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Advanced Financial Reporting And Analysis
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business-skills
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Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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1. More than a third of Maxwell's total sales go to its own consolidated subsidiaries High levels of related-party transactions are worrisome - particularly when those parties are not audited. But transactions within the company between subsidiaries con
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2. Research = Expensed Development may be capitalized when the following critera is met: (ie if in the Development stage and NOT research stage) 1) process is clearly identified 2) Cost can be clearly idenfified 3) Technical feasibility established 4) M
Cash Flow From Financing (USA) (Source of Cash)
Vertical Common Size Statements...
Intangibles under IFRS...
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
3. For inventory that has a limited shelf life ex) Because the movies have a very limited shelf life and will greatly deteriorate in value with age - especially after the first year - FIFO is the most appropriate method of accounting for the movies for
B/S - short-term investments
Deferred Tax Liability: (DTL)
Effects of Lease Classification on Ratios - Operating Lease
FIFO is appropriate
4. 1) Revenue (external & internal) 2) Segment results (operating profit) 3) Carrying amount of segment asset4 4) Segment liabilities (IFRS) 5) Cost of PPE and intangibles acquired 6) Depreciation and Amort expenses 7) Other non-cash expense 8) Share of
Disclosure for each segment...
B/S - investments
Cash Flow From Operations (CFO) - FASB
IFRS Revenue Recognition For Service
5. ROE = (NI/Sales) x (Sales/Assets) x (Assets/Equity) or ROE= Net Profit Margin x Asset TO x Leverage Ratio
Intercorporate Investment: 20% - 50% votes...
Capitalization of Interest...
Traditional DuPont Equation...
Types of accounting changes...
6. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
BASIC EPS
Impact on the B/S of a Discount Bond...
Finance (capital) Lease criteria (under US GAAP)
Vertical Common Size Statements...
7. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows
Sources of Differences: Temporary
IFRS/US GAAP Frameworks: Recognition of Elements...
Measurement of A & L disclosure in footnotes
Impact on the Cash Flow of a Premium Bond...
8. Held for continuing use within the business (not for resale) 1) investment property; 2) Assets held for sale; 3) Natural resources; 4) PP&E
B/S - Long-lived assets
Types of accounting changes: accounting principle
Low Quality Earnings is result of...
Cost included in Inventory on b/s...
9. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption
Impact on the Cash Flow of a Par Bond...
Types of accounting changes: prior period adjustments
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Finance (capital) Lease criteria GAAP vs. IFRS
10. 1) Cheaper Financing; 2) Reduce risk of obsolescence; 3) Less restrictive provisions; 4) Off-B/S reporting; 5) Tax Reporting Advantages (treated as ownership for tax ( deduct depreciation and interest expense)
Traditional DuPont Equation...
Cash Flow From Operations (CFO) - IFRS
Operating vs. Non-operating Income
Reasons to Lease...
11. 1) Capitalize interst during construction period when building its own operating facility; 2) Interest must actually be paid by the firm; 3) Specific and general debt interest is capitalized
Capitalization of Interest...
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Comprehensive income...
IFRS Revenue Recognition
12. Ensure that information in f/s is useful to a wide range of users.
Operating vs. Non-operating Income
Debt covenants
The objective of f/s is to...
Diluted EPS
13. GAAP: direct method must disclose adj to reconcile NI to CFO. reconciliation is NOT required for IFRS. IFRS: pymts for Int & Taxes MUST be disclosed separately in the CF Stmnt under direct or indirect. Under GAAP - this can be reported in CF stmnt or
Types of accounting changes: accounting principle
CFO Disclosure requirement...
Analyzing Effective Tax Rate Reconciliation
Horizontal Common Size Statements...
14. 1) Land @ cost; 2) Plant & building @ historic cost less accu'm depr; 3) Equipment @ historic cost less accu'm depr 4) Intangible assets @ historic cost less accu'm amort
Warning Signs of Earnings Manipulation
IFRS/US GAAP Frameworks: F/S elements...
B/S - Long-lived assets PP&E
Sustainable Growth
15. Nature of liability; Maturity dates; Stated and effective int. rates; Call and conversion features; covenants; security pledged as collateral; Amount of Debt maturity in each of the next 5 years; Fair value of o/s instrutments
Finance (capital) Lease criteria GAAP vs. IFRS
Activity Ratios
CFO Analysis...
Footnote Finance Liability Disclosure
16. EBIT/ Avg. total capital - Total capital includes: debt capital - so int. is aded back to NI
Return on total capital (ROTC)...
Intangibles under IFRS...
Double-decline balance (DDB)
Types of accounting changes: accounting estimate
17. PV of future obligation or the PV of the amount owed to employees for future pension benefits earned to date - Payments are determined based on expected final salary.
