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Financial Reporting and Analysis: DR Nguyen Dinh Dat

The document provides an overview of financial statement analysis. It discusses: 1) The roles of financial reporting and analysis which are to provide information on a company's performance, financial position, and changes and to evaluate this information to assess investing or lending to a company. 2) The primary financial statements of the balance sheet, income statement, cash flow statement, and statement of changes in equity and other information sources like footnotes, management commentary, and auditor's reports. 3) A framework for financial statement analysis which examines a company's performance, financial position, and cash flows using information from these statements and sources.

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Quyen Thanh Nguyen
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42 views

Financial Reporting and Analysis: DR Nguyen Dinh Dat

The document provides an overview of financial statement analysis. It discusses: 1) The roles of financial reporting and analysis which are to provide information on a company's performance, financial position, and changes and to evaluate this information to assess investing or lending to a company. 2) The primary financial statements of the balance sheet, income statement, cash flow statement, and statement of changes in equity and other information sources like footnotes, management commentary, and auditor's reports. 3) A framework for financial statement analysis which examines a company's performance, financial position, and cash flows using information from these statements and sources.

Uploaded by

Quyen Thanh Nguyen
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial Reporting and Analysis

Dr Nguyen Dinh Dat


Lesson 1: Introduction to Financial Statement Analysis
The content
1. Introduction
2. Roles of Financial Reporting and Financial statement Analysis
3. Primary Financial Statement and Other Information Sources
4. Financial Statement Analysis Framework
1. Introduction
What is financial analysis?
- Financial analysis is the process of examining a company’s
performance. For this purpose, financial reports are one of the most
important sources of information available to a financial analyst.
- A financial analyst must have a strong understanding of the
information provided in a company’s financial reports, notes, and
supplementary information.
2. Roles of Financial Reporting and Financial Statement Analysis
What is role of financial reporting?
The role of financial reporting is to provide information about a
company’s performance (income statement and cash flow statement),
financial position (balance sheet) and changes in financial position
(statement of changes in equity).
What is role of financial statement analysis?
The role of financial statement analysis is to use the financial reports
prepared by firms and combine them with other sources of information
to decide whether or not you can invest in the equity of the firm or
lend money to the firm.
3. Primary Financial Statements and Other Information Sources

The primary financial statements are the balance sheet, the income
statement, the cash flow statement, and the statement of changes in
owners’ equity.
Balance Sheet (Statement of Financial Position)

• The balance sheet reports the firm’s financial position at a specific


point in time. It has the following elements:
• Assets – What the company owns.
• Liabilities – What the company owes.
• Owners’ equity – What the shareholders of the company own.
Depending on the form of the organization, owners’ equity may be
referred to as “partners’ capital” or “shareholders’ equity” or
“shareholders’ funds”, or “net assets”.
• The relationship between the elements can be shown as:
Assets = Liabilities + Owners’ equity

• The capital structure of a company represents the combination of


liabilities and equity used to finance its assets. Both financial position
and capital structure are useful in credit analysis.
Income statement

The income statement reports the financial performance of the firm


over a period of time. It has the following elements:
• Revenues – Income generated by selling goods and services.
• Expenses – Costs incurred for producing goods and services.
• Net income – Resulting profit or loss.

The relationship between the elements can be shown as:


Net income = Revenues - Expenses
Cash flow statement

The cash flow statement reports the sources and uses of cash for the
firm over a period of time. It has the following elements:
• Operating cash flows – Cash flows from day-to-day activities.
• Investing cash flows - Cash flows associated with the acquisition and
disposal of long-term assets, such as property and equipment.
• Financing cash flows - Cash flows from activities related to obtaining
or repaying capital.
Statement of changes in owner’s equity

It reports the changes in the owners’ investment in the firm over time.
It has the following elements:
• Paid in capital – Amount raised from owners.
• Retained earnings – Firm’s profits that have been retained (i.e., not
paid out as dividends).
Footnotes
They provide additional details about the information presented in
financial statements. This includes important information about the
accounting methods, estimates, and assumptions.

They also contain information regarding acquisitions and disposals,


commitments and contingencies, legal proceedings, employee stock
options and other benefits, related party transactions and business,
and geographic segments.
Management’s commentary
It provides an assessment of the data reported in the financial
statements from the management’s perspective.

Examples of content include trends and significant events affecting the


company’s operations, liquidity and capital resources, off-balance sheet
obligations, and planned capital expenditures.
What is auditor’s report?
An audit is an independent review of a firm’s financial statements. It
enables the auditor to express an opinion on the fairness and reliability
of the financial reports. An audit report can contain one of the
following opinions:
• Unqualified Opinion - Reasonable assurance that financial statements
are fairly presented. This is also referred to as an “unmodified” or a
“clean” opinion. (This is the opinion that you would like to see.)
• Qualified Opinion - Some misstatement or exception to accounting
standards.
• Adverse Opinion - Financial statements are not presented fairly.
Other information sources

• Interim reports – Quarterly or semiannual reports prepared by the firm.


These reports are not audited.
• Proxy statements - Statements distributed to shareholders about matters that
are to be put to a vote.
• Press releases, conference calls, and websites – Firms often provide current
information via these media.
• External sources – Information about the economy, industry, and the firm’s
competitors.
4. Financial Statement Analysis Framework

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