Week+1+notes.pdf - Week 1 Chapter Introduction to Financial...

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.