CFA
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| Role of financial reporting | provide info about a company’s financial position and performance. Financial statement are issued by management
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| Role of financial statement analysis | take the financial statements and evaluate the past, current, n prospective financial position n performance to make various decisions from them ex: investment
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| equity investors | i. primarily interested in company’s long-term earning power, growth, and ability to pay dividends
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| short term creditors | interested in immediate liquidity bc they seek an early payback of their investment ex: banks n trade creditors
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| long term creditors | concerned with the company’s long term asset position n earning power ex: corporate bond owners such as insurance companies and pension funds
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| Income statement | Measures success of a business for a given period of time=>looks at the in between period of 2 consecutive balance sheet dates
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| Goal of income statement analysis | derive an effective measure of future earnings and cash flows
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| principal financial statements | income statement, balance sheet, cash flow statement, statement of changes in owners' or stockholders' equity
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| Cash flow statement | Provides info about a company’s cash receipts and cash payments. iii. Answers things like, where did the cash come from during the period? What was the cash used for? What was the change in the cash balance?
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| Cash flow statement Organization | This is organized according to operating, investment and financing activities
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| Cash flow statement helps the users evaluate: | liquidity, solvency, financial flexibility
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| Solvency | Ability of a company to pay its debt as they mature
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| Liquidity | “nearness to cash” of assets and liabilities
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| Financial flexibility | a. Refers to a company’s ability to respond and adapt to financial adversity and unexpected needs and opportunities.
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| equity ownership | owner’s investments and the total earnings retained from the commencement of the company. Equity represents the source of financing provided to the company by the owners.
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| Statement of changes in owners’ or stockholders’ equity | Reports ownership interests in order of preference upon liquidation and dividends
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| financial notes | i. part of the financial statements ii. provide info about the accounting methods, assumptions and estimates used by management to develop the data iii. provide additional disclosure in certain areas
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| supplementary schedules | i. Additional data that is provided about assets and liabilities of a company outside the financial statements ii. Ex: impact of changing prices or gas reserve iii. Some of the supplementary data is unaudited
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| Management Discussion and Analysis (MD&A) | requires management to discuss specific issues on the financial statements, and to asses the company’s current financial condition, liquidity, and its planned capital expenditure for the next year. ii. Not audited and for public companies only
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| Operating | 1. Activities that are involved with running a business. These activities determine the net income and changes in the working capital account, ex: paying taxes
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| Investing | 1. Activities associated with the spending needed to begin and continue operations, ex: buying land, selling resources when they are no longer needed
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| Financing | 1. Activities associated to obtaining or repaying capital. Ex: issuing tock, obtaining loans from creditors, payment of dividends (considered a financing activity bc they are necessary to obtain funding).
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