Financial Ratio Analysis

By |November 2nd, 2017|Financial Statement Analysis|

INTRODUCTION Financial ratios are the foundation of fundamental analysis.  Ratios allow an investor to view certain financial figures in relation to other financial figures.  Ratios are important because few financial statement items have meaning in isolation.  By placing financial statement items within a deeper analytical context, investors can make more informed decisions about the company’s [...]

Financial Statement Adjustments

By |October 27th, 2017|Financial Statement Analysis|

INTRODUCTION Investors must adjust a company’s financial statements for two primary reasons: (1) to better reflect the firm’s underlying economics and (2) to better facilitate comparison of companies using different accounting estimates or reporting under different accounting regimes.  In the next article, I discuss financial ratio analysis.  These ratios should be based on adjusted financial [...]

Multinational Operations Analysis

By |September 26th, 2017|Financial Statement Analysis|

INTRODUCTION A company with multinational operations has unique accounting issues which arise from business transactions conducted in multiple currencies.  As the economy becomes more globally integrated, more and more companies transact in foreign jurisdictions, either directly or through a foreign operating subsidiary.  Companies, however, must report their consolidated financial statements in a single currency and [...]

Intercorporate Equity Investments Analysis

By |September 18th, 2017|Financial Statement Analysis|

INTRODUCTION This article focuses on a company’s accounting for investments in the common stock of other corporations.  However, the same concepts described in this article also apply to investments in debt securities and preferred shares. The primary difference between the accounting for investments in debt securities and investments in equity securities is that, in [...]

Shareholders’ Equity Analysis

By |August 29th, 2017|Financial Statement Analysis|

INTRODUCTION Shareholders’ equity refers to the residual claim on assets attributed to the company’s owners[1].  Equity represents capital directly invested in the company by owners plus retained earnings.  Certain gains, losses, and charges are recorded directly into owner’s equity. Accounting for shareholders’ equity represents the view of the firm as the sum of the [...]

Income Tax Analysis

By |August 21st, 2017|Financial Statement Analysis|

INTRODUCTION Every company must pay a portion of its profits as income tax to one or more governments or jurisdictions in which the firm conducts business.  However, the rules for determining income under the various tax jurisdictions will differ from the rules for determining income under U.S. GAAP.  Accounting for the differences between taxable [...]

Balance Sheet Analysis Part 2: Liabilities

By |July 11th, 2017|Financial Statement Analysis|

INTRODUCTION For the balance sheet to be in equilibrium, the assets which a company shows must also be shown with the corresponding “claims” against those assets.  The claims against those assets are either liabilities or shareholder’s equity.  In this article, I examine liabilities, which are the financial or operational obligations which a company has [...]

Cash Flow Statement Analysis

By |July 11th, 2017|Financial Statement Analysis|

INTRODUCTION Recall from the article on the income statement that a company will recognize revenue regardless of when payment is received.  For example, a company may sell a product and receive a promise of future payment (receivable) in lieu of a cash receipt.  Likewise, a company will recognize an expense regardless of when cash [...]

Income Statement Analysis

By |July 11th, 2017|Financial Statement Analysis|

INTRODUCTION The income statement shows the calculation of a company’s profit over a period, such as a quarter or a year.  A company’s profit (also known as “net income”) is the difference between its revenue and expenses.  However, both revenue and expenses are calculated in accordance with given accounting guidelines (U.S. GAAP and IFRS), [...]

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