Potentially Dillutive Securities
Financial Ratios based on B/S: Solvency (Coverage)
Intercorporate Investment: < 20% votes...
Defined Benefit Obligations (DBO)
18. Diff. in depreciation methods/assumptions; Diff. in inventory methods/assumptions; Diff. in treatment of the effect of exchg rate chgs; Diff. in classifications of investment securities - Goodwill: Internally Generated DON'T capitalize - Purchased =
Financial Adj to Facilitate Comparison...
Depreciation Methods...
Debt covenants
Units of Production Method
19. 1) Credit Scoring (CF Forecast) 2) Equity Investment screening (cutoff values)
Credit Analysis: Ratios
BASIC EPS
FIFO results in: (assuming inflationary period)
Forecasting Financial Performance: Application
20. (net income - preferred dividends)/weighted average of common shares outstanding - only income from continuing operations is considered
BASIC EPS
Operating vs. Non-operating Income
IFRS/US GAAP Frameworks: underlying assumptions...
Defined Benefit Obligations (DBO)
21. EBIT/ *Gross Interest EBITDA/ *Gross Interest *(inc'd capitalized interest) - How many times is EBIT or EBITDA bigger than gross interest? Higher ratio is desired. Shows ability to cover int. payment
From creditor POV: Int. Coverage;
The report format of B/S
Footnote disclosure of Reconciliation of opening and closing carrying values...
Effects of Lease Classification on F/S - Operating Lease
22. Companies should not recognize revenue from barter transactions. The additional revenue is likely to improperly boost profits. While an unusually high sales-growth rate may indicate fraud - it could also indicate good management. It's a yellow flag -
Effects of Lease Classification on Ratios - Finance Lease
FIFO after-tax profit =
The best indicator of overstating its profits is...
Inventory Valuatoin (LCM)
23. Amount deductible in future tax return
Tax base of an asset
Statement of Cash Flow - relevance...
Financial Lease Reporting
Financial Assets: US GAAP/Amortized at Cost
24. Depreciation exp = (cost-residual value)/ useful life
Effects of Lease Classification on Ratios - Finance Lease
Straight-line depreciation (SL)
Cash Flow From Financing (USA) (Source of Cash)
Effects of Lease Classification on F/S - Operating Lease
25. Any I/S subtotal is expressed a margin ratio (to revenues) - Gross profit margin = gross profit/ revenue - Net profit margin = Net Inc/revenue - Operating profit margin = EBIT/ revenue - Pre-tax margin = EBT/ revenue
IASB
Expensed Intangibles...
Financial Ratio based on I/S...
Impairments recognition (IFRS)
26. When a company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote - it also files the statement with the SEC as Form DEF-14A.
IFRS/US GAAP Frameworks: F/S elements...
Net Reporting of Revenue
Financial Implications of Capitalizing...
Form DEF-14A...
27. Interest Expense = Coupon - Amortization = PV of future CF x market yield @ issuance
Free Cash Flow to Equity - FCFE
Measures of Operating Performance - Efficiency Ratios...
Impact on the B/S of a Premium Bond...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
28. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is higher and CFF is lower
Reasons to Lease...
Inventory Valuatoin (LCM)
Impact on the Cash Flow of a Discount Bond...
LIFO results in: (assuming inflationary period)
29. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]
Measurement of A & L disclosure in footnotes
An Increase in the Valuation Allowance Account...
Steps of F/S Analysis
Asset Capitalization
30. 1) Diff tax rate in diff. tax jurisdictions (countries) (continuous)2) Permanent tax differences: tax credit - tax-exempt income - nondeductible expenses - & tax diff between capital gains and operating income. (continuous) 3)in tax rates and legisl
Installment Method...
CFO - Direct method
Sources of Differences betweent F/S & T/
Analyzing Effective Tax Rate Reconciliation
31. Interest Expense = Coupon + Amortization = PV of future CF x market yield @ issuance
Analyst Treaments of DTL
Impact on the B/S of a Discount Bond...
Debt covenants
Financial Assets: US GAAP/Fair Market Value
32. Periodic: Inventory and COGS determined at p/e - Perpetual: Inv. & COGS updated for each sale (no purchase account need) - Cost flow method impact: FIFO = same for both - LIFO = different - Avg. cost = different - FIFO & LIFO relationship remain
Inventory Systems...
SEC guidance for Revenue Recognition
CFO - Direct/Indirect method
Reasons to Lease...
33. 1) Scale & Diversification - 2) Operational Efficiency - 3) Margin Stability - 4) Leverage
SEC guidance for Revenue Recognition
Effects of Lease Classification on Ratios - Finance Lease
IFRS/US GAAP Frameworks: Recognition of Elements...
4 General Categories for Creditworthiness/Capacity...
34. 1) Aggregation where appropriate; 2) No offsetting assets against liabilities or income against exp.; 3) Classifed B/S; 4) Minimum Info on face; 5) Minimum disclosure; 6) Comparative info.
