Chapter_09 - Chapter 9 Chapter The Analysis of the Balance...

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Chapter 9 Chapter 9 The Analysis of the Balance Sheet and the Income Statement
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The Analysis of the Balance Sheet The Analysis of the Balance Sheet and the Income Statement and the Income Statement Chapter 8 reformulated the statement of owners’ equity. Link to Previous Chapter This chapter continues the reformulation and analysis with the balance sheet and income statement. The reformulation follows the design in Chapter 7. This Chapter Chapters 10 reformulates the cash flow statement. Link to Next Chapter More applications and discussion are on the web page. Link to Web Page What assets and liabilities are classified as operating ? As financing ? What items in the income statement are classified as operating ? As financing ? How are taxes allocated to the operating and financing components of the income statement ? What ratios are calculated from reformulated statements ? What do they mean ?
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What you will learn from this What you will learn from this chapter chapter Why reformulated income statements and balance sheets are desirable How knowledge of the business is incorporated in reformulated statements How operating and financing components of the two statements are identified Which assets and liabilities typically fall into operating and financing categories Why income taxes are allocated to different parts of the income statement What balance sheet and income statement ratios reveal
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Analysis of Balance Sheet and Analysis of Balance Sheet and Income Statement: the Steps Income Statement: the Steps 1. Reformulate to distinguish between operating and financing activities 1. Carry out common size and trend analysis 1. Calculate balance sheet and income statement ratios
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The Standard Balance Sheet The Standard Balance Sheet
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Reformulating the Balance Sheet: The Governing Accounting The Governing Accounting Relations Relations Net Operating Assets (NOA) = Operating Assets (OA) – Operating Liabilities (OL) Net Financial Obligations (NFO) = Financial Obligations (FO) – Financial Assets (FA) Common Shareholders’ Equity (CSE) = NOA – NFO
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The Typical Reformulated The Typical Reformulated Balance Sheet Balance Sheet Assets Liabilities and Stockholders’ Equity Financial assets: Financial liabilities: - Cash equivalents - Short-term borrowings - Short-term investments - Current maturities of long-term debt - Short-term notes receivable (?) - Short-term notes payable (?) - Long-term non-marketable - Long-term borrowing (bank loans, debt investments bonds, payable, notes payable) - Long-term marketable - Lease obligations debt securities - Preferred stock Operating assets: Operating liabilities: all else all else Common equity
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Issues in Reformulating Balance Issues in Reformulating Balance Sheets Sheets Cash: working cash and excess cash Short term notes receivable: trade receivables or investment of cash?
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