabilities and
AssetsShareholders’ Equity
Current Assets Current Liabilities
Cash and cash equivalents $ 448
Payables $ 3,276 Short-term borrowings 1,378
Receivables 2,337 Accrued income taxes 544 Inventories 1,137 Current maturities of LTD 156
Deferred income tax charges 521 Other 240 Total current liabilities 5,354
Total current assets 4,683 Other LiabilitiesProperties
Long-term borrowings 1,666 Land, buildings and equipment at cost 12,982 Post-employment liabilities 2,728 Less: Accumulated depreciation 7,323 Other long-term liabilities 720 Net properties 5,659Other Assets
Total liabilities 10,468
Goodwill (net of accumulated amortization of $920) 948 Shareholders' EquityOther non-current assets 2,072
Common stock, par value $2.50 per share, 950,000,000 shares authorized; issuedTotal Assets
391,292,760 shares Additional paid in capital
978
Retained earnings849
Accumulated other comprehensive loss 7,431
(597)
Treasury stock, as cost, 100,363,059 shares8,661
Total shareholders' equity5,767
Total liabilities and equity2,894
$ 13,362
$ 13,362
Assets=Liabilities + Stockholders’ equity
② Example
(2) the income statement
The income statement reports on the performance of the firm, the results of its operating activities in a certain period.
E.g. for the year ended December 31,2009 ① Elements of the income statement
Revenues: inflows …of an entity from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.
Expenses: outflows … from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.
Gains and losses: increases (decreases) in equity (net assets) from peripheral or incidental transactions…
Gains or losses are, therefore, nonoperating events. Examples would include gains and losses from assets sales, lawsuits, and changes in market values (including currency rates)
Income Statement
For Year Ended Dec. 31, 2008 (In millions)
Sales $13,234Cost of goods sold 8,670Gross profit 4,564
Selling, general and administrative expenses 2,627Research and development costsGoodwill amortization
779
Restructuring costs and asset impairments 659 EARNINGS FROM OPERATIONS 345
Interest expense
219Other income (charges) (18)Earnings before income taxes 108Provision for income taxes 32
76 NET EARNINGS
154
example
(3) Statement of cash flows
The statement of cash flows reports cash receipts and payments in the period of their occurrence, classified as to operating, investing, and financing activities.
Cash flows from operations can be reported:
Directly: Using major categories of gross cash receipts and payments
Indirectly: Providing a reconciliation of net income to net cash flow from operating activities.
April 19, 2023Prepared by ZHANG Tiezhu, All rights Reserved. Shanghai Institute of
Foreign Trade
Directly
April 19, 2023Prepared by ZHANG Tiezhu, All rights Reserved. Shanghai Institute of
Foreign Trade
Indirectly
Statement of Cash Flows
Cash flows from operating activities:Net Earnings $ 76
Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization Restructuring costs
Provisions (benefit) for deferred income taxes (Increase) decrease in receivables 252 (Increase) decrease in inventories
(Decrease) increase in liabilities excluding borrowings (529) Other items, net 100
2,065
Cash flow from Investing activities: Additions to properties
(743) Acquisitions, net of cash acquired (306) Marketable securities - sales
(52)
Marketable securities - purchases 54
Net cash used in investing activities (1,047)
Cash flows from financing activities: Net increase (decrease) in borrowings with original maturities of 90 days or less (695)
Proceeds from other borrowings 1,907 Repayment of other borrowings (1,355) Dividends to shareholders (643) Exercise of employee stock options 22 Stock repurchase programs (44)
Net cash provided by (used in) financing activities
(808)Effect of exchange rate changes on cash (8)Net (decrease) increase in cash and cash equivalents 202
For year Ended Dec. 31, 2008 (In millions)
Net cash provided by operating activities
