Module 3 financial reporting and analysis

Financial statements

Accounting reports that summarize the companies operating results and financial position any point in time. Analyzing these statements can provide insight as to how well the company has manages the quality position, how if actively it used and finances assets, whether it had a proper balance between debt and equity financing compared to peers, how well it controlled operating and financing costs, and whether the profit it earned was satisfactory in relation to the levels of revenue it experience and the investment in assets to support its operation

Goodwill

An account that can be found in the assets portion of a companies balance sheet. This can often arise when one company is purchased by another company. In an acquisition, the amount paid for the company over book value usually accounts for target firms intangible assets

Master budget

An annual budget for an entire organization. This has 2 chief components; 1 - the operating budget or profit plan, and 2- the financial budget

Accumulated Depreciation

An asset account to that records the amount of depreciation previously expressed on a companies assets. It appears on the assets out of the balance sheet, but it was a source of funds when it increases. Well depreciation is technically a non-cash expense i.e. there was no actual payment for depreciation, it does have a cash flow impact because it reduces the company's income tax by Lauren pretax income

Fixed asset turnover ratio

An efficiency/asset management ratio that measures how efficiently fixed assets, property, plant, and equipment are use. It is computed as revenues divided by net property, plant and equipment

Financial accounting standards Board FASB

An independent, self-regulating year was organization made up of professionals that establishes financial accounting and reporting standards in the United States, collectively referred to as generally excepted accounting principles GAAP

DuPont Equation

An integrated ratio analysis technique that looks at the return on total assets ROTA Ratio as a product of the return on sales I.e. net profit margin, and total asset turnover

Materiality

And accounting concept that involves determining the significance of an impact of information on a financial position of the entity being reported. In most accounting applications, there is usually a significant degree of judgment involved in the preparation of the accounts. Where decisions are required about appropriateness of a particular accounting judgment, the materiality convention suggest that this should only be an issue if the judgment is significant or material to the presentation of the accounts. The concept is there for an important issue for auditors of financial accounts

Cash conversion efficiency

And efficiency/asset-management ratio that measures how effectively a company has converted sales or revenues into cash. It is computed as cash flow from operations divided by revenues

Total asset turnover ratio

And efficiency/asset-management ratio that measures how many times a firm assets base was used i.e. turn over in generating a flow of revenue during that period. It's computed as revenues divided by total assets

Current asset turnover ratio

And efficiency/asset-management ratio that measures how many times the firm has turn over the stock of its liquid assets with the flow of revenue. It is computed as revenue divided by current assets

Total asset turnover ratio

And efficiency/asset-management ratio that measures how many times the firms asset base was used i.e. Turned over, in generating the flow of revenue during the period. It is computed by revenues divided by total assets

Independent auditor

And external auditor with a certified public accounting designation that qualifies him or her to provide an auditors report. May also be used to refer to a public accounting firm of that employs qualified external auditors

International accounting standards Board IASB

And international standards - setting body that determines general accounting standards and is made up of board members from nine countries. Based in London, England, their mission is to develop a single set of a global accounting standards published as pronouncements called international financial reporting standards

Auditors opinion

And opinion of a company's financial statement that is provided by independent auditor or audit firm based on a financial audit. The purpose of conducting an audit is to produce an audit report in which an independent audit firm indicates the scope of the audit and renders an opinion regarding the relevance, completeness, and accuracy of income statement, statement of financial position, statement of cash flow's, and other statements. And all supporting material. In addition the auditor will examine the strength of the organizations independent controls and process. The auditors opinion does not contain the company's financial fitness, but rather on whether the financial statements for the reflect the company's financial position are comparable to prior periods

Intangible assets

Assets that lack physical substance and for which there is often a high degree of uncertainty concerning their future value. Examples are goodwill, trademarks, and patents. This type of assets with a finite and useful Life is amortized over its legal or useful life, but if it has an indefinite useful life, it is not Kammer tries. However, it must be valued annually for any decline in value, Which must be charged against income when identified

Variable cost

Cost in a business who is total amount changes in direct proportion to the level of business activity. In cost accounting, these costs are contrasted with fixed costs, which do not change based on volume or activity levels

Fixed costs

Costs that do not vary in total over a wide range of activity and are not immediately impacted by changes in business activities. In cost accounting, fixed costs are contrasted with variable costs, which do change based on volume or activity levels.

