财务报表分析(英文版)

1、A. Measuring Business Incomea. explain why financial statements are prepared at the end of the regularaccounting period.Major Financial Statements:The balance sheet: provides a "snapshot" of the firm's financial condition.The income statement: reports on the "performance" of

2、the firm.The statement of cash flows: reports the cash receipts and cash outflows classifiedaccording to operating, investment and financing activities.The statement of stockholder's equity: reports the amounts and sources of changesin equity from transactions with owners.The footnotes of the fi

3、nancial statements: allow uses to improve assessment of theamount, timing and uncertainty of the estimates reported in the financialstatements.The most accurate way to measure the results of enterprise activity would be to measurethem at the time of the enterprise's eventual liquidation. Busines

4、s, government, investors,and various other user groups, however, cannot wait indefinitely for such information. Ifaccountants did not provide financial information periodically, someone else would.The periodicityor time period assumptionsimply implies that the economic activitiesof an enterprise can

5、 be divided into artificial time periods. These time periods vary, butthe most common are monthly, quarterly, and yearly.The information must be reliable and relevant. This requires that information must beconsistent and comparable over time and also be provided on a timely basis. The shorterthe tim

6、e period, the more difficult it becomes to determine the proper net income for theperiod. A month's results are usually less reliable than a quarter's results, and a quarter'sresults are likely to be less reliable than a year's results. Investors desire and demand thatinformation be

7、quickly processedand disseminated; yet the quicker the information isreleased, the more it is subject to error. This phenomenon provides an interestingexample of the trade-off between relevance and reliability in preparing financial data.In practice, financial reporting is done at the end of the acc

8、ounting period.Accounting periods can be any length in time. Firms typically use the year as theprimary accounting period. The 12-month accounting period is referred to as thefiscal year. Firms also report for periods less than a year (e.g. quarterly) on aninterim basis.Accounting period must be of

9、equal length. Financial statements are prepared atthe end of the regular accounting period to allow comparison across time.User CommentsPosted by Jeanette 2003-10-25 14:15:45.same period - allow comparisionbasic assumption in preparing financial statements is - the firm will continue inoperation,- g

10、oing concern,'assigning revenue - expenses - base on matching principlePosted by GiGi 2004-01-29 06:25:01.remember that there are 4 types of financial statementsb. explain why the accounts must be adjusted at the end of each period.Why?Most external transactions are recorded when they occur. The

11、 employment of anaccrual system means that numerous adjustmentsare necessarybefore financialstatements are prepared because certain accounts are not accurately stated.Some external transactions might not even seem like transactions and arerecognized only at the end of the accounting period. Examples

12、 include unrecordedrevenues and credit purchase.Some economic activities do not occur as the result of external transactions.Examples include depreciation and the expiration of prepaid expenses.Timing: Often a transaction affects the revenue or expenses of two or moreaccounting periods. The related

13、cash inflow or outflow does not always coincidewith the period in which these revenue or expense items are recorded. Thus, theneed for adjusting entries results from timing differences between the receipt ordisbursement of cash and the recording of revenue or expenses. For example, ifwe handle trans

14、actions on a cash basis, only cash transactions during the year arerecorded. Consequently, if a company's employees are paid every two weeks andthe end of an accounting period occurs in the middle of these two weeks, neitherliability nor expense has been recorded for the last week. To bring the

15、accounts upto date for the preparation of financial statements, both the wage expense and thewage liability accounts need to be increased.A necessary step in the accounting process, then, is the adjustment of all accounts to anaccrual basis and their subsequentposting to the general ledger. Adjustin

16、g entries aretherefore necessary to achieve a proper matching of revenues and expenses in thedetermination of net income for the current period and to achieve an accurate statementof the assets and equities existing at the end of the period.Adjustment principlesThe revenue recognition principleThe m

17、atching principleWhat to adjust?Each adjusting entry affects both a real account (assets, liability, or owner's equity) and anominal or income statement account (revenue or expense). The four basic types ofadjusting entries are:1. deferred expenses that benefits more than one period: for example

18、, prepaidexpenses (e.g. prepaid insurance, rent) are expenses paid in advance and recordedas assetsbefore they are used or consumed. When these assetsare consumed,expenses should be recognized: a debit to an expense account and a credit to anasset account. Another example is depreciation. The cost o

19、f a long-term asset isallocated as an expense over its useful life. At the end of each period depreciationexpense is recorded through an adjusting entry: a debit to a depreciation expenseaccount and a credit to an accumulated depreciation account (a contra accountused to total the past depreciation

20、expenses on specific long-term assets).2. accrued expenses that incurred but not yet paid or recorded: examples areemployee salaries and interest on borrowed money. At the end of the accountingperiod, the accrued expense is recorded through an adjusting entry: a debit to anexpense account (i.e. Sala

