Unformatted text preview: 5 Identify and compute ratios used in analyzing a firm's liquidity, profitability, and solvency. The formula and purpose of each ratio was presented in Illustration 14-27 . 6 Understand the concept of earning power, and how irregular items are presented. Earning power refers to a company's ability to sustain its profits from operations. “Irregular items”—discontinued operations and extraordinary items—are presented net of tax below income from continuing operations to highlight their unusual nature. 7 Understand the concept of quality of earnings. A high quality of earnings provides full and transparent information that will not confuse or mislead users of the financial statements. Issues related to quality of earnings are (1) alternative accounting methods, (2) pro forma income, and (3) improper recognition....
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- Fall '08
- Financial Accounting, Generally Accepted Accounting Principles, irregular items, financial relationship