Week 1 Chapter: Introduction to Financial Statement Analysis Learning Outcomes -Describe the roles of financial reporting and financial statement analysis. -Describe the roles of the key financial statements (statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows) in evaluating a company’s performance and financial position. -Describe the importance of financial statement notes and supplementary information — including disclosures of accounting policies, methods and estimates —and management’s commentary. -Describe the objective of audits of financial statements, the types of audit reports, and the importance of effective internal controls. -Identify and explain information sources that analysts use in financial statement analysis besides annual financial statements and supplementary information. -Describe the steps in the financial statement analysis framework. Basic definition of a financial analyst Financial analysts gather all kinds of financial information and after analyzing that information, give advice and recommendations about future financial decisions. An In-House Financial Analyst: This type of analyst can be found in just about every type of company or organization. Not every company has one of these analysts on staff — it depends on the size and need of each individual organization. An in-house financial analyst evaluates a co mpany’s budget or the budgets of certain departments within that company to make sure they’re staying on track with their spending. This means looking over spending and budgeting spreadsheets, doing financial forecasting, and hunting down any inconsistencies within these reports. Sell-side Analyst: Sell-side analysts usually work at brokerage firms recommending buying or selling based on research that they have done. A sell- side analyst’s day is spent gathering company and industry knowledge, macro and microeconomic information, as well as keeping on top of any/all current economic happenings. This research is then organized into research reports and earning models which are sold to buy-side clients. Sell-side analysts do not use their research for their own investments. Instead, the end goal is to sell this information to buy- side analysts who will use it to help their own firm/client’s investment decisions. Because sell-side analysts are trying to sell their research there is a little more marketing in this profession than there is on the buy-side. Buy-side Analyst: Buy-side analysts work with mutual fund and pension fund managers as well as managers of wealthy individuals’ investment portfolios. The research that they do (along with the information bought from sell-side analysts) is used to inform the managers of these funds whether to buy, sell, or trade.
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- Fall '16