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  1. Elements of the Income Statement?
    Rev, Exp, G & L
  2. Explain Cash Flow
    • CFO - cash from normal business
    • CFI - acq/sale of property, P&E, subsidiary, stakes in other firms
    • CFF - issuance/retirement of debt and equity, dvis paid to stockholders
    • Total CF = CFO + CFI + CFF (change in cash on BS)
  3. Footnotes
    • more info on fin statements
    • improve assessment on estimates used (fixed assets, inv, pensions, debt, commitments, mark securs, etc)
    • accounting methods and assumptions
    • are also part of the audit process (unlike supp)
    • disclosures such as RE losses
  4. Supp Schedules
    • additional info such as
    • sales by region
    • reserves for oil company
    • info on hedging activites and financial instruments used
  5. Management Commentary
    • Assessment of financial position and performance from management POV. US public companies required to speak of
    • trends, events, uncertainties
    • inflation/pricing
    • off-balance sheet and contractual obligations
    • accounting policies that require judgement
    • foward looking expend and divestitures
  6. Audit
    • fairness and reliability
    • unqual, qual, adverse, disclaimer of opinion
    • GAAP opinion on internal controls
  7. Info Sources
    • EDGAR
    • 8K events, 10K annual, 10Q quarterly
  8. Financial Statement Analysis Framework
    • State Objective
    • Gather Data
    • Process Data
    • Analyze and Interpret
    • Report Conclusions
    • Update Analysis
  9. What accounts are 
    Unearned Rev
    Prepaid Expense
    Accum Depreciation
    • L
    • A
    • A
  10. OE equation
    contributed capital + ending retained earnings (begin retained + rev - exp - div)
  11. Accruals and Adjustments
    Accrual Accounting, 4 cats

    • Most assets on BS at historical cost
    • valuation adjustments = change in OE through G&L on IS or CIS
  12. Standard setting and Regulatory bodies
    • FASB (GAAP) and IASB (IFRS)
    • SEC in US and FSA in UK (most belong to IOSCO)
  13. Barriers to single set of standards
    • disagreement between standard setters
    • political pressures on regulators
  14. Objective of financial statements?
    Fair presentation of a company's financial performance (useful to investors, lenders, creditors)
  15. 2 fundamental characteristics that make financial information useful
    • relevance (comparability, verifiability, timeliness, understandability)
    • faithful representation (complete, unbiased, free from error)
  16. 2 primary assumptions of fin statments
    • accrual basis (rev recognised when earned, exp when incurred REGARDLESS of cash)
    • going concern
  17. What is IAS No.1
    • features for prepparing financial statements
    • fair presentation
    • going concern basis
    • accrual basis
    • consistency
    • materiality (no errors)
    • aggregation (of sim items)
    • no offsetting (unless permitted)
    • Report freq (at least annually)
    • Comparative Information (inc from prior periods)
    • Classified Balance Sheet
  18. A coherent financial reporting framework should be
    • transparent
    • comprehensive
    • sonsistent
  19. barriers in frameworks
    • Valuation (relevance vs reliability)
    • Standard Setting (rules based (GAAP), objective orientated, principles based (IFRS))
    • Measurement
  20. Rev to NI
    • Rev - COGS
    • Gross Prof - opex
    • operating prof - IT
    • Net Profit

    n.b. opex includes DA
  21. When is Rev and Exp recognised
    • when earned and incurred
    • probable flow
    • reliably measured
    • delivered/rendered
    • price
  22. Long Term Contracts
    • % of completion (IFRS says if unreliable, only recognise rev to extent of costs and profit at completion)
    • completed contract (not reliabily measured or short term, rev, exp, proft only recognised at completion)
  23. Instalment Sales
    • When sells something and receives payments in instalments.
    • Collectability?
    • Certain - rev at time of sale
    • unsure - installment method (proportional)
    • highly uncertain - cost recovery (profit only after cost)
  24. Matching Principle
    • Rev and Exp same period
    • period costs ie admin exp in period not against rev
    • Rev from long lived assets : Exp D / A
    • Matching principle requires estimates which can allow delay of expense recognition to bloat NI
  25. Depreciation
    • SL = cost - residual / useful life
    • DDB = 2/useful life * asset cost - accum dep

    More dep exp = lower NI
  26. Amortization
    • Goodwill and intangibles with indefinite lives are NOT amortized.
    • Test for impairment annually (possible expense in IS)
  27. The IS / CIS
    Cont Op (inc Unusual or Infreq ie G/L from non disc op, impairments, write-offs, write-downs, restrucuring costs)

    Disc Op - physically and operationally distinct

    Extraord (GAAP only)
  28. Change in Accounting Principle or Estimate
    • principle = retrospective
    • estimate = prospectively
    • prior period adjustment = fixing an error
  29. EPS
    • NI - pref div + debt intere(1-t) + conv pref divs
    • _________
    • weighted shares + shares from conv of pref/debt/options
  30. net profit margin and gross profit margin
    both over revenue
  31. Transactions included in other comprehensive income
    • FX G/L
    • Adjustments for min pension liability
    • Unrealised G/L cash flow hedging
    • Unrealised G/L available-4-sale securities

    Divs paid + Issuing or reacquiring stock are not in IS or CIS
  32. working capital
    current ass - current liab
  33. Tangible Assets v Intangible
    • long-term assets with physical substance.
    • land is not depreciated

    • Goodwill - no amort
    • reported at hist cost less accum amort
    • IFRS - expense up to research, capitalise development on
    • GAAP - expensed but for certain legal costs
  34. Held to Maturity
    Trading Sec
    Available for Sale
    • amort cost
    • fair value (unreal G&L recog in IS)
    • fair value (only in CIS in stockholder eq)
  35. Owners Equity, BS accounts
    • A-L
    • BS includes 
    • contributed capital
    • noncontrolling itnerest
    • retained earnings
    • treasury stock (no voting or divs)
    • accumulated other comp income (changes in stockholders eq not recognised in the IS)
  36. Solvency Ratios
    • LT debt to equity
    • debt to equity
    • total debt ratio (debt/assets)
    • financial leverage (total assets/equity)
    • CFO outflows - opex, trading sec, int, taxes
    • inflows - sales, int & div (IFRS CFO CFI), sales from trading sec

    • CFI outflows - acq of fixed assets, debt eq sec, loans made
    • inflows - sales proceeds and principal received

    • CFF outflows - divs paid (IFRS CFO CFF), repayment of loan, reacquire stock, 
    • inflows - loans, equity capital

    noncash / barter can be footnoted or supp sched
  38. ROE DuPont

    tax burden, interest burden, EBIT margin, asset turnover, financial leverage.
Card Set:
2013-11-24 12:51:30

CFA 2013 L1
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