F6003Ch 01.php(1)

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F6003Ch 01.php(1)

  1. 1. Chapter 1: Framework for Business Analysis and Valuation Using Financial Statements
  2. 2. Key Concepts in Chapter 1 <ul><li>Financial statements are an important source of information to the capital markets and business analysts. </li></ul><ul><li>Analyzing financial statements addresses a number of issues of interest to external stakeholders and company insiders. </li></ul>
  3. 3. The Role of Financial Reporting in Capital Markets <ul><li>Financial reporting provide much-needed information to capital market participants </li></ul><ul><ul><li>Financial intermediaries depend upon the information in financial statements to evaluate investment opportunities. </li></ul></ul><ul><ul><li>Information intermediaries assure the quality of financial statement representations. </li></ul></ul><ul><ul><li>Relevant and reliable financial information is essential for the functioning of capital markets. </li></ul></ul>
  4. 4. How Capital Markets Function
  5. 5. From Business Activities to Financial Statements <ul><li>Financial statements measure and summarize the economic consequences of business activities. </li></ul><ul><li>Accounting systems facilitate information quality. </li></ul><ul><ul><li>The role of accrual accounting. </li></ul></ul><ul><ul><li>The need for accounting conventions and standards. </li></ul></ul><ul><ul><li>Managers’ accounting choices and strategies. </li></ul></ul><ul><ul><li>Auditing and the quality of financial information. </li></ul></ul>
  6. 6. From Business Activities to Financial Statements
  7. 7. Financial Statements and Business Analysis <ul><li>Business intermediaries use financial statements to accomplish four key objectives: </li></ul><ul><ul><li>Business strategy analysis </li></ul></ul><ul><ul><li>Accounting analysis </li></ul></ul><ul><ul><li>Financial analysis </li></ul></ul><ul><ul><li>Prospective analysis </li></ul></ul>
  8. 8. Business Strategy Analysis
  9. 9. Concluding Comments <ul><li>Financial statements are source of widely available data on publicly traded corporations. </li></ul><ul><li>Accrual accounting attempts to accurately reflect expectations of economic performance, but requires careful analysis. </li></ul><ul><li>This chapter has outlined a useful framework for business analysis using financial statements. </li></ul>

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