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Ch15 Ch15 Presentation Transcript

  • 15 Financial Statement AnalysisPrinciples of Financial Accounting with ConceptualEmphasis on IFRSReeve Warren Duchac Wang©2011 Cengage Learning
  • Learning Objective Financial Statement Analysis 1 3-1 After studying this chapter, you should be able to: Describe basic financial statement 1 Insert Chapter Objectives analytical methods. Describe the nature of the 2 Use financial statement analysis to assess the solvency of a business. adjusting process. 3 Use financial statement analysis to assess the profitability of a business. 4 Describe the contents of corporate annual reports.15-215-2
  • 1 Describe basic financial statement analytical methods.15-315-3
  • 1 Basic Analytical Methods Users analyze a company’s financial statements using a variety of analytical methods. Three such methods are as follows: 1. Horizontal analysis 2. Vertical analysis 3. Common-sized statements15-4
  • 1 Horizontal Analysis The percentage analysis of increases and decreases in related items in comparative financial statements is called horizontal analysis.15-5
  • 1Exhibit 1ComparativeStatement ofFinancialPosition—HorizontalAnalysis 15-6
  • 1Exhibit 1ComparativeStatement ofFinancialPosition—HorizontalAnalysis Horizontal Analysis: Difference $17,000 = 3.2% Base year (2009) $533,000 15-7
  • 1 Comparative Schedule of Current Exhibit 2 Assets—Horizontal Analysis15-8
  • 1 Comparative Schedule of Current Exhibit 2 Assets—Horizontal Analysis Horizontal Analysis: Difference $25,800 = 39.9% Base year (2009) $64,70015-9
  • 1 Comparative Statement of Comprehensive Exhibit 3 Income—Horizontal Analysis15-10
  • 1 Comparative Statement of Comprehensive Exhibit 3 Income—Horizontal Analysis Horizontal Analysis: Increase amount $296,500 = 24.0% Base year (2009) $1,234,00015-11
  • 1 Comparative Statement of Retained Earnings Exhibit 4 —Horizontal Analysis Horizontal Analysis: Increase amount $37,500 = 37.5% Base year (2009) $100,00015-12
  • Example Exercise 15-1 1 Horizontal Analysis The comparative cash and accounts receivable balances for a company are provided below. 2010 2009 Cash $62,500 $50,000 Accounts receivable (net) 74,400 80,000 Based on this information, what is the amount and percentage of increase or decrease that would be shown in a statement of financial position with horizontal analysis? Follow My Example 15-1 Cash $12,500 increase ($62,500 – $50,000), or 25% Accounts receivable $5,600 decrease ($74,400 – $80,000), or (7%)Follow My Example 6-1 15-13 For Practice: PE 15-1A, PE 15-1B 15-13
  • 1 Vertical Analysis The percentage analysis of the relationship of each component in a financial statement to a total within the statement is called vertical analysis.15-14
  • 1 Vertical Analysis of Statement of Financial Position In a vertical analysis of the statement of comprehensive income, each asset item is stated as a percent of the total assets. Each liability and stockholders’ equity item is stated as a percent of the total liabilities and stockholders’ equity.15-15
  • 1Exhibit 5ComparativeStatement ofFinancialPosition—VerticalAnalysis 15-16
  • 1Exhibit 5ComparativeStatement ofFinancialPosition—VerticalAnalysis Vertical Analysis: Current assets $550,000 = 48.3% Total assets $1,139,500 15-17
  • 1 Vertical Analysis of the Statement of Comprehensive Income In a vertical analysis of the statement of comprehensive income, each item is stated as a percent of net sales.15-18
  • 1 Comparative Statement of Comprehensive Exhibit 6 Income—Vertical Analysis15-19
  • 1 Comparative Statement of Comprehensive Exhibit 6 Income—Vertical AnalysisVertical Analysis:Selling expenses $191,000 = 12.8%Net sales $1,498,00015-20
  • 1 Common-Size Statements In a common-sized statements, all items are expressed as a percentage. Common-sized statements are useful in comparing the current period with prior periods, individual businesses, or one business with with industry percentages.15-21
  • 1 Exhibit 7 Common-Sized Statement of Comprehensive Income15-22
