ACC 302 PPt 21 - 1 Analysis of Financial Statements...

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1 Analysis of  Analysis of  Financial  Financial  Statements Statements
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2 Organize a systematic financial ratio analysis using common-size financial statements and the DuPont framework. Recognize the potential impact that differing accounting methods can have on the financial ratios of otherwise essentially identical companies. Understand how foreign companies report their financial results to U.S. investors. Learning Objectives
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3 Adjust reported financial statement numbers for the impact of inflation and for changes in the market values of specific assets. Learning Objectives EXPANDED MATERIAL Convert foreign currency financial statements into U.S. dollars using the translation method. Incorporate material from the entire text into the preparation of a statement of cash flows.
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4 Analytical Objectives Common-Size Financial Statements Ratio Analysis Financial Statement Analysis Financial Statement Analysis is the is the examination of both the relationships among examination of both the relationships among financial statement numbers and the trends financial statement numbers and the trends of those numbers over time. of those numbers over time. Major Tools Include
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5 Framework for Financial Statement Analysis Common-Size Financial Statements: Analysis of a company’s single-year financial statements. Financial statements are standardized by a measure of size, either sales or total assets. All amounts are stated in terms of a percentage of the size measure. Ratio Analysis: Analysis of a company’s financial statements by computing ratios and comparing them against both trends and industry averages.
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6 Comparisons Between Financial Statements Are Most Useful: When the presentations are in good form. When the content of the statements is identical.
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