Electronic data gathering, analysis and retrieval EDGAR database

Database that contains A searchable listing of US securities and exchange commission filings for public companies

Generally excepted accounting principles GAAP

Detailed set of rules that govern US accounting standards. These principles are developed, agreed-upon, and published in a form of accounting standards codification ASC topics by the financial accounting standards Board FASB

Coverage ratios

Financial ratios concerned primarily with measuring a companies ability to make payments on i.e. service, its debt

Future value FV

For an investment to me today, this is the expected value of the investment at a specifiedv, future date

Functional currency

For determining foreign Exchange translation exposure, this is the currency of the primary economic environment in which the entity operates. Normally, the majority of the entities business activities are translated in that currency

Functional currency

For determining foreign exchange translation exposure, this is the currency of the primary economic environment in which the entity operates. Normally, the majority of the entities business activities our transacted in that currency

Net profit margin

Hey performance ratio that shows the percent of profits earned after all expenses and taxes are deducted from revenues. It is defined as net income divided by revenues. Also known as return on sales or return on revenues

Derivative

I financial product that acquires its value by inference through a formulaic connection to another asset. The other asset is termed the underlying asset, and KP if financial instrument example stock or bond, currency or commodity

Return on assets ROA

I performance ratio that measures nothing come in relation to the investment in assets. A greater value for this ratio implies larger net income per dollar invested in assets. It is computed as net income divided by total assets

Liquidity/working capital ratio

I type a ratio that measures the firm's ability to meet its payment obligations on short term debt and helps ascertain whether cash is being used effectively

Statement of cash flow's

If I neutral statement that provides a detailed picture of the sources of a company's cash flow's and how these sources are used

Equity capital

Invested capital of an organization is contrasted with borrowed or debt capital. From the county point of view, this concept of all preferred and common equity accounts, including retained earnings, and is typically represented by security such as shares of common and preferred stock

Earnings before interest and taxes EBIT

Measure of operating income or profit that is calculated as gross profit was operating expenses, depreciation, and amortization. It has traditionally been the measure used to evaluate a firm's ability to generate operating profits and to meet its financial and tax obligations

Service industry ratios

Ratios are used in ratio analysis of firms in the service sector. Service companies typically have small investments in buildings and land, and rely more on human talent and physical assets

Accrual accounting

The accounting approach under which expenses must be reported on the run videos with which they are associated or recognize. Long-lived or fixed assets are capitalized e.g. recorded as assets on the balance sheet, And depreciated overtime because they produce revenues over many accounting periods. This practice Match as an asset cost of the revenue is it produces. Under the revenue recognition and matching principle, sales are reported even though Cash has not been received. Similarly expenses are reported even though Cash has not been paid out

Government Accounting Standards Board GASB

The authoritative standard- setting body for US state and local governments, as well as for public schools, state universities, and other government-affiliated agencies

Home currency

The currency of a country in which an entity's headquarters are located. In foreign exchange translations, if the functional currency of the subsidiary is this, then the current method is used to translate financial statement line items to the parent company's currency. The current method translates all assets and liabilities at the current spot rate at the date of translation

Accounting standards codification ASC

The detailed set of rules in United States, referred to as generally excepted accounting principles, that are developed, agreed-upon, and published in the form of ASC topics in financial accounting standards Board's and independent, self-regulating organization formed in 1973

Internal rate of return IRR

The discount rate that makes the net present value equal to or, equivalently, makes the present value PV of cash inflows equal to the PV of cash outflows

Cost of good sold CO GS

The expense associated with providing the goods or services who sale is recognized as revenue. It includes labor and material directly used in manufacturing the product sold, as well as any indirect are allocated manufacturing expenses

Common size financial statement

The financial statement analysis technique that involves stating line items as percentages rather than amounts. This expresses every line item on the statement as a percentage of revenue, any common size balance sheet expresses each account as a percentage of total assets. This enables direct comparison on financial data for firms of different sizes

Financial accounting standards FASs

The former name of accounting standards codification ASC topics

Payback Period

The number of years required to recover the initial investment of an asset or project

