chap 2a notes

chap 2a notes - Financial Statement Analysis Chapter 2 1...

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Unformatted text preview: Financial Statement Analysis Chapter 2 1 Spring 2010 Focusing Question Do you agree that Cathay is financially healthy given the information in this article and why? 2 Spring 2010 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 3 Spring 2010 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 4 Spring 2010 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 5 Spring 2010 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. 6 Spring 2010 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 7 Spring 2010 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 8 Spring 2010...
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This note was uploaded on 08/10/2011 for the course FINA 101 taught by Professor X during the Spring '11 term at HKUST.

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chap 2a notes - Financial Statement Analysis Chapter 2 1...

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