Financial Assets: US GAAP/Fair Market Value
Market Value (GAAP)...
IFRS: Presentation Requirements
Impact on the Cash Flow of a Zero Coupon Bond...
35. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)
Asset Capitalization
Calculate dividends declared...
Financial Adj to Facilitate Comparison...
Depreciation Methods...
36. 1) held-to-maturity: @ amortized cost (i.e Bonds) 2) trading: @ fair value through P&L @ fair mkt value - unrealized g/(l) are recognized on the I/S. 3) available-for-sale: @ fair mkt value - unrealized g/(l) are NOT recognized on the I/S - instead r
CFO Analysis...
CFO Disclosure requirement...
B/S - short-term investments
Analysis: Market Value of Debt
37. Carrying amount of the liability minus the amount that will be deductible in the future.
Tax base on a liability
Credit Rating Process...
Financial Assets: US GAAP/Amortized at Cost
Dilutive Securities
38. 1) is a contra asset account used to reduce the value of a DTA - 2) it is used to reduce the asset when future taxable income is deemed to be insefficient to fully use the DTA.
Cash Conversion Cycle =
Sustainable Growth
Valuation allowance
Operating vs. Non-operating Income
39. Interest Expense = Amortization
LIFO is appropriate
Cost included in Inventory on b/s...
Impact on the B/S of a Zero Coupon Bond...
Comprehensive income...
40. 1) Unqualified opinion (good); 2) Qualified opinion (followed GAAP except for...); 3) Adverse opinion (bad)
Comprehensive income...
Auditor/Audit Opinion
SEC guidance for Revenue Recognition
Installment Method...
41. Current ratio = CA/CL - Quick/Acid test = (cash + mkt sec + AR)/CL - Cash ratio = (Cash + mkt sec)/ CL - Defensive interval = (cash + mkt sec + AR)/Daily Cash Exp - Liquidity is over current Liabilities
CFO Disclosure requirement...
Financial Ration based on B/S: Liquidity Ratios
Taxation Analyst Adjustments...
Valuation allowance
42. Securities that would DECREASE EPS if exercised - If X< Avg. stock price then could be exercised - If X> Avg. stock price then will not be exercised
Dilutive Securities
Capitalization of Interest...
The report format of B/S
Return on Assets ROA...
43. ROE = (NI/EBT)x(EBT/EBIT)x(EBIT/Rev)x(Rev/Asset)x(Asset/Eqty) or (tax burden)x(int. burden)x(EBITmargin)x(Aset TO)x(Fin Lvg)
CFO Analysis...
Extended DuPont Equation...
IFRS/US GAAP Frameworks: Measurement of Elements...
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
44. Companies must file this form to disclose material events including significant asset acquisitions and disposals - changes in management or corporate governance - or matters related to its accountants - financial statements - or the markets on which
Types of accounting changes: accounting principle
IFRS Revenue Recognition For Service
Operating vs. Non-operating Income
Form 8-K...
45. 1st: Net Income - dividends declared = chg in are/E - Then: Dividends declared +/- chg dividends payable = cash dividends paid.
Measurement of A & L disclosure in footnotes
Simple capital structure
LIFO is appropriate
Calculate dividends declared...
46. Is required under IFRS but not under GAAP
Straight-line depreciation (SL)
ROE interpretation: if ROE is low...
Sustainable Growth
Footnote disclosure of Reconciliation of opening and closing carrying values...
47. 1) Responsibility to establish and maintain adequate internal controls 2) Mgmt's framework for evaluating internal controls 3) Assessment of the effectiveness of internal controls over the last operating period 4) Statement of auditor's attestment 5)
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
CFO - Direct/Indirect method
Sarbanes-Oxley Management Report...
IFRS/US GAAP Frameworks: purpose of framework
48. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Market Value (GAAP)...
Measures of Operating Performance - Efficiency Ratios...
Lessor Accounting Capital Lease: Sales-Type Lease
IFRS/US GAAP Frameworks: purpose of framework
49. Funds from Operations to debt = NI adj for non cash items/ total debt - Free operating CF to Total Debt = CFO - Capex / total debt - Total Debt to EBITDA = total debt / EBITDA - Return on Capital = EBIT / Capital - Total debt to total debt + equity =
LIFO is appropriate
Sources of Differences: Permanent
Credit Analysis: Ratios
Cash Conversion Cycle =
50. +Cash rcvd from customer - +Cash dividends rcvd - +Cash interest rcvd - +Other cash income ((trading securities) - Payment to suppliers - Cash expenses (wages etc) - Cash interest paid - Cash taxes paid
Creative Cash Flows Accounting: Motivation
The objective of f/s is to...
B/S - Long-lived assets PP&E
Cash Flow From Operations (CFO) - FASB
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