21、ries Expense) and a credit to a liability account (i.e.Salaries Payable).3. accrued revenues that earned but not yet received or recorded: also calledunrecorded revenues. Examples include interest revenues, rent revenues, etc. Suchrevenues accumulate with the passing of time, but the firm may have n

22、ot receivedthe payment or billed the client. An adjusting entry should be: a debit to an assetaccount (i.e. Accounts Receivable) and a credit to a revenue account (i.e. InterestRevenue).4. unearned revenues that are revenues received in cash before delivery ofgoods/services:examples are magazine sub

23、scription fees, customer deposits forservices. These "revenues" are not earned yet and thus should be recorded asliabilities. An adjusting entry should be: a debit to a liability account (i.e.Unearned Revenue) and a credit to a revenue account (i.e. Revenue).User CommentsPosted by GiGi 200

24、4-01-29 06:26:22.accrual system! definitionPosted by Gina 2004-02-03 22:17:33.accrual based accounting recognizes the impact of a business event as it occurs,regardless of whether transaction affected cashPosted by Gina 2004-02-03 22:20:20.Revenue Principle: basis for recording revenues (ie tells wh

25、en to record revenue and theamounts).Matching Principle: basis for recording expensis (ie direction to ID all expenses duringthe period, measure them, and match them against the revenues earned in that period).c. explain why the accrual basis of accounting produces more useful incomestatements and b

26、alance sheets than the cash basis.Revenueis something earned through the sale of goods or services. Not all cash receiptsare revenues; for example, cash received through a loan is not revenueE.xpensesare thecost of goods or services used to generate revenues. Not all cash payments are expenses;for e

27、xample, cash dividends paid to stockholders are not expenses.Net income is thedifference between revenues and expenses. It is reported on the income statement, and isthe focus in evaluating a firm's profitability.Most companies use the accrual basis accounting, recognizing revenue when it isearn

28、ed (the goods are sold or the services performed) and recognizing expensesin theperiod incurred, without regard to the time of receipt or payment of cash. Net income isrevenue earned minus expenses incurred.Under the strict cash basis accounting, revenue is recorded only when the cash isreceived and

29、 expensesare recorded only when the cash is paid. Net income is cashrevenue minus cash expenses. The matching principle is ignored here, resultinginconformity with generally accepted accounting principles.Today's economy is considerably more lubricated by credit than by cash. And the accrualbasi

30、s, not the cash basis, recognizes all aspects of the credit phenomenon. Investors,creditors, and other decision makers seek timely information about an enterprise's futurecash flows. Accrual basis accounting provides this information by reporting the cashinflows and outflows associated with earn

31、ings activities as soon as these cash flows canbe estimated with an acceptable degree of certainty. Receivables and payables areforecasters of future cash inflows and outflows. In other words, accrual basis accountingaids in predicting future cash flows by reporting transactions and other events wit

32、h cashconsequences at the time the transactions and events occur, rather than when the cash isreceived and paid. Accrual accounting generally provides a better indication ofperformance than cash basis of accounting since it increases the comparability of incomestatements and balance sheets across pe

33、riods.B. Financial Reporting and Analysisa. define each asset and liability category on the balance sheet and prepare aclassified balance sheet.Think of the balance sheetas a photo of the business at a specific point in time. Itpresents the assets,liabilities, and the equity ownership of a business

34、entity as of aspecific date.Assetsare the economic resources controlled by the firm.Liabilities are the financial obligations that the firm must fulfill in the future.Liabilities are typically fulfilled by payment of cash. They represent the source offinancing provided to the firm by the creditors.E

35、quity Ownership is the owner's investments and the total earnings retainedfrom the commencement of the firm. Equity representsthe source of financingprovided to the firm by the owners.Balance sheet accounts are classified so that similar items are grouped together to arriveat significant subtota

36、ls. Furthermore, the material is arranged so that importantrelationships are shown.The table below indicates the general format of balance sheet presentation:Balance Sheet ClassificationsAssets Liabilities and Owner's EquityCurrent Assets Current liabilitiesLong-term investments Long-term debtPr

37、operty, plan and equipment Owner's equityIntangible assets Capital stockOther assets Additional paid-in capitalRetained earningsCurrent Assets:They are cash and other assetsexpected to be converted into cash, sold, or consumedeither in one year or in the operating cycle, whichever is longer. The

38、 operating cycleisthe average time between the acquisition of materials and supplies and the realization ofcash through sales of the product for which the materials and supplies were acquired. Thecycle operates from cash through inventory, production, and receivables back to cash.Where there are sev

39、eral operating cycles within one year, the one-year period is used. Ifthe operating cycle is more than one year, the longer period is used.Current assetsare presentedin the balance sheet in order of liquidity. The five majoritems found in the current asset section are:Cash: valued at its stated valu

