Seminar 06 & 07 - AF 41 07 Fi nancial Sta te men t An...

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AF 4107 – Financial Statement Analysis Seminar 6 – Chapter 7 Financial Analysis I : Cash Flow Analysis
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2 Recap from Seminar 2 Business Strategy Analysis Analyze industry (5 forces framework) Identify and examine company strategy if a firm’s accounting policies are consistent with its stated/chosen strategy whether a firm possesses the competence & resources to execute the strategy Helps in prospective analysis to forecast investment outlays (CAPEX) in order to sustain a firm’s competitive advantage or stated strategy
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3 Recap Seminar 3 - 5 Accounting Analysis 1. Financial Statements Reflect Business Activities 2. Limitations of Financial Statements 3. Accrual Accounting 4. Overview of Accounting Analysis – Accounting Standard distortions Earnings Management Understand impacts : Asset/Liabilities & PL Distortions 5. Implementing Accounting Analysis Assess critical accounting policies & motivation behind management choices Identify red flags (warning signs) from Cash Flow Statements and Notes to Accounts 1. Earnings Persistence Recast (Split and reallocate line items) or Adjust (Remove Distortions) from Income Statements (operating activities) 1. Income measurement Definitions of accounting income: Core income, Continuing income, Net income and Comprehensive income
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4 Financial Analysis I: Cash Flow 1. Report cash flows by activities Operating, Investing and Financing Limitations – classifications of interest received/paid, dividend received/paid, tax paid 1. Relationship between Company Life Cycle, Net Income & Operating Cash Flow 1. Cash Flow Analysis – where are sources & applications of funds 1. Common size Cash Flow Statement 1. Red Flags, Quality of Income & Accruals 1. Kohl’s Cash Flow and Accrual Analysis
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1. Report cash flow by activities and SCF limitations
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6 Statement of Cash Flows (SCF) Reporting by Activities Statement of cash flows reports receipts and payments by operating, financing, and investing activities Operating activities are the earning‑related activities of a company. Investing activities are means of acquiring and disposing of non-cash non-current assets . Financing activities are means of contributing, withdrawing, and servicing funds to support business activities.
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7 CFO Reporting Limitations Direct method is rarely reported, but encouraged to be used by HKAS 7 No separate disclosure of cash flows pertaining to either extraordinary items or discontinued operations. Interest and dividends received, and interest paid, are classified as operating cash flows. . Should dividends received be classified as investing income, and interest income/expense as financing activities [s33 HKAS 7 ]
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8
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1. Relationship between Company Life Cycle, Net Income & Operating Cash flow
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10 Understand Cash Flows to and from a business in 4 stages 1. Cash is raised from investors and/or borrowed from lenders.
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This note was uploaded on 06/06/2009 for the course AF AF4107 taught by Professor Mableho during the Spring '09 term at Hong Kong Polytechnic University.

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Seminar 06 & 07 - AF 41 07 Fi nancial Sta te men t An...

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