  • 1 Example Exercise 15-2 Vertical Analysis Statement of comprehensive income information for Lee Corporation is provided below. Sales $100,000 Cost of goods sold 65,000 Gross profit $ 35,000 Prepare a vertical analysis of the statement of comprehensive income for Lee Corporation. 15-15-23 23
  • Example Exercise 15-2 (continued) 1Follow My Example 15-2 Amount Percentage Sales $100,000 100% ($100,000 ÷ $100,000) Cost of goods sold 65,000 65 ($65,000 ÷ $100,000) Gross profit 35,000 35% ($35,000 ÷ $100,000) For Practice: PE 15-2A, PE 15-2B 15- 15-24 24
  • 2 Use financial statement analysis to assess the solvency of a business.15-25 15- 25
  • 2 Solvency Analysis All users of financial statements are interested in the ability of a company to do the following: 1. Meet its financial obligations (debts), called solvency. 2. Earn income, called profitability.15-26
  • 2 Current Position Analysis Using measures to assess a business’s ability to pay its current liabilities is called current position analysis. Such analysis is of special interest to short-term creditors.15-27
  • 2 Working Capital The excess of current assets of a business over its current liabilities is called working capital. The working capital is often used in evaluating a company’s ability to pay current liabilities.15-28
  • 2Working Capital = Current Assets – Current Liabilities 2010 2009 Current assets $550,000 $533,000 Less current liabilities –210,000 –243,000 Working capital $340,000$290,00015-29
  • 2 Current Ratio The current ratio, sometimes called the working capital ratio or bankers’ ratio measures a company’s ability to pay its current liabilities.15-30
  • 2 Current Assets Current Ratio = Current Liabilities 2010 2009 Current assets $550,000 $533,000 Current liabilities $210,000 $243,000 Current ratio 2.6 2.2 $550,000 $533,000 $210,000 $243,00015-31
  • 2 Quick Ratio A ratio that measures the “instant” debt-paying ability of a company is called the quick ratio or acid- test ratio.15-32
  • 2 Quick assets are cashand other current assets that can be quickly converted to cash. 2010 2009 Quick assets: Cash $ 90,500 $ 64,700 Temporary Investments 75,000 60,000 Accounts receivable (net) 115,000 120,000 a. Total quick assets $280,500 $244,700 b. Current liabilities $210,000 $243,000 Quick ratio (a ÷ b) 1.3 1.015-33
  • 2 Example Exercise 15-3 Current Position Analysis The following items are reported on a company’s statement of financial position: Cash $300,000 Temporary investments 100,000 Accounts receivable (net) 200,000 Inventory 200,000 Accounts payable 400,000 Determine (a) the current ratio and (b) the quick ratio. 15-15-34 34
  • Example Exercise 15-3 (continued) 2Follow My Example 15-3 a. Current Ratio = Current Assets/Current Liabilities Current Ratio = ($300,000 + $100,000 + $200,000 + $200,000) ÷ $400,000 Current Ratio = 2.0 b. Quick Ratio = Quick Assets ÷ Current Liabilities Quick Ratio = ($300,000 + $100,000 + $200,000) ÷ $400,000 Quick Ratio = 1.5 For Practice: PE 15-3A, PE 15-3B 15- 15-35 35
  • 2 Accounts Receivable Turnover The relationship between sales and accounts receivable may be stated as the accounts receivable turnover. Collecting accounts receivable as quickly as possible improves a company’s solvency.15-36
  • 2 Net Sales Accounts Receivable Turnover = Average Accounts Receivable 2010 2009 a. Net sales $1,498,000 $1,200,000 Accounts receivable (net): Beginning of year $ 120,000 $ 140,000 End of year 115,500 120,000 Total $ 235,000 $ 260,000 b. Average (Total ÷ 2) $ 117,500 $ 130,000 Accounts receivable turnover (a ÷ b) 12.7 9.215-37
  • 2 Number of Days’ Sales in Receivables The number of days’ sales in receivables is an estimate of the length of time (in days) the accounts receivable have been outstanding. Average Accounts Number of Days’ = Receivable Sales in Receivables Average Daily Sales Net Sales15-38 365
  • 2 2010 2009a. Average accounts receivable (Total accounts receivable ÷ 2) $ 117,500 $ 130,000 Net sales $1,498,000 $1,200,000b. Average daily sales (Sales ÷ 365) $ 4,104 $ 3,288 Number of days’ sales in receivables (a ÷ b) 28.6 39.515-39