40、e. Cash restricted for purpose other than payment ofcurrent obligations or for use in current operations should be excluded from thecurrent asset section.Marketable securities:Also referred to as marketable securities. Valued at costor lower of cost and market.Accounts receivablesa:mounts owed to th

41、e firm by its customers for goods andservices delivered. Valued at the estimated amount collectible.Inventories:Products that will be sold in the normal course of business.Prepaid expense:s they are expenditures already made for benefits (usuallyservices) to be received within one year or the operat

42、ing cycle, whichever islonger. Typical examples are prepaid rent, advertising, taxes, insurance policy,and office or operating supplies. They are reported at the amount of un-expired orunconsumed cost.Long-Term Investments:Often referred to simply as investments, they are to be held for many years,

43、and are notacquired with the intention of disposing of them in the near future.Investments in securities such as bonds, common stock, or long-term notes thatmanagement does not intend to sell within one year.Investments in tangible fixed assets not currently used in operations, such as landheld for

44、speculation.Investments set aside in special funds such as a sinking fund, pension fund, orplant expansion fund. The cash surrender value of life insurance is included here.Investments in non-consolidated subsidiaries or affiliated companies.Property, Plant, and Equipment:They are properties of a du

45、rable nature used in the regular operations of the business.With the exception of land, most assets are either depreciable (such as building) orconsumable.Intangible Assets:They lack physical substance and usually have a high degree of uncertainty concerningtheir future benefits. They include patent

46、s, copyrights, franchises, goodwill, trademarks,trade names, secret processes, and organization costs. Generally, all of these intangiblesare written off (amortized) to expense over 5 to 40 years.Other Assets:They vary widely in practice. Examples include deferred charges (long-term prepaidexpenses)

47、, non-current receivables, intangible assets, assets in special funds, andadvances to subsidiaries.Current Liabilities:They are obligations that are reasonably expected to be liquidated either through the useof current assets or the creation of other current liabilities within one year or within the

48、operating cycle, whichever is longer. They are not reported in any consistent order. Atypical order is: Notes payable, accounts payable, accrued items (e.g. accrued warrantycosts, compensation and benefits) income taxes payable, current maturities of long-termdebt, etc.The excess of total current as

49、setsover total current liabilities is referred to as workingcapital. It represents the net amount of a company's relatively liquid resources; that is, itis the liquid buffer, or margin of safety, available to meet the financial demands of theoperating cycle.Long-Term LiabilitiesThey are obligati

50、ons that are not reasonably expected to be liquidated within the normaloperating cycle but, instead, at some date beyond that time. Bonds payable, notes payable,deferred income taxes, lease obligations, and pension obligations are the most commonlong-term liabilities. Generally they are of three typ

51、es:Obligations arising from specific financing situations, such as issuance of bonds,long-term lease obligations, and long-term notes payable.Obligations arising from the ordinary operations of the enterprise such as pensionobligations and deferred income tax liabilities.Obligations that are depende

52、nt upon the occurrence or non-occurrence of one ormore future events to confirm the amount payable, or the payee, or the datepayable, such as service or product warranties and other contingencies.Owner's Equity:The complexity of capital stock agreements and the various restrictions on residual e

53、quityimposed by state corporation laws, liability agreements, and boards of directors make theowner's equity section one of the most difficult sections to prepare and understand. Thesection is usually divided into three parts:Capital stock:the par or stated value of the shares issued.Additional

54、paid-in capital: the excess of amounts paid in over the par or statedvalue.Retained earnings:the corporation's undistributed earnings.b. define each component of a multi-step income statement and prepare a multi-stepincome statement.The income statement measures the success of business operation

55、s for a given period oftime. A single-step incomestatementgroups revenues together and expenses together,without further classifying each of the groups. A multi-step income statementmakesfurther classifications to provide additional important revenue and expensedata. Theseclassifications make the in

56、come statement more informative and useful. It isrecommended because:it recognizes a separation of operating transactions from non-operatingtransactions;it matches costs and expenses with related revenues;it highlights certain intermediate components of income that are used for thecomputation of rat

57、ios used to assess the performance of the enterprise.Components:Operating section: a report of the revenues and expenses of the company'sprincipal operations.o Sales or revenue section: a subsection presenting sales, discounts,allowances, returns, and other related information, and to arrive at

58、the netamount of sales revenue.o Cost of goods sold sectiona:subsection that shows the cost of goods thatwere sold to product the sales.o Selling expense: a subsection that lists expenses resulting from thecompany's efforts to make sales.o Administrative or general expenses:a subsection reporting expenses ofgeneral administration.Non-operating section: a report of revenues and expenses resulting fromsecondary or auxiliary activities of t