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Financial Accounting and Accounting Standards

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Financial Accounting and Accounting Standards Powered By Docstoc
					     Professional English for
     Accounting and Auditing
        会计审计专业英语


    Prepared by Luo Dianying,
       Accounting College,
       Zhongnan University
      of Economics and Law



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     Part 2 Financial Accounting
              财务会计



    Chapter 10 Financial Statement
         Analysis 财务报表分析


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        By Luo Dianying, Zhongnan University of Economics and Law
       Chapter 10 Financial Statement
                  Analysis
1. Framework for Financial Statement Analysis 财
     务报表分析框架
     I. Context for Financial Statement Analysis
     II. Information Sources to the Business
2. Techniques of Analysis 分析技术
     I. Comparison of Financial Statements over Time
     II. Common-Size Statements
3.   Ratio Analysis比率分析
     I. DuPont System
     II. An Alternative Approach
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       Financial Statements Analysis
Financial statement analysis examines:
(1) the relationships among financial statement
     numbers, and
(2) the trends in those numbers over time.
Financial statement analysis has two purposes:
(1) to use the past performance of an entity to
     predict its future profitability and cash flows.
(2) to evaluate the performance of an entity with an
     eye toward identifying problem areas.

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    10.1 Framework for Financial Statement Analysis

10.1.1 Context for Financial Statement Analysis
         The size of the business
         The business risk
         The economic environment
         Industry trends, effects of changes in
          technology




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    10.1 Framework for Financial Statement Analysis

10.1.2 Information Sources to the Business
         Chairman’s statement
         Directors’ report
         The balance sheet
         Statements of Income and Changes in Equity
         Statement of cash flows
         Notes to the statements
         Auditors’ report
         External sources



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         10.2 Techniques of Analysis
10.2.1 Comparison of Financial Statements over
    Time
Trend analysis
(1) select a base year and assign each item on the
    base year statement a weight of 100%;
(2) express each item from the statements for the
    other years as a percentage of its base year
    amount




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             10.2 Techniques of Analysis
Trend analysis- example
                   2005     2004     2003      2002     2001
   Net sales       $5 937 $4 649 $3 753 $2 759 $1 843
   Cost of sales      877      763      633      467       362
   Gross profit $5 060 $3 886 $3 120 $2 292 $1 481
Using 2001 as the base year, the percentage trends for these items
appear as follows:
                   2005   2004   2003   2002   2001
    Net sales      322.1% 252.3% 203.6% 149.7% 100%
    Cost of sales 242.3      210.8    174.9     129.0     100
    Gross profit 341.7       262.4    210.7     154.8     100
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           10.2 Techniques of Analysis
10.2.2 Common-Size Statements
                                   2005   2004 2005 2004
Total Revenue                    91,134 96,293 100% 100%
Total Cost                          54,602 60,724 59.91 63.06
Gross Profit                        36,532 35,569 40.09 36.94
Total Expense and Other Income      24,306 24,900 26.67 25.86
Provision for income taxes           4,232 3,172 4.64 3.29
Loss       from        discontinued
                                       -24    -18 -0.03 -0.02
operations, net of tax
Cumulative effect of change in
                                       -36     — -0.04
accounting principle, net of tax
Net Income                          $7,934 $7,479 8.71 7.77
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                     10.3 Ratio Analysis
10.3.1 DuPont System
Return on equity (ROE) is a starting point for a
    systematic analysis of a firm’s performance.

     ROE=ROA×Financial leverage
           N ein c o m e
              t                Assets
         =              ×
             A s s e t s Shareholde rs' equity

     The ROA itself can be decomposed as a product of two factors:
           Net income      Sales
     ROA=              ×
             Sales        Assets

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                    10.3 Ratio Analysis
10.3.1 DuPont System- example
                                        2005      2004
        Net income                      $7 934    $7 479
        Stockholders’ equity           $33 098   $31 688
        Return on equity               23.97%    23.60%


     Ratio                                   2005   2004
     Net profit margin (ROS): profitability 8.71% 7.77%
     Assets turnover: efficiency            86.18% 86.75%
     Financial leverage                   3.19   3.50
     Return on equity (ROE)              23.97% 23.60%
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             10.3 Ratio Analysis
10.3.2 An Alternative Approach
Distinguish between two sources of
    performance:
 Income from operating activities
 Consequences of financing decisions

Table10-7 Definitions of Accounting Items Used
    in Ratio Analysis



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             10.3 Ratio Analysis
10.3.2 An Alternative Approach- example
Table10-8 ROE Decomposition for IBM:
    Distinguishing Operating and Financing
    Components

Table10-9




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posted:10/6/2012
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