Class+Exercise+from+4-20-09

Class+Exercise+from+4-20-09 - Financial Accounting How do...

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Financial Accounting: Evaluating Financial Statements 1 Financial Accounting Evaluating Financial Financial Statements Statements How do you evaluate financial statements? Where do you start when the Annual Report is 100 or more pages long? Step 1: Confirm the Auditor’s Report is acceptable. Step 2: Review the Five-Year Summary of Key Financial Data to get an overview of the company’s financial situation. How do you evaluate financial statements? Where do you start when the Annual Report is 100 or more pages long? Step 3: Examine the basic financial statements – already discussed. Step 4: Skim the Notes to the Financial Statements focusing on a few key issues. How do you evaluate financial statements? Where do you start when the Annual Report is 100 or more pages long? Step 5: Read the MD&A for useful information … but with skepticism. Step 6: Perform a complete financial analysis and summarize your findings. Complete and summarize your analysis c The final step is to complete your analysis and summarize your findings. c There are many approaches to preparing and summarizing your analysis – one approach is provided here. c First, let’s consider the sources of information and tools and techniques. Sources of information c In addition to the sources identified previously, the analyst may want to consider: ִ Proxy statement ִ Supplementary schedules ִ Subsequent quarterly reports (10-Qs) ִ Computerized data bases, especially for industry norms ִ Financial and investment websites ִ Articles in the business press
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Financial Accounting: Evaluating Financial Statements 2 Tools and techniques These would include: c Common-size financial statements c Financial ratios c Trend analysis c Industry comparisons Most important – common sense and judgment! Common-size financial statements Express each account on the: c Balance Sheet as a percentage of total assets. c
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Class+Exercise+from+4-20-09 - Financial Accounting How do...

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