1. Financial Statement Analysis
K R Subramanyam
John J Wild

2. Financial Reporting and Analysis2
CHAPTER

3. Statutory Financial Reports
Annual reports
Quarterly reports
Balance sheet (Statement of financial position)
Income statement
Statement of Cash flows
Statement of shareholders’ equity
Notes to financial statements

4. ASSETS = LIABILITIES + OWNERS’ EQUITY
BALANCE SHEET
ASSETS = LIABILITIES + OWNERS’ EQUITY
To report an entity’s assets, liabilities and owners’ equity at a point in time.

5. INCOME STATEMENT
To report the success/failure in doing business for a period of time.
To summarize revenues and expenses incurred in a period: monthly, quarterly, yearly.

6. STATEMENT OF CASH FLOWS
To provide information about cash-in and cash-out in a period.
To report cash flows for 3 business activities:
Operating activities
Investing activities
Financing activities

7. RELATIONSHIPS BETWEEN FINANCIAL STATEMENTS
BALANCE SHEET
Assets
Current assets
PPE
Liabilities & Equity
Liabilities
A/P & Accruals
Debt & loans
Equity
STATEMENT OF CASH FLOWS
Cash flows from operating activities
Cash flows from investing activities   
Cash flows from financing activities
INCOME STATEMENT
Revenue
Expenses
Net Income 

8. NOTES TO FINANCIAL STATEMENTS
To help users understand more clearly about figures on financial statements. 1
Accounting policies 2
Additional information for items on financial statements 3
Equity changes 4
Other informaiton

9. AUDIT REPORT

10. ENVIRONMENTAL FACTORS
Accounting standards
Accounting informaiton system within an entity
Financial statements

11. GAAP Principles Accounting entity concept Going-concern assumption
Periodic
assumption
Matching
Disclosure
Materiality
Conservatism
Principles
Historical
cost
Revenue
recognition
Objectivity
TNG T3

12. Desirable Qualities of Accounting Information
Relevance
Reliability
Timeliness
Comparability
Substance over form
Materiality

13. Limitation of Accounting Infomation
Timeliness - periodic disclosure, not real-time basis
Frequency - quarterly and annually
Forward Looking - limited prospective information

14. Economic Income vs. Accounting Income
Measures changes in Shareholders wealth.
Cash flows + Present value of expected future cash flows.
Based on the concept of accrual accounting
Revenue recognition
Expense matching

15. Demand for Accounting Analysis
Adjust for accounting distortions so financial reports better reflect economic reality
Adjust general-purpose financial statements to meet specific analysis objectives of a particular user

16. Financial statements in global environment
Comparability between countries
IAS & IFRS born and revised
Each particular country’s accounting standards have a lot in common with normal international accounting practices
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