Integrated ratio analysis

The practice of looking at various financial ratios in pairs or groups to gain better insight to a company's financial performance

Capital budgeting

The process by which propose large dollar investments in long-term assets are evaluated

Comprehensive income

The sum of net income and other items that must bypass the income statement because they have not really been realized, including items like unrealized holding gain or loss I'm available for sale securities and foreign currency translation games or losses

Present value PV

The value at the present time of anticipated future cash flow's or payments

Opportunity cost

The value of the best alternative not taken when two or more mutually exclusive alternatives are available

Profitability index PI

They cost/benefit measurement that is similar to net present value, this is a ratio of the present value gained to the cost required to obtain that value. It shows value gained per dollar of investment. This is calculated as present value of cash inflows divided by present value of cash outflows

EBITDA margin

They measure of operating profit ability calculated by dividing EBITDA by total revenue

Fair value

Under accounting standards codification ASC topic 820, and acid or liability is defined as determining the price that would be received in an asset sale or the price paid to transfer a liability. Evaluation price must be market-based and take into consideration all observable valuation imports, such as competition and risk. ASC topic 825 expands the application by stating that this should be applied to all financial assets and liabilities except certain specified types of assets

Retained earnings

A balance sheet account that represents a Gmail Edith net earnings of a corporation since it's inception, West dividends paid to shareholders. It also represents the changes in shareholders equity arising from the retention of profits and losses of the company, less any dividend paid out to shareholderss

Financial budget

A component of a master budget, this budget addresses an organizations financing and investing activities

Operating budget

A component of a master budget, this budget focuses on the day-to-day operations. Also known as a profit plan

Financial leverage

A concept that examines the fixed cost of financing. Generally, the higher the level of the capital used in a company, the higher the interest cost and the greater the amount of financial leverage. This is also the measure of the companies use of debt and it's capital structure

Operating leverage

A concept that examines the responsiveness of operating profits to changes in sales. This is determined by the extent to which fixed costs are used in a companies operating cost structure the higher the proportion of fixed costs, the higher this is for the company

Fixed charge coverage ratio

A coverage ratio that is similar to the times interest earned ratio but also takes into account fixed charges other than interest, such as payments on leases. It is computed as earnings before interest and taxes EBIT plus fixed charges, divided by interest expense plus fixed charges

Times interest earned ratio TIE

A coverage ratio that measures a firm's ability to service its debt through interest payments. It is computed as operating income example earnings before interest and taxes or EBIT divided by interest expense

Income statement

A financial statement that summarizes revenues earned, expenses incurred, and gains and losses arising from conversions of assets and liabilities over in accounting period. Also called a statement of earnings, a statement of operations or a profit and loss statement

Time value of money

A fundamental finance principle that establishes the relationship between cash flows received at different times. For example, a dollar received today is worth more than a dollar received tomorrow because today's dollar couldn't be invested to earn a return. Conversely a dollar tomorrow is worth less than a dollar received today because the opportunity to earn interest is lost

Cash basis accounting

A major accounting method that recognizes revenues and expenses at the time physical cash is actually received or just disburst

Earnings before interest, taxes, depreciation, and amortization EBITDA

A measure of operating profit ability that is calculated as gross profit less operating expenses, but not subtracting depreciation and amortization. The first came into common use with leverage budgets in 1980s, when it was used to indicate the ability of a company to service debt. As time passed, it became popular and industries with expensive assets that had to be written down over long periods. Many companies, especially in the technology sector, now commonly quote this

Sensitivity analysis

A method of assessing investment risk , This type of analysis determines how a final outcome, such as net present value, is influenced by changes in the value of a particular variable e.g. Sales, or an operating or financing cost, and how vulnerable the expected outcome is to changes in a specific assumption. Note that this analysis only one variable at a time is changed, rather than a set of variables.