  • 2 Example Exercise 15-4 Accounts Receivable Analysis A company reports the following: Net sales $960,000 Average accounts receivable (net) 48,000 Determine (a) the accounts receivable turnover and (b) the number of days’ sales in receivables. Round to one decimal place. 15-15-40 40
  • Example Exercise 15-4 (continued) 2Follow My Example 15-4a. Accounts Receivable Turnover = Sales ÷ Average Accounts Receivable Accounts Receivable Turnover = $960,000 ÷ $48,000 Accounts Receivable Turnover = 20.0b. Number of Days’ Sales in Receivables = Average Accounts Receivable ÷ Average Daily Sales Number of Days’ Sales in Receivables = $48,000 ÷ ($960,000/365) = $48,000 ÷ $2,630 Number of Days’ Sales in Receivables = 18.3 days 15- For Practice: PE 15-4A, PE 15-4B 15-41 41
  • 2 Inventory Turnover The relationship between the volume of goods (merchandise) sold and inventory may be stated as the inventory turnover. The purpose of this ratio is to assess the efficiency of the firm in managing its inventory.15-42
  • 2 Cost of Goods Sold Inventory Turnover = Average Inventory 2010 2009 a. Cost of goods sold $1,043,000 $ 820,000 Inventories: Beginning of year $ 283,000 $ 311,000 End of year 264,000 283,000 Total $ 547,000 Inventory turnover (a ÷ b) $ 594,000 3.8 2.8 b. Average (Total ÷ 2) $ 273,500 $ 297,00015-43
  • 2 Number of Days’ Sales in Inventory The number of days’ sales in inventory is a rough measure of the length of time it takes to purchase, sell, and replace the inventory.15-44
  • 2 Number of Days’ Average Inventory = Sales in Inventory Average Daily Cost of Goods Sold Cost of Goods Sold 365 2010 2009a. Average inventory (Total ÷ 2) $ 273,500 $ 297,000 Cost of goods sold $1,043,000 $ 820,000b. Average daily cost of goods sold (COGS ÷ 365 days) $2,858 $2,247 Number of days’ sales in inventory (a ÷ b) 95.7 132.215-45
  • 2 Example Exercise 15-5 Inventory Analysis A company reports the following: Cost of goods sold $560,000 Average inventory 112,000 Determine (a) the inventory turnover and (b) the number of days’ sales in inventory. Round to one decimal place. 15-15-46 46
  • Example Exercise 15-5 (continued) 2 Follow My Example 15-5a. Inventory Turnover = Cost of Goods Sold ÷ Average Inventory Inventory Turnover = $560,000 ÷ $112,000 Inventory Turnover = 5.0b. Number of Days’ Sales in Inventory = Average Inventory ÷ Average Daily Cost of Goods Sold Number of Days’ Sales in Inventory = $112,000 ÷ ($560,000/365) Number of Days’ Sales in Inventory = $112,000 ÷ $1,534 Number of Days’ Sales in Inventory = 73.0 days For Practice: PE 15-5A, PE 15-5B 15- 15-47 47
  • 2 Ratio of Fixed Assets to Long-Term Liabilities The ratio of fixed assets to long-term liabilities is a solvency measure that indicates the margin of safety of the noteholders or bondholders. It also indicates the ability of the business to borrow additional funds on a long- term basis.15-48
  • 2 Ratio of Fixed Assets to Fixed Assets (net) = Long-Term Liabilities Long-Term Liabilities 2010 2009 a. Fixed assets (net) $444,500 $470,000 b. Non-current liabilities $100,000 $200,000 Ratio of fixed assets to non-current liabilities (a ÷ b) 4.4 2.415-49
  • 2 Ratio of Liabilities to Stockholders’ Equity The relationship between the total claims of the creditors and owners —the ratio of liabilities to stockholders’ equity—is a solvency measure that indicates the margin of safety for creditors.15-50
  • 2 Ratio of Liabilities to Total Liabilities = Stockholders’ Equity Total Stockholders’ Equity 2010 2009 a. Total liabilities $310,000 $443,000 b. Total stockholders’ equity $829,500 $787,500 Ratio of liabilities to stockholders’ equity ( a÷ b) 0.4 0.615-51
  • 2 Example Exercise 15-6 Long-Term Solvency Analysis The following information was taken from Acme Company’s statement of financial position: Fixed assets (net) $1,400,000 Non-current liabilities 400,000 Total liabilities 560,000 Total stockholders’ equity 1,400,000 Determine the company’s (a) ratio of fixed assets to non-current liabilities and (b) ratio of liabilities to total stockholders’ equity. 15-15-52 52
