Lecture notes S2 L 2 - 1 Analyzing Financing Activities...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 Analyzing Financing Activities Main References: Subramanyam and Wild, Chapter 3 Palepu and Healy, chapter 1, 2 & 3 CFA Program Curriculum, Levels I and II. 2 Key concepts and objectives Liabilities are economic obligations requiring future outflows of resources. Distortions may generally arise from ambiguities about whether: An obligation has been incurred An obligation has been properly measured 3 Key concepts and objectives Understated liabilities may arise from: Incentives to overstate earnings or the strength of financial position Difficulties in estimating the amount of future financial commitments 4 Key concepts and objectives Analyzing the financing aspect of the balance sheet for possible distortions allows the analyst to better understand the economic substance of a firms financial position. 5 Key concepts and objectives The key objectives in analysing financing activities are as follows: Analyse, adjust and interpret various kinds of liabilities on the balance sheet Understand the importance of the following financing activities in analysing financial statements: lease transactions contingent liabilities and commitments, off-balance sheet financing, postretirement benefits shareholders equity And be able to adjust any distortions in liabilities created by the above items in financial statement analysis 6 Current (short-term) Liabilities Noncurrent (Long-Term) Liabilities Obligations that are expected to be settled in the near future, typically one year or less Obligations that are expected to be settled over a future period, generally greater than one year Liabilities Classification 7 Operating Liabilities Financing Liabilities Obligations that arise from operating activities--examples are accounts payable, advance payments, taxes payable, postretirement liabilities, and other accruals of operating expenses Obligations that arise from financing activities--examples are short- and long-term debt, bonds, notes and leases, Liabilities Alternative Classification 8 Leases Leasing Facts Lease contractual agreement between a lessor (owner) and a lessee (user or renter) that gives the lessee the right to use an asset owned by the lessor for the lease term. Lessee makes minimum lease payments (MLP) to the lessor according to the lease contract 9 Leases ( 1) Capital Lease: Leases that transfer substantially all benefits and risks of ownershipaccounted for as an asset acquisition and a liability incurrence by the lessee, and as a sale and financing transaction by the lessor (2) Operating Lease: Leases other than capital leasesthe lessee (lessor) accounts for the minimum lease payment as a rental expense (income) Lease Accounting and Reporting 10 Leases A lessee classifies and accounts for a lease as a capital lease if, at its inception, the lease meets any of four criteria: (i) lease transfers ownership of property to lessee by end of the lease term...
View Full Document

This note was uploaded on 08/27/2011 for the course CORPFIN 7827 taught by Professor Prokim during the Three '11 term at University of Adelaide.

Page1 / 26

Lecture notes S2 L 2 - 1 Analyzing Financing Activities...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online