Simulation

A method of assessing investment risk, this method to combine scenario and sensitivity analysis, allowing certain assumptions in a decision model to fluctuate simultaneously

Scenario analysis

A method of assessing investment risk, this type of what if analysis assesses possible outcomes under a range of circumstances. It is used frequently to establish The lower bound i.e. worst case scenario oh and upper bound i.e. best case of outcomes. This is similar to sensitivity analysis, but more than one variable is altered at a time. This usually starts with a base case - and expected value for each important variable affecting the final value

Risk-adjusted return on capital RAROC

A method of determining the economic value of a trans action or activity based upon the anticipated risk adjusted performance of the activity

Return on investment ROI

A performance measurement ratio that calculates profit per dollar of invested capital. It is computed by dividing net income by invested capital or long-term debt and equity

Free cash flow FCF

A performance measurement ratio that is similar to residual income analysis but which in addition to accounting for capital cost - also includes adjustments for non-cash items and for working capital investments. It's primary objective is to determine the amount of affective cash flow available to a company after all necessary investments have been accounted for. To this end, it is used extensively in the analysis of or high growth companies, especially by the providers of venture capital. It is most commonly computed by adding net income to depreciation and amortization, less the change in working capital and capital expenditures

Economic value added EVA

A performance measurement ratio that isolates the funds available to all suppliers of capital and then relates that total to the amount of capital supplied. It can be computed as earnings before interest and taxes EBIT, times one minus the company's tax rate, and then subtracting the product of the weighted average cost of capital and long-term debt and equity

Return on common equity

A performance ratio that measures the amount of earnings available to come and shareholders relative to the level of their investment in the company. It is computed as earnings available to come and shareholders divided by common equity

Gross profit margin

A performance ratio that shows the percent of revenues remaining after the cost of goods sold is deducted from revenue. It is computed as gross profit divided by revenues

Operating profit margin

A performance ratio that shows the percentage of revenue remaining after both cost of good sold in all operating expenses are deducted from revenue it is computed as earnings before interest and taxes EBIT divided by revenues

Foreign currency translation

A process used to convert the financial results of a Parent companies foreign subsidiaries to its reporting currency

Indebtedness/debt ratio

A ratio used to measure the level of indebtedness or use of leverage i.e. debt usage by a company

Risk-adjusted discount rate RADR

A type of cost/benefit analysis that essentially requires higher risk endeavors to earn a higher rate of return in order to justify the investment. When properly applied, this allows a firm to more closely match its capital needs to available sources and to better manage its overall levels of risk and return

Break even analysis

A type of cost/benefit analysis that establishes the level of activity but which benefits and costs are equal

Long term debt to capital ratio

A type of debt management ratio that measures the percent of a company's capital or capital is defined as the sum of long-term debt and equity that is provided by long-term debt. It is computed as long-term debt divided by long-term debt plus equity

Total liabilities to total assets ratio

A type of debt management ratio that measures the percent of all liabilities to total investments or total assets. It is computed as total liabilities divided by total assets

Debt to tangible net worth ratio

A type of debt management ratio that reflects the impact of intangible assets e.g. goodwill, patents, trademarks, and copyrights on the balance sheet. It is computed as a total debt divided by total equity minus intangible assets

Net present value NPV

A type of financial analysis, this value is calculated by nothing the present value of anticipated cash inflows with the present value of cash outflows

Net investment hedge

A type of hatch design to Hutch currency risk associated with the translation of subsidiary, or other foreign operations, financial statements into parent firms functional currency

Fair value hedge

A type of hedge in which the rest being hedged there's a change in the fair value of an asset or liability. Changes in a fair value may arise through changes in interest rates, for fixed rate loans, foreign exchange rates, equity prices or commodity prices

Weighted average cost of capital WACC

used in determining the overall cost of capital, this cost is computed as weighted average of the affective cost of debt and the cost of equity

Governmental and not for profit organizations G/NFP

A type of organization that does not have shareholders or other owners, but is organized to serve a collective group. These agencies provide goods, services, or information to benefit the public as a whole or its particular segments. They raise cash primarily through taxes and fees paid by members of the community, regardless of whether that was paying such taxes and fees derive any benefit from the resulting goods or services. These organizations service specific constituents who pay for some or all the benefits provided

Efficiency/asset-management ratio

A type of ratio that measures how effectively assets are utilized

Performance ratio

A type of ratio that measures profit relative to the amount of revenue or level of financing

Performance ratio

A type of ratio that measures profit relative to the amount of revenue or the level of financing

Debt management ratio

A type of ratio that measures the firms degree oven deadness and it's ability to service its debt