  • Example Exercise 15-6 (continued) 2Follow My Example 15-6a. Ratio of Fixed Assets to Long-Term Liabilities = Fixed Assets ÷ Non- Current Liabilities Ratio of Fixed Assets to Long-Term Liabilities = $1,400,000 ÷ $400,000 Ratio of Fixed Assets to Long-Term Liabilities = 3.5b. Ratio of Liabilities to Total Stockholders’ Equity = Total Liabilities ÷ Total Stockholders’ Equity Ratio of Liabilities to Total Stockholders’ Equity = $560,000 ÷ $1,400,000 Ratio of Liabilities to Total Stockholders’ Equity = 0.4 For Practice: PE 15-6A, PE 15-6B 15- 15-53 53
  • 2 Number of Times Interest Charges Are Earned Corporations in some industries normally have high ratios of debt to stockholders’ equity. For such corporations, the relative risk of the debtholders is normally measured as the number of times interest charges are earned (during the year), sometimes called the fixed charge coverage ratio.15-54
  • 2 Income Before Income Tax Number of Times Interest + Interest Expense = Charges Are Earned Interest Expense 2010 2009Income before income tax $162,500 $134,600a. Add interest expense 6,000 12,000b. Amount available to pay interest $168,500 $146,600Number of times interest charges earned (b ÷ a) 28.1 12.215-55
  • 2 Number of Times Preferred Dividends Are Earned The number of times interest charges are earned can be adapted for use with dividends on preferred stock. Number of Times Net Income Preferred Dividends = Are Earned Preferred Dividends15-56
  • Example Exercise 15-7 2 Times Interest Charges Are Earned A company reports the following: Income before income tax $250,000 Interest expense 100,000 Determine the number of times interest charges are earned. Follow My Example 15-7 Number of Times Interest Charges Are Earned = (Income Before Income Tax + Interest Expense) ÷ Interest Expense Number of Times Interest Charges Are Earned = ($250,000 + $100,000) ÷ $100,000 Number of Times Interest Charges Are Earned = 3.5 15-57 For Practice: PE 15-7A, PE 15-7B 15-57
  • 3 Use financial statement analysis to assess the profitability of a business.15-5815-58
  • 3 Profitability Analysis Profitability analysis focuses primarily on the relationship between operating results and the resources available to a business.15-59
  • 3 Ratio of Net Sales to Assets The ratio of net sales to assets is a profitability measure that shows how effectively a company utilizes its assets.15-60
  • 3 Net Sales Ratio of Net Sales to Assets = Average Total Assets 2010 2009a. Net sales $1,498,000 $1,200,000 Total assets: Beginning of year $1,053,000 $1,010,000 End of year 1,044,500 1,053,000 Total $2,097,500 $2,063,000b. Average (Total ÷ 2) $1,048,750 $1,031,500 Excludes long-term investments15-61
  • 3 Net Sales Ratio of Net Sales to Assets = Average Total Assets 2010 2009a. Net sales $1,498,000 $1,200,000 Total assets: Beginning of year $1,053,000 $1,010,000 End of year 1,044,500 1,053,000 Total $2,097,500 $2,063,000b. Average (Total ÷ 2) $1,048,750 $1,031,500 Ratio of net sales to assets (a ÷ b) 1.4 1.215-62
  • Example Exercise 15-8 3 Net Sales to Assets A company reports the following: Net sales $2,250,000 Average total assets 1,500,000 Determine the ratio of net sales to assets. Follow My Example 15-8 Ratio of Net Sales to Assets = Net Sales ÷ Average Total Assets Ratio of Net Sales to Assets = $2,250,000 ÷ $1,500,000 Ratio of Net Sales to Assets = 1.5 For Practice: PE 15-8A, PE 15-8B 15-63 15-63
  • 3 Rate Earned on Total Assets The rate earned on total assets measures the profitability of total assets, without considering how the assets are financed.15-64
  • 3 Net Income + Interest Expense Rate Earned on Total Assets = Average Total Assets 2010 2009Net income $ 91,000 $ 76,500Plus interest expense 6,000 12,000a. Total $ 97,000 $ 88,500Total assets: Beginning of year $1,230,500 $1,187,500 End of year 1,139,500 1,230,500 Total $2,370,000 $2,418,000b. Average (Total ÷ 2) $1,185,000 $1,209,000Rate earned on total assets (a ÷ b) 8.2% 7.3%15-65
