chap+2a

chap+2a - Chapter 2 Financial Statement Analysis Focusing...

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Financial Statement Analysis Chapter 2
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2 Spring 2011 Focusing Question Do you agree that Cathay is financially healthy and why?
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4 Spring 2011 Accounting Information and Ratios Accounting number is the language of business finance Good working knowledge of financial statements is essential Financial ratios summarize specific aspects of a firm’s financial position Ratios provide useful information for Performance evaluation – compensation and comparison between divisions Planning for the future – guide in estimating future cash flows External uses by suppliers, creditors and shareholders Ratios allow for better comparison through time or between companies
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5 Spring 2011 Course Plan Financial Management Foundation and Tools Valuation Short-term Financial Management Risk and Return Long-term Financing Decisions Financial Statement Analysis Capital Budgeting Working Capital Management Cost of Capital Capital Structure Valuation Principle Time Value of Money Bonds and Stocks Investment Decision Rules
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6 Spring 2011 Outline Financial Statements Balance Sheet Income Statement Profits vs. Cash Flow Statement of Stockholders’ Equity Income Statement Analysis Balance Sheet Analysis Statement of Cash Flows
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7 Spring 2011 Learning Objectives 1. Show why the disclosure of financial information through financial statements is critical to investors. 2. State the functions of the balance sheet. 3. Compute various ratios using the balance sheet of a firm in order to analyze its financial status. 4. State the functions of the income statement.
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8 Spring 2011 Disclosure of Financial Information a common set of standards and procedures needed for preparing financial statements: 1. Generally Accepted Accounting Principles (GAAP) adopted in the US for local companies 2. International Financial Reporting Standards (IFRS) adopted in HK and many other countries Listed companies must comply with exchange’s rules such as audit Auditor: Neutral third party that checks a firm’s financial statements
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9 Spring 2011 Types of Financial Statements Balance Sheet Income Statement Managers, Investors and Analysts Use Financial Statement to Conduct: - Cash Flow Analysis - Performance (Ratio) Analysis Statement of Cash Flows Statement of Stockholders’ Equity
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11 Spring 2011 Balance Sheet a snapshot of the firm’s assets and liabilities at a given
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chap+2a - Chapter 2 Financial Statement Analysis Focusing...

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