Sis we must learn to look through the numbers and

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sis we must learn to look through the numbers and ratios to better understand the operational ors that drive financial results. Successful analysis seeks to gain insight into what a company really about and what the future portends. Our overriding purpose in analysis is to understand past and present to better predict the future. Computing and examining ratios is one step in process. ALYZING GLOBAL REPORTS important aim of this module is to distinguish between operating and nonoperating items for balance sheet and income statement. U.S. GAAP and IFRS generally account for items sirni- ... but there are certain disclosure differences worth noting. The IFRS balance sheet is similar to its U.S. GAAP counterpart, with the visible exception for frequent, but not mandatory, reverse ordering of assets and liabilities. However, one notable erence is that IFRS companies routinely report "financial assets" or "financial liabilities" on balance sheet. We must assess these items. IFRS defines financial assets to include receivables rating item), loans to affiliates or associates (can be operating or nonoperating depending the nature of the transactions), securities held as investments (nonoperating), and derivatives operating). !FRS notes to financial statements, which tend to be more detailed than U.S. :\..-\Pnotes, usually detail what financial assets and liabilities consist of. This helps us accurately - ermine NOA and NNO. The IFRS income statement usually reports fewer line items than U.S. GAAP income ements and, further, there is no definition of "operating activities" under IFRS. This means ~ must devote attention to classify operating versus nonoperating income components. Fol- ing is a table that shows common U.S. GAAP income statement items and their classifica- as operating (0) or nonoperating (N). This table also indicates which items are required - IFRS income statements. Operating (0) or Required on IFRS Nonoperating (N) Income Statement me Statement Line Items -" sales . Cost of sales .................................... •..•.. inq, general and administrative (SG&A) expense . :::..ovisions for doubtful accounts . 'IIofloperating income ................................ •.. :.:erest revenue and Interest expense . "Ionoperating expenses . me before income taxes . ::X:Ome tax expense . .::amings on equity investments (associates and joint ventures) . me from continuing operations " . :Jiscontinued operations . :ncome before extraordinary items ............ ............. :=:xtraordinary items, net of income tax . at income . at income attributable to noncontroliing interest . et income attributable to controliing interest . =arnings per share (Basic EPS and Diluted EPS) . o YES o o o N N YES N Oand N o and N YES o YES o N YES o and N o or N o and N YES N YES o and N YES o and N YES
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MODULE-END REVIEW 3-21 Module 3 I Profitability Analysis and Interpretation There is no requirement to report income from operations, yet many IFRS companies do so. However, items that are considered operating such as gains and losses on disposals of operating assets, or income from equity method investments, are often reported below the operating income line. We must exam-
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