3achapter13

3achapter13 - Tools for Business Decision Making, 4th...

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1 13-1 Financial Accounting: Tools for Business Decision Making, 4th Edition Kimmel, Weygandt, Kieso CHAPTER 13 FINANCIAL ANALYSIS: The Big Picture 13-2 Chapter 13 After studying Chapter 13, you should be able to: ± Understand the concept of sustainable income. ± Indicate how irregular items are presented. ± Explain the concept of comprehensive income. ± Describe and apply horizontal analysis. ± Describe and apply vertical analysis. 13-3 After studying Chapter 13, you should be able to: ± Identify and compute ratios used in analyzing a company’s liquidity, solvency, and profitability. ± Understand the concept of quality of earnings. Chapter 13 13-4 Sustainable Income. .. ± Is the most likely level of income to be obtained in the future. ± Does not include irregular revenues, expenses, gains, or losses. DO FINANCIAL STATEMENTS SERVE AS PSYCHIC UNDERSTANDING, OR HISTORICAL RECORDS? HISTORICAL RECORDS WHY DO POTENTIAL NEW INVESTORS AND CREDITORS CARE ABOUT WHAT ALREADY HAPPENED? THE PAST IS A STRONG INDICATOR OF THE FUTURE. 11 1
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2 13-5 Components of the Income Statement 13-6 Irregular Items Two types of irregular items are reported -- (all net of taxes) ± discontinued operations ± extraordinary items 11 2 13-7 Discontinued Operations. .. Refers to the disposal of a significant segment of a business. .. ± the elimination of a major class of customers or ± an entire activity. 13-8 Rozek net income of $800,000 from continuing operations in 2007. During 2007 the company discontinued and sold its unprofitable chemical division. The loss in 2007 from chemical operations (net of $90,000 taxes) was $210,000. The tax rate is 30%. Discontinued Operations
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3 13-9 Extraordinary Items. .. Are events and transactions that meet two conditions: ± Unusual in nature ± Infrequent in occurrence HELP FROM BOB: (1) Has not happened before (2) is not expected to happen again. 13-10 ± In 2007 a revolutionary foreign government expropriated property held as an investment by Rozek Inc. ± The loss is $70,000 before applicable income taxes of $21,000, the income statement presentation will show a deduction of $49,000. Extraordinary Items 13-11 Presentation of Extraordinary Items. ..
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This note was uploaded on 08/06/2008 for the course ECON 3A taught by Professor Loster during the Summer '07 term at UCSB.

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3achapter13 - Tools for Business Decision Making, 4th...

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