830 919
(44)
461
example
(4) Statement of Stockholders’ Equity
This statement reports the amounts and sources of changes in equity from capital transactions with owners and may include the following components:
Preferred shares Common shares (at par or stated value) Additional paid-in capital Retained earnings Treasury share (repurchased equity) Employee stock ownership plan (ESOP) adjustments
Financial Financial Statement Statement
LinksLinks
Statement of Cash Flows for Year Ended Dec. 31, 2008Operating Cash flows $ 2,065 Investing Cash flows (1,047)Financing Cash flows (808)Exchange rate changes on cash (8) Net Change in Cash $ 202Cash Balance, Dec. 31, 2007 246Cash Balance, Dec. 31, 2008 $ 448
Statement of Shareholders’ Equity for Year Ended Dec. 31, 2008
Share Capital, Dec. 31, 2007 $ 1,849 Adjustments/Stock Issue (22)Share Capital, Dec. 31, 20088 $ 1,827
Retained Earnings, Dec. 31, 2007 $ 7,387Add: Comprehensive Income (39) Less: Dividends (514)Retained Earnings, Dec. 31, 2008 $ 6,834
Treasury Stock, Dec. 31, 2007 $ 5,808Treasury Stock Issued 82Treasury Stock Repurchased (41)Treasury Stock, Dec. 31, 2008 $ 5,767
Income Statement
for Year Ended Dec. 31, 2008Sales $13,234 Expenses (13,158) Net Earnings $ 76 Other Comprehensive Income (115) Comprehensive Income $ (39)
Balance Sheet Dec. 31, 2007
Assets Cash $ 246 Non-Cash Assets 13,966 Total Assets $14,212
Liabilities & Equity Total liabilities $ 10,784 Equity: Share Capital 1,849 Retained Earnings 7,387 Treasury Stock (5,808) Total equity $ 3,428 Liabilities & Equity $14,212
Balance Sheet Dec. 31, 2008
Assets Cash $ 448 Non-Cash Assets 12,914 Total Assets $13,362
Liabilities & Equity Total liabilities $10,468 Equity: Share Capital 1,827 Retained Earnings 6,834 Treasury Stock (5,767) Total equity $ 2,894 Liabilities & Equity $13,362
(Period of time)
(Po
int in
time
)(Po
int
in t
ime
)
Dec. 31, 2007 Dec. 31, 2008
3. Other Information in the Annual Report3. Other Information in the Annual Report
(1) (1) Statement of Comprehensive Income;
(2) (2) Footnotes;;
(3) (3) Supplementary data;data;
(4) (4) Management discussion and analysis;
(5) Others.(5) Others.
(1) Statement of Comprehensive Income
Comprehensive Income: The change in equity of a business enterprises during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owner.
Comprehensive Income
Net income
Direct-to-equity adjustments:
Cumulative translation adjustmentsMinimum pension liability
Unrealized gains and losses on available-for-sale securities
Deferred gains and losses on cash flow hedges
Other comprehensive income
(2) footnotesFootnotes are an integral part of the financial statements.
Footnotes provide: Information about accounting methods, assumptions and estimates used by management to develop the data reported in the financial statements
Additional disclosure related to such areas as: Fixed assets Inventories Income taxes Pension and other postemployment benefit plans Debt (interest rates, maturity schedules, and contractual terms) Lawsuits and other loss contingencies Marketable securities and other investments Hedging and other risk management activities Business segments Significant customers, sales to related parties, and export sales
For explanations, see next slide
ContingenciesConditions of recognizing a contingent loss:
(1) It is probable that assets have been impaired or a liability has been incurred.
(2) The amount of the loss can be reasonably estimated.
Probability ＞ 50%
If the amount lies within a range, the most likely amount should be
accrued.
Probability
amount
Can be reasonably estimated
Can not be reasonably estimated
＞ 50% ≤50%
recognizeFootnote disclosure
Footnote disclosure
Footnote disclosure or MD&A disclosureOr no disclosure at all
!
(3) Supplementary data
Examples:
Oil and gas companies provide additional data on their exploration activities, quantities and types of reserves, and the present value of cash flows expected from those reserves.
