Topic 1. Comparative Financial Statement Analysis Flashcards
(19 cards)
What does the Statement of Financial Performance report?
Reports revenues, expenses, gains and losses, impacting profitability over a period of time
This includes monthly, quarterly, or yearly data.
What is the purpose of the Statement of Comprehensive Income?
Can be combined with the Income Statement, starts with net income, reports other items net of taxes
Examples include unrealized gains/losses on securities and currency translation gains/losses.
What does the Statement of Financial Position depict?
Reports assets, liabilities, and equity at a given point in time, depicting the accounting equation: A = L + E
A = Assets, L = Liabilities, E = Equity.
What information does the Statement of Changes in Equity provide?
Shows changes to stockholders’ equity by major accounting categories from one period to another
Categories include common stock, additional paid-in capital, retained earnings, and treasury stock.
What is the function of the Statement of Cash Flows?
Provides information about sources and uses of cash over a period of time
Reconciles beginning cash balance with net increase/decrease to arrive at ending cash balance.
Who are considered Direct Interest Users of financial statements?
- Investors and Owners
- Management
- Suppliers
- Creditors
- Employees
- Customers
Who are considered Indirect Interest Users of financial statements?
- Regulatory Agencies
- Stock Market
- Financial Analysts
- Internal Users (Board of Directors, Company Management, Employees)
- External Users (Investors, Suppliers, Customers, Stock Exchange)
What activities are included in Operating Activities of the Statement of Cash Flows?
Relate to day-to-day business as reported in the Income Statement, includes current assets and liabilities analysis
Can be prepared using direct or indirect method.
What is the Indirect Method for preparing the Statement of Cash Flows?
Starts with Net Income, adjusts for depreciation, amortization, gains/losses from asset sales, and changes in current assets/liabilities
Widely used method.
What does the Direct Method for the Statement of Cash Flows list?
Lists sources of cash received and uses of cash paid
Includes interest, dividends, taxes, and trading securities.
What activities are classified under Investing Activities?
Cash flows from buying/selling long-term assets and investments in other entities
Examples include PPE, debt investments, and equity securities.
What do Financing Activities relate to?
How the organization funds assets used in operations, involving long-term liabilities and stockholder’s equity
Includes issuing/retiring debt, issuing stock, and paying dividends.
What are Significant non-cash investing and financing activities?
Changes to long-term liabilities and stockholder’s equity reported here
Example: Conversion of debt to common stock.
What does Common-Size Financial Statement Analysis allow users to do?
Compare financial statements from different periods to analyze trends and future growth prospects
Calculated as a percentage of a base amount.
What is the base amount for Common-Size Analysis in the Income Statement?
Net Sales
In the Balance Sheet, it is Total Assets and Total Liabilities & Equity.
What is Horizontal Financial Statement Analysis also known as?
Trend analysis
Determines the increase/decrease from one time period to another.
What is the Amount of Change Method in Horizontal Analysis?
Current Period – Prior Period = Amount of Change
What does the Percent Change Method calculate?
(Current Period – Prior Period) / Prior Period = Growth Rate
What is the Percent of Prior Period Method?
Current Period / Prior Period = % increase or decrease
