************************************ Financial Statement Analysis:

An Introduction
Major Financial Statements
1. Scope of FSA
2. Major Financial Statements
3. Footnotes
4. MD&A
 Financial Reporting

Provide information about company’s

performance, financial position, and
changes in financial position

Financial
Report

Major Financial Statements

1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Financial Statement Analysis: An Introduction

Form expectations about the company’s

ability to earn profits and generate cash flow
Past in the future
Reports

Should I Should I Should I

buy? lend? recommend?
Financial
Report

Major Financial Statements

1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Financial Reporting
Quarterly

3 mths 3 mths 3 mths 3 mths

Financial Financial Financial Financial Financial

Report Report Report Report Report

Major Financial Statements

1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Financial Reporting
Semiannually

6 mths 6 mths

Financial Financial Financial

Report Report Report

Major Financial Statements

1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Financial Reporting
Annually

1 year

Balance
Stateme
Income
Change
Equity
Flows
Sheet
nt
Cash
s in
ntof
Financial Financial
Report Report

Major Financial Statements

1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
Liabilities

Comprehensive Changes in
Statement of
Income
Assets

Owner’s

Equity
Equity

Cash Flows
Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
Liabilities

Comprehensive Changes in
Statement of
Income
Assets
My company
is so rich!

Owner’s

Equity
Equity

Cash Flows
Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Excuse me,

Sheet
you owe us
this much!

Statement
Income
Liabilities

Comprehensive Changes in
Statement of
Income
Assets
My company
is so rich!

Owner’s

Equity
Equity

Cash Flows
Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Excuse me,

Sheet
you owe us
this much!

Statement
Income
Liabilities

Comprehensive Changes in
Statement of
Income
Assets
Er… yeah
I guess my
company’s only
this rich
Owner’s

Equity
Equity

Cash Flows
Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
Comprehensive Changes in
Statement of
Income
Liabilities

Assets

Owner’s
Equity

Cash Flows Equity

Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
t a t e m e nt
Incom e S
Inflows from delivering or producing
goods, rendering services, or other
Re v e n u e activities that constitute the firm’s
central operations
-

Comprehensive Changes in
Statement of
Expe n s e s

Income
Liabilities
Liabilities
Assets + o m e
Ot h e r I n c
Assets
Owner’s
Equity
t I n c o m e
N e Owner’s
Equity

Cash Flows Equity

Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
t a t e m e nt
Incom e S

Re v e n u e
Outflows in the process of running
-

Comprehensive Changes in
Statement of
these operations, depreciation of
Expe n s e s

Income
Liabilities assets, and incurrence of liabilities that
Liabilities
decrease equity
Assets + o m e
Ot h e r I n c
Assets
Owner’s
Equity
t I n c o m e
N e Owner’s
Equity

Cash Flows Equity

Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
t a t e m e nt
Incom e S

Re v e n u e
-

Comprehensive Changes in
Statement of
Expe n s e s

Income
Liabilities
Liabilities
Assets + o m e Gains that may or may not arise in the
Ot h e r I n c ordinary course of business
Assets
Owner’s
Equity
t I n c o m e
N e Owner’s
Equity

Cash Flows Equity

Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
T-1 T

Owner’s Owner’s
Equity Equity

Comprehensive Changes in
Statement of
Income
Net Income

Cash Flows Equity

Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
T-1 T

Owner’s Owner’s
Equity Equity

Comprehensive
Statement of
Income
Total
Net Income
Comprehensive
+
Income
Other
Comprehensive
Income Gains and losses that are

Changes in
excluded from the income

Equity
statement

Cash Flows
Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
T-1 T

Owner’s Owner’s
Equity Equity

Comprehensive
Statement of
Income
Total
Net Change in
Comprehensive
Equity
Income

(Shareholders
transactions)

Changes in
Equity
Cash Flows
Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
T-1 T

Owner’s Owner’s
Equity Equity

Comprehensive
Statement of
Income
Net Change in Statement of
Equity
change in equity

Changes in
Equity
Cash Flows
Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
m e n t o f
State Cash effects of transactions that
h F l o w s involve the normal business of the
Cas firm
p e r a ti o n s
CF fro m O
Resulting from the purchase or sale

Comprehensive Changes in
Statement of
+ I n v e s t m e n ts of long-term assets, such as

Income
Liabilities
CF from property, equipment, subsidiaries, or Liabilities
Assets + a n c i n g
investment assets.

rom F i n
CF f From activities related to obtaining or Assets
Owner’s ??? repaying capital
Equity
a s h Flow Owner’s
Ne t C Equity

Equity
Cash Flows
Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Balance
Sheet
Statement
Income
m e n to o
f f t
Stam te cSee
mn
tet
aSt
n h
e
t e
moe eftn
InSB S t
leam
et
n
a sh Fln
cto
a e o w isv e
Cna eh e sEquity
Co a
hmp r
g s in
C o m er a t i o ns
CF fro mIncOpe

Comprehensive Changes in
Statement of
+ I n v es t m e nts

Income
Liabilities
CF from Liabilities
Assets + ancing
rom F i n
CF f Assets
Owner’s ???
Equity
a s h Flow Owner’s
N e t C Equity

Equity
Net Cash Flow

Cash Flows
Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 e S he e t
Balanc
t a t e m e nt
Inco m e S
n t o f
te m e e
S ta n s i v
r e h e a t e m e nt o f
m p S t
Co c o m e in E qu ity
In Changes
m e n t o f
State
h F l o w s
Cas
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Fo s
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Required Foot

Major Financial Statements

1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Basis of Preparation
Statement of
Cash Flows
✦clarification of the fiscal period covered
✦inclusion of consolidated entities.

Accounting methods, assumptions, estimates

Additional material information

✦business acquisitions or disposals
Footnotes
✦legal actions
✦employee benefit plans
✦contingencies and commitments
✦significant customers
✦sales to related parties
✦segments of the firm
Major Financial Statements
1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
 Management’s Discussion and Analysis

Past performance
Statement of
Cash Flows

Future
outlook
Trends Significant events /
Uncertainties

Nature of business

MD&A Effects of inflation /

Accounting policies that
require significant
changing prices management judgement

Off-balance sheet Forward-looking

obligations and expenditures and
contractual obligations divestitures

Major Financial Statements

1. Scope of FSA 2. Major Financial Statements 3. Footnotes 4. MD&A
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