Supplemental disclosure of the impact of changing prices.
Disclosure of sales revenue, operating income, and other data for major business segments and by geographic areas. Firms also provide information about export sales.
disclosure related to financial instruments and hedging activities.
(4) Management discussion and analysis
(5) Other data sources(5) Other data sources
•Required since 1968.
•Expanded in 1980.
•Guidance issued in 1989.
•Further emphasized and expanded in 2002
See p21~22.
Financial Reporting System
U.S financial reporting systemU.S financial reporting system
International Accounting Standards International Accounting Standards
Board (IASB)Board (IASB)
April 19, 2023Prepared by ZHANG Tiezhu, All rights Reserved. Shanghai Institute of
Foreign Trade
Regulators
FASB
AICPA
Industry Practices
GAAP
Enforcement and Monitoring Mechanisms
SECCorporate
Governance
Managers
Auditors
Statutory Financial Reports(Financial Statements)
Alternative Information Sources
Economy and Industry Information
Voluntary Disclosure
Users
Analysts
Investors and
CreditorsOther Users
Litigation
1. The U.S financial reporting system
Form 10-K (Annual Report)
10-Q(Quarterly Report)
OtherSEC Filings
14-A(Proxy Statement/
Prospectus)
Statutory Financial Reports
8-K(Current Report)
20-F (Registration Statement/Annual Report [Foreign])
Form 10-K ： Annual Report
• Contents:– Business of company– Properties– Legal proceedings– MD&A– Changes or disagreements with auditor– Financial statements and footnotes– Investee financial statements (where applicable)– Parent company financial statements (where applicable)– Schedules:
• Condensed financial information• Bad debt and other valuation accounts• Real estate and accumulated depreciation• Mortgage loans on real estate• Supplementary information concerning property-casualty insurance
operations
• Due date: 3 months following end of fiscal year.
10-Q: Quarterly Report
• Contents:– Financial statements– MD&A
• Due date: 45 days following end of fiscal quarter. Not required for fourth quarter of fiscal year
8-K: Current Report
• Contents :used to report important events– Change in control – Acquisitions and divestitures– Bankruptcy– Change in auditors– Resignation of directors
• Due date: 15days following event.
Environmental Factors
Managers of Companies
Set by International Accounting Standards Board
Not currently accepted in U.S.
SEC under pressure to accept IAS
Main responsibility for fair & accurate reports
Applies accounting to reflect business activities
Managerial discretion is necessary in accounting
Major lobbyist on GAAP
Environmental Factors
Corporate Governance
Set by International Accounting Standards Board
Not currently accepted in U.S.
SEC under pressure to accept IAS
Board of directors oversight
Audit committee of the board
- oversee accounting process
- oversee internal control
- oversea internal/external audit
Internal Auditor
2. International accounting standards Differences in accounting and reporting standards make it difficult to compare domestic companies with those in other countries.
① International Organization of Securities Commissions (IOSCO)
An organization of securities regulators.
Investigating regulatory issues related to international securities transactions and developing solutions to problems in these area.
Established a comprehensive core set of international accounting standards.
② International Accounting Standards Board (IASB)
1973 Agreement to establish IASC signed by representatives of the professional accountancy bodies in Australia, Canada, France, Germany, Japan, Mexico, Netherlands, United Kingdom/Ireland, and United States.
1975 First final IAS published: IAS 1 (1975), Disclosure of Accounting
Policies, and IAS 2 (1975), Valuation and Presentation of Inventories in
the Context of the Historical Cost System.
IASB ChronologyIASB Chronology
1998 IFAC/IASC membership expands to 140 accountancy bodies
in 101 countries.
2001 Members and new name of IASB announced. IASC Foundation
formed. On 1 April 2001, the new IASB assumes its standard-setting
responsibilities from the IASC. Existing IAS and SIC adopted by
IASB.
