Upgrade to remove ads
22; 2: Scope of Financial Statement Analysis
Terms in this set (11)
- to provide information about a company's performance, financial position, and changes in financial position that is useful to a wide range of users in making economic decisions
role of financial reporting by companies
- to use financial reports prepared by companies, combined with other information, to evaluate the past, current, and potential performance and financial position of a company for the purpose of making investment, credit, and other economic decisions
role of financial statement analysis
•Evaluating an equity investment for inclusion in a portfolio.
•Evaluating a merger or acquisition candidate.
•Evaluating a subsidiary or operating division of a parent company.
•Deciding whether to make a venture capital or other private equity investment.
•Determining the creditworthiness of a company in order to decide whether to extend a loan to the company and if so, what terms to offer.
•Extending credit to a customer.
•Examining compliance with debt covenants or other contractual arrangements.
•Assigning a debt rating to a company or bond issue.
•Valuing a security for making an investment recommendation to others.
•Forecasting future net income and cash flow.
In evaluating financial reports, analysts typically have a specific economic decision in mind. Examples of these decisions include the following
- the ability to earn a profit from delivering goods and services
- cash receipts in excess of cash disbursements
positive cash flows
- income minus expenses
- the difference between the prices at which goods or services are provided to customers and the expenses incurred to provide those goods and services.
- includes other income (such as investing income or income from the sale of items other than goods and services) minus the expenses incurred to earn that income
- its recognition is mostly independent from when cash is received or paid
Profit (or loss)
- The ability to meet short-term obligations
- the ability to meet long-term obligations
- the resources controlled by a company
- controlled as a result of past events
- something from which future economic benefits to the enterprise are expected to flow
- creditors' claims on the resources of a company
- present obligations of an enterprise arising from past events
- the settlement of which is expected to result in an outflow of resources embodying economic benefits
= assets - liabilities
- the residual interest in the assets after subtracting the liabilities
YOU MIGHT ALSO LIKE...
Series 7 Top-Off Exam Preparation | Knopman Marks…
Chapter 1: A Framework for Financial Accounting
Test 1- Accounting (Chp. 1, 2, 3, 9)
OTHER SETS BY THIS CREATOR
Credit Policy Terms
Credit Policy Information
Credit Policy Definitions
Credit Policy Terms
THIS SET IS OFTEN IN FOLDERS WITH...
L1 V1 R5 Time Value of $
V1 S2 R6 Discounted CF Applications
v1 s2 r7