Financial Information Analysis (FIA) Introduction

First impressions versus analysis Introduction © Philip O’Regan 2016

Financial information Language of business Accounting is a “social science” develops in response to needs of society can be adapted no “correct” set of accounting practices These characteristics confirmed by history Challenges posed by “information revolution” Political: interest groups lobby to shape it Introduction © Philip O’Regan 2016

Political nature Because accounting is a social science it: responds to needs of society/business has no “correct”, immutable set of formulae Interested parties compete to shape practice e.g., accountants, business, shareholders, etc. i.e., accounting practice emerges by means of a political process Fundamental theme of this text Introduction © Philip O’Regan 2016

Role and impact of financial information Financial information is a vital means of communication in the modern world It can impact: allocation of funds cost of capital wealth distribution company policies in a variety of areas Introduction © Philip O’Regan 2016

Forms of accounting information Accounting information takes many forms: internal, e.g., budgets, forecasts, projections external, e.g., Annual Report Annual Report: fulfils statutory reporting responsibilities heavily regulated mix of narrative and financial information constantly changing Introduction Financial Information Analysis

Users of accounting information Wide variety of users shareholders and investors financial analysts management employees others Range reflects importance of accounting information in modern society Often not feasible to satisfy all Introduction © Philip O’Regan 2016

Interpreting financial information Because now so ubiquitous, important to be able to interpret financial information FIA is an approach to financial information that uses techniques to: analyze contextualize interpret This facilitates the decision-making process Introduction © Philip O’Regan 2016

Fundamental analysis One approach to analyzing financial information Focuses on fundamentals of company macro/micro-economy financial performance trading environment Uses ratios to identify and extract information Dominant paradigm in this text Introduction © Philip O’Regan 2016

Focus of this text IFRS – issued by International Accounting Standards Board Must be used in preparation of accounts of EU-listed companies This text focuses on Annual Reports of these EU-listed companies (Note: new UK GAAP (FRS100-102) allows individual companies to limit disclosure) Introduction © Philip O’Regan 2016