IASB structureIASB structure
UsersUsers
InformationInformation
FocusesFocuses
Techniques
WHO
WHAT
WHY
HOW
Financial Statements Analysis:
Financial statements users
Shareholdersand investors
Managers andemployees
Customers
Lenders andsuppliers
Government ®ulators
• Investment decisions• Proxy contests
• Performance assessment• Compensation contracts• Company-sponsored pension plans
• Lending decisions• Covenant compliance
• Supplier health• Repeat purchases• Warranties & support
• Mandatory reporting• Taxing authorities• Regulated industries
(1) Internal Users
Managers Internal Auditors employees … …
Classification of financial statement users
(2) External Users
Can be classified into three groups:
Credit and equity investors;
Government (executive and
legislative branches), regulatory
bodies, and tax authorities;
The general and special
interest groups, labor unions,
and consumer groups.Common characteristic:
Lack of authority to prescribe the information they want from an enterprise
Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. The information should be comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence.
——(for more detailed information, see SFAC 1)
Underlying objective of
financial analysis
In this course, we deal with the concepts and techniques of financial analysis employed by users of financial statements who are external to the company.
Since the primary users are equity investors and creditors, financial accounting standards are geared to the purposes and perceptions of investors and creditors.
equity investors: long-term earning power, ability to grow, ability to pay dividends and increase in value.
Creditors:
Short-term creditors:
long-term creditors:
Immediate liquidity
Long-term asset position and earning power
Another classification of creditors:
Creditors:
trade creditors:
Non-trade creditors:
Short-term creditors
long-term creditors
Short-term creditors
(1) Creditors and equity investors
Financial Statements
Balance Sheet,
Income Statements,
Stat of cash flow, etc
Footnotes
Accounting Policy,
Contingency,
Etc.
Supplementary Data
Disclosure of Price Change,
Information about Gas and Natural Resources,Etc.
Other ways of Financial Reporting
MD&A,
Letter to Stockholders,
etc
Other Information
Report of Analyst,
Economic/Industry Statistics
News Report of company, etc,
Required Information
General Purpose External Financial Report
Corporate Financial Reporting
Information Used in Financial Statement Analysis
Information Used in Financial Statement Analysis
Hierarchy of Accounting Qualities
Constraints
User-specific qualities
Primary qualities
Ingredients of primary qualities
Understandability
Relevance Reliability
Feedback value
Predictive value
Comparability and consistency
Neutrality Verifiability
Secondary qualities
Benefits > Costs Materiality
Users of accounting information
Decision makers and their characteristics
Decision usefulness
Representational faithfulnessTimeliness
Qualitative characteristics of accounting information:
Relevance: the capacity of information to make a difference in a decision.
Timeliness : an important aspect of relevance.
Reliability: encompasses verifiability, representational
faithfulness, and neutrality.
Relevance and reliability tend to be opposing qualities.
Consistency and comparability:
•consistency refers to use of the same accounting principles over the time;
•comparability refers to comparisons among companies.
Materiality: threshold for financial statement recognition.
SECQualitative factors
Quantitative factors
See p10.
Materiality is best defined in a firm context.
Focuses of Financial statementsFocuses of Financial statements
Credit Analysis;
Accounting Analysis;
Financial Analysis.
