Chap009 - Chapter 09 Analysis of Foreign Financial...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 09 - Analysis of Foreign Financial Statements CHAPTER 9 ANALYSIS OF FOREIGN FINANCIAL STATEMENTS Chapter Outline I. Reasons to analyze financial statements of foreign companies include: making foreign portfolio investment decisions, making foreign merger and acquisition decisions, making credit decisions about foreign customers, evaluating foreign suppliers, and benchmarking against foreign competitors. II. There are several problems an analyst might encounter in analyzing foreign financial statements, including: finding and obtaining financial information about a foreign company, understanding the language in which the financial statements are presented, the currency used in presenting monetary amounts, terminology differences that result in uncertainty as to the information provided, differences in format that lead to confusion and missing information, lack of adequate disclosures, financial statements are not made available on a timely basis, accounting differences that hinder cross-country comparisons, and differences in business environments that might make ratio comparisons meaningless even if accounting differences are eliminated. III. Some of the potential problems can be removed by companies through their preparation of convenience translations in which language, currency, and perhaps even accounting principles have been restated for the convenience of foreign readers. IV. A significant number of investors find that differences in accounting practices across countries hinder their financial analysis and affect their investment decisions. Some analysts cope with this problem by restating foreign financial statements to a familiar basis, such as U.S. GAAP. A. Another coping mechanism is to base analysis on a measure of performance from which many accounting issues have been removed, such as EBITDA. 9-1
Image of page 1

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

View Full Document Right Arrow Icon
Chapter 09 - Analysis of Foreign Financial Statements V. Analysts should exercise care in interpreting ratios calculated for foreign companies. What is considered to be a good or bad value for a ratio in one country may not be in another country. A. Financial ratios can differ across countries as a result of differences in accounting principles. B. Financial ratios also can differ across countries as a result of differences in business and economic environments. Optimally, an analyst will develop an understanding of the accounting and business environments of the countries whose companies they wish to analyze. VI. To facilitate cross-country comparisons of financial information, foreign company financial statements can be restated in terms of a preferred GAAP through the use of a reconciliation worksheet in which debit/credit entries summarizing the differences in GAAP are used to adjust the original reported amounts.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.
  • Spring '11
  • BROWN
  • Generally Accepted Accounting Principles, Foreign Financial Statements, Analysis of Foreign Financial Statements

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern