Brailsford3eSM_Ch14 - Chapter 14 Quantitative company...

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Copyright © 2006 Nelson Australia Pty Limited Chapter 14 Quantitative company analysis Learning objectives After the completion of this chapter, you should be able to: understand the nature and environment of external reporting (in Australia) comprehend the arguments and debate concerning financial disclosure understand the link between financial information and share prices assess the relevance of financial information to the share market understand the importance and relevance of earnings and its components to valuation conduct ratio analysis and understand the consequent interpretations and limitations be aware of international accounting issues that are relevant to a comparison between international companies Key points 1 Interpretation of accounting information is fundamental to the valuation of corporate equity. 2 Financial information can vary depending upon its relevance or accuracy. 3 Earnings and key accounting ratios have been found to be useful from an investment analysis perspective. Chapter outline 14.1 Introduction 1 Investors have access to vast amounts of information. Some of which is contained in periodically produced financial statements. 2 The key financial statements are the balance sheet, profit and loss statement and the cash flow statement. 14.2 The Australian financial reporting environment 1 Key legislation in Australia includes the Corporations Act (2001) and the Australian Securities and Investments Commission Act (2001). 2 Australian companies are required to produce annual financial statements (balance sheet, profit and loss statement and the cash flow statement) as well as half-yearly reports. 3 ASX also has strict disclosure requirements. 14.3 The role of financial disclosure 1 Disclosures mandated (eg ASX regulations) 2 Purpose of disclosure is to ensure that full and adequate disclosure is made to investors, to ensure fair prices are set.
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2 Investments: Concepts and Applications Solutions Manual Copyright © 2006 Nelson Australia Pty Limited 14.4 The relevance of financial information 1 Some financial statement information found to be relevant to investors. 2 Examples include earnings per share. 14.5 Ratio analysis 1 Traditional financial statement analysis involves the construction and comparison of financial ratios. 2 There are generally considered to be six categories of financial ratios, such as standardised ratios, liquidity ratios, risk analysis ratios, efficiency ratios, profitability ratios and growth ratios. 14.6 International issues in financial statements 1 Investors are increasingly viewing the global markets as their opportunity set. Hence, the investor should be wary when making international comparisons of financial information. Financial statements around the world appear to be generally similar.
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This note was uploaded on 02/06/2011 for the course FINM 3402 at Queensland.

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Brailsford3eSM_Ch14 - Chapter 14 Quantitative company...

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