Credit AnalysisCredit Analysis
Liquidity
Ability to meet short-term obligations Focus: • Current Financial
conditions• Current cash flows• Liquidity of assets
Solvency
Ability to meet long-term obligations Focus:• Long-term financial
conditions• Long-term cash flows• Extended profitability
Credit worthiness: Ability to honor credit obligations(downside risk)
【思考题（ Questions ）】
1. 假设你是银行家。 IMC 公司申请 200 万美元的一年期短期贷款用于其在英国的扩展。在对该公司的贷款分析中，你计算出该公司的流动比率为 4 ： 1 ，其中还有近 160 万的流动资产。同行业竞争者的平均流动比率是1.9 ： 1 。根据这些有限的信息，你对 IMC 公司的贷款申请会持什么意见？如果该公司申请的是十年期的长期贷款，你的决定会有什么不同？
Accounting Analysis
Comparability problems — across firms and across time
Manager estimation error
Distortion problems Earnings management
Distortion of business
AccountingRisk
Process to evaluate and adjust financial statements to better reflect economic reality
April 19, 2023Prepared by ZHANG Tiezhu, All rights Reserved. Shanghai Institute of
Foreign Trade
Financial AnalysisFinancial Analysis
Profitability analysis — Evaluate return on investments
Risk analysis ——— Evaluate riskiness & creditworthiness
Sources and uses —Evaluate source & of funds analysis deployment of funds
Common tools
Ratioanalysis
Cash flow
analysis
Process to evaluate financial position and performance using financial statements
Techniques & Tools Used in Analyzing ProcessTechniques & Tools Used in Analyzing Process
Comparative Analysis;Comparative Analysis;
Common-Size AnalysisCommon-Size Analysis
Ratio Analysis;Ratio Analysis;
ValuationValuation
Purpose: Evaluation of consecutive financial statements
Output: Direction, speed, & extent of any trend(s)
Types: Year-to-year Change Analysis
Index-Number Trend Analysis
Comparative Analysis
Yr2Yr1 Yr3
Kodak's Comparative Income Statements
2001 2000 Change Change (in mil.) %
Sales $ 13,234 $13,994 $ (760) (5.4)%
Cost of goods sold 8,670 8,375 295 3.5Gross profit $ 4,564 $
5,619
$ (1,055)(18.8)Operating Expenses:
Selling, general and admin. 2,781 2,665 116 4.4 Research and development 779 784 (5) (0.6) Restructuring costs 659 (44) 703 -Earnings from operations $ 345 $2,21
4 $(1,869)
(84.4)Interest Expense and other 237 82 155 189.0Other income (charges) - - - -Earnings before income taxes $ 108 $
2,132 $ (2,024)
(94.9)Provision for income taxes 32 (693) (95.6)Net earnings $ 76 $ (1,331) (94.6)
725 $ 1,407
Kodak's Index-Number Trends - Sales and Operating expenses (1997 = base year)
0.7000.7500.8000.8500.9000.9501.0001.050
1997 1998 1999 2000 2001
Ind
ex -
Bas
e 19
97
Sales
Operatingexpenses
Purpose : Evaluation of internal makeup of financial statements;
Evaluation of financial statement accounts across companies.
Output: Proportionate size of assets, liabilities, equity, revenues, &
expenses
Common-Size Analysis
Kodak's Common-Size Income StatementsKodak's Common-Size Income Statements
2001 2000
Sales 100.0% 100.0%Cost of goods sold 65.5 59.9 Gross profit
0.6%
Selling, general and administrative expenses 21.0 19.0Research and development costs 5.9 5.6Restructuring Costs 5.0 (0.3)Earnings from operations
Interest expense and other costs (credits) 1.8 0.6Earnings before income taxesProvision for income taxes 0.2 5.2Net earnings
34.5%
0.8%
2.6% 15.8%
40.1%
15.2%
10.0%
Purpose : Evaluate relation between two or more economically important items (one starting point for further analysis)
Output: Mathematical expression of relation between two or more items
Cautions: Prior Accounting analysis is important
Interpretation is key -- long vs short term & benchmarking
Ratio Analysis
Role of the AuditorRole of the Auditor
SEC requires Audit Report
Audit opinion can be:
- clean (fairly presented)
- qualified (except for)
- disclaimer (no opinion)
Check Auditor quality & independence Auditors
April 19, 2023Prepared by ZHANG Tiezhu, All rights Reserved. Shanghai Institute of
Foreign Trade
Abbreviations used in this course
Assignments:
1. Describe the SEC reporting requirements for foreign registrants.
2. Explain the role of the auditor
77
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