The analyst's examination of a company's performance is most likely to include an assessment of:
c) cash flow generating ability.
An analyst would focus on a company's ability to generate cash flows as a key indicator of performance and sustainability over time. While assets and liabilities (balance sheet items) and MD&A provide important context, cash flow generation is most directly tied to a company's ability to fund operations and growth.
The analyst's examination of a company's performance is most likely to include an assessment of:
c) cash flow generating ability.
An analyst would focus on a company's ability to generate cash flows as a key indicator of performance and sustainability over time. While assets and liabilities (balance sheet items) and MD&A provide important context, cash flow generation is most directly tied to a company's ability to fund operations and growth.
The analyst's examination of a company's performance is most likely to include an assessment of:
c) cash flow generating ability.
An analyst would focus on a company's ability to generate cash flows as a key indicator of performance and sustainability over time. While assets and liabilities (balance sheet items) and MD&A provide important context, cash flow generation is most directly tied to a company's ability to fund operations and growth.
The analyst's examination of a company's performance is most likely to include an assessment of:
c) cash flow generating ability.
An analyst would focus on a company's ability to generate cash flows as a key indicator of performance and sustainability over time. While assets and liabilities (balance sheet items) and MD&A provide important context, cash flow generation is most directly tied to a company's ability to fund operations and growth.
Source: Apple Inc. annual report Source: Apple Inc. annual report Source: Apple Inc. annual report Source: Apple Inc. annual report Source: Apple Inc. annual report Are they linked to each other? Financial statement notes and supplementary information • Financial statement notes ( footnotes) • Provide information about accounting methods, assumptions, and estimates used by management • Audited • Information on items such as business acquisitions or disposals, legal actions, employee benefit plans, contingencies and commitments, significant customers, sales to related parties, and segments of the firm
Source: CFA curriculum
Financial statement notes and supplementary information • Management’s discussion and analysis (MD&A) • IFRS guidance recommends that management commentary address the nature of the business, management's objectives, the company's past performance, the performance measures used, and the company's key relationships, resources, and risks • Some parts of MD&A may be unaudited • Forward looking statements • How would you brag about your company?
Source: CFA curriculum
Source: Apple Inc. annual report Audits • An audit is an independent review of an entity’s financial statements • The standard auditor’s opinion contains three parts:
Source: CFA curriculum
Opinion of Audit
Adverse opinion
Unqualified opinion
Qualified opinion Disclaimer of opinion
Interim reports are not audited
Source: CFA curriculum
Quiz 1. An audit report explains exceptions to the accounting principles. Which can be a probable opinion? a) Unqualified opinion b) Qualified opinion c) Adverse opinion 2. An audit report explains going concern assumption. The report mention which of the following opinion: a) Adverse opinion b) Qualified opinion c) None of these Break time- 3 more concepts to cover today Understanding Income statement – 2 classes • 1 Theory • 1 Practise
Understanding Balance sheet – 1 class
Understanding cash flow statements – 2 classes
Inventories – 2 classes
Long lived assets – 2 classes
Income taxes – 2 classes
Non- current liabilities – 3 classes
Bonus class: Financial ratios & IFRS vs U.S. GAAP policies – 1 class Internal controls • Processes by which the company ensures that it presents accurate financial statements. • The auditor can provide this opinion separately
Type of reports • Annual reports: Audited • Interim reports (Quarterly / Semi-annual): not necessarily audited
Source: CFA curriculum
Financial statement analysis framework • State the objective and context • Gather data • Process the data • Analyze and interpret the data • Report the conclusions or recommendations • Update the analysis – V. V. important
Source: CFA curriculum
The basic accounting equation • Assets = liabilities + owners’ equity [ A = L + OE] • Assets = Liabilities + contributed capital + beginning retained earnings + revenue – expenses – dividends
BASE analysis Source: CFA curriculum Double-entry accounting • A way of systematically recording the financial transactions of a company so that each transaction is recorded twice • Owner‘s investments and revenues increase owner‘s equity, while owner‘s withdrawals and expenses decrease owner‘s equity • Revenues increase owner‘s equity, just as an increase in owner‘s capital does • Purchase Equipment for Cash [A + -] • Purchase Supplies on Credit [A+ L+] • Provide Services for Cash [A+ OE+] • Payment of Expenses in Cash [A- OE-] • By definition, increases in expenses yield decreases in equity
Source: CFA curriculum
Quiz Apple Inc. borrows $50,000 cash from Bank. How does this transaction affect the accounting equation for Apple Inc.?
a. Assets increase by $50,000; liabilities increase by $50,000; no effect on equity.
b. Assets increase by $50,000; no effect on liabilities; equity increases by $50,000.
c. Assets increase by $50,000; liabilities decrease by $50,000; no effect on equity.
d. No effect on assets; liabilities increase by $50,000; equity increases by $50,000.
e. No effect on assets; liabilities increase by $50,000; equity decreases by $50,000.
An analyst has compiled the following information regarding RDZ, Inc. Liabilities at year-end €1,000 Contributed capital at year-end €1,000 Beginning retained earnings €500 Revenue during the year €4,000 Expenses during the year €3,800 There have been no distributions to owners. The analyst’s estimate of total assets at year-end should be closest to:
A. €2,300. B. €2,500. C. €2,700.
Source: CFA curriculum
CFA curriculum example • C is correct. Ending retained earnings is first determined by adding revenue minus expenses to beginning retained earnings to obtain €700. Total assets would be equal to the sum of liabilities, contributed capital, and ending retained earnings: €1,000 + €1,000 + €700 = €2,700.
Source: CFA curriculum
An analyst’s examination of the performance of a company is most likely to include an assessment of a company’s: a) assets relative to its liabilities. b) MD&A. c) cash flow generating ability.
