Chapter4 - Analyzing Investing Activities CHAPTER 4 Current...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
4 CHAPTER Analyzing Investing Activities
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Current (Short- term) Assets Noncurrent (Long-term) Assets Resources or claims to resources that are expected to be sold, collected, or used within one year or the operating cycle, whichever is longer. Resources or claims to resources that are expected to yield benefits that extend beyond one year or the operating cycle, whichever is longer . Current Asset Introduction Classification
Background image of page 2
Current Asset Introduction Operating Cycle
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Cash Currency, coins and amounts on deposit in bank accounts, checking accounts, and some savings accounts. Current Asset Introduction Cash, Cash Equivalents and Liquidity
Background image of page 4
Cash Equivalents Short-term, highly liquid investments that are: Readily convertible to a known cash amount. Close to maturity date and not sensitive to interest rate changes . Current Asset Introduction Cash, Cash Equivalents and Liquidity
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Companies risk a reduction in liquidity should the market value of short-term investments decline. Cash and cash equivalents are sometimes required to be maintained as compensating balances to support existing borrowing arrangements or as collateral for indebtedness. Current Asset Introduction Analysis of Cash and Cash Equivalents
Background image of page 6
Receivables are amounts due from others that arise from the sale of goods or services, or the loaning of money Accounts receivable refer to oral promises of indebtedness due from customers Notes receivable refer to formal written promises of indebtedness due from others Current Asset Introduction Receivables
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Receivables are reported at their net realizable value — total amount of receivables less an allowance for uncollectible accounts Management estimates the allowance for uncollectibles based on experience, customer fortunes, economy and industry expectations, and collection policies Current Asset Introduction Valuation of Receivables
Background image of page 8
Assessment of earnings quality is often affected by an analysis of receivables and their collectibility Analysis must be alert to changes in the allowance—computed relative to sales, receivables, or industry and market conditions. Two special analysis questions: (1) Collection Risk Review allowance for uncollectibles in light of industry conditions Apply special tools for analyzing collectibility: • Determining competitors’ receivables as a percent of sales—vis-à-vis the company under analysis • Examining customer concentration—risk increases when receivables are concentrated in one or a few customers • Investigating the age pattern of receivables—overdue and for how long • Determining portion of receivables that is a renewal of prior receivables • Analyzing adequacy of allowances for discounts, returns, and other credits (2) Authenticity of Receivables Review credit policy for changes Review return policies for changes Review any contingencies on receivables Current Asset Introduction Analyzing Receivables
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Securitization (or factoring) is when a company sells all or a portion of its receivables to a third party
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/06/2010 for the course FI575 FI575 taught by Professor Srinivasan during the Spring '08 term at Keller Graduate School of Management.

Page1 / 55

Chapter4 - Analyzing Investing Activities CHAPTER 4 Current...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online