  • Example Exercise 15-9 3 Rate Earned on Total Assets A company reports the following statement of comprehensive income and statement of financial position information for the current year: Net income $ 125,000 Interest expense 25,000 Average total assets 2,000,000 Determine the rate earned on total assets. Follow My Example 15-9 Rate Earned on Total Assets = (Net Income + Interest Expense) ÷ Average Total Assets Rate Earned on Total Assets = ($125,000 + 25,000) ÷ $2,000,000 Rate Earned on Total Assets = 7.5% 15-66 For Practice: PE 15-9A, PE 15-9B 15-66
  • 3 Rate Earned on Stockholders’ Equity The rate earned on stockholders’ equity measure emphasizes the rate of income earned on the amount invested by the stockholders.15-67
  • 3 Rate Earned on Net Income = Stockholders’ Equity Average Total Stockholders’ Equity 2010 2009a. Net income $ 91,000 $ 76,500 Stockholders’ equity: Beginning of year $ 787,500 $ 750,000 End of year 829,500 787,500 Total $1,617,000 $1,537,500b. Average (Total ÷ 2) $ 808,500 $ 768,750Rate earned on stockholders’equity (a ÷ b) 11.3% 10.0%15-68
  • 3 Leverage The difference in the rate earned on stockholders’ equity and the rate earned on total assets is called leverage.15-69
  • 3 Exhibit 8 Effect of Leverage15-70
  • 3 Rate Earned on Common Stockholders’ Equity The rate earned on common stockholders’ equity focuses only on the rate of profits earned on the amount invested by the common stockholders.15-71
  • 3 Net Income – Rate Earned on Common Preferred Dividends Stockholders’ Equity = Average Common Stockholders’ Equity 2010 2009 Net income $ 91,000 $ 76,500 Less preferred dividends 9,000 9,000a. Remainder—common stock $ 82,000 $ 67,500 Common stockholders’ equity: Beginning of year $ 637,500 $ 600,000 End of year 679,500 637,500 Total $1,317,000 $1,237,500b. Average (Total ÷ 2) $ 658,500 $ 618,750Rate earned on commonstockholders’ equity (a ÷ b) 12.5% 10.9%15-72
  • 3 Example Exercise 15-10 Common Stockholders’ Profitability Analysis A company reports the following: Net income $ 125,000 Preferred dividends 5,000 Average stockholders’ equity 1,000,000 Average common stockholders’ equity 800,000 Determine (a) the rate earned on stockholders’ equity and (b) the rate earned on common stockholders’ equity. 15-15-73 73
  • Example Exercise 15-10 (continued) 3 Follow My Example 15-10a. Rate Earned on Stockholders’ Equity = Net Income ÷ Average Stockholders’ Equity Rate Earned on Stockholders’ Equity = $125,000 ÷ $1,000,000 Rate Earned on Stockholders’ Equity = 12.5%b. Rate Earned on Common Stockholders’ Equity = (Net Income – Preferred Dividends) ÷ Average Common Stockholders’ Equity Rate Earned on Common Stockholders’ Equity = ($125,000 – $5,000) ÷ $800,000 Rate Earned on Common Stockholders’ Equity = 15% 15- For Practice: PE 15-10A, PE 15-10B 15-74 74
  • 3 Earnings per Share on Common Stock Earnings per share (EPS) on common stock measures the share of profits that are earned by a share of common stock. GAAP require the reporting of earnings per share in the statement of comprehensive income.15-75
  • 3 Net Income – Earnings per Share (EPS) Preferred Dividends on Common Stock = Shares of Common Stock Outstanding 2010 2009 Net income $91,000 $76,500 Preferred dividends 9,000 9,000a. Remainder—identified with common stock $82,000 $67,500b. Shares of common stock 50,000 50,000 Earnings per share on common stock (a ÷ b) $1.64 $1.3515-76
  • 3 Price-Earnings Ratio Another profitability measure quoted by the financial press is the price-earnings (P/E) ratio on common stock. The price- earnings ratio on common stock measures a company’s future earnings prospects.15-77
  • 3 Market Price per Share of Common Stock Price-Earnings (P/E) Ratio = Earnings per Share on Common Stock 2010 2009 Market price per share of common stock $41.00 $27.00 Earnings per share on common stock ÷ 1.64 ÷ 1.35 Price-earnings ratio on common stock 25 2015-78
  • 3 Example Exercise 15-11 Earnings per Share and Price-Earnings Ratio A company reports the following: Net income $250,000 Preferred dividends $15,000 Shares of common stock outstanding 20,000 Market price per share of common stock $35.00 a. Determine the company’s earnings per share on common stock. b. Determine the company’s price-earnings ratio. Round to one decimal place. 15-15-79 79
  • Example Exercise 15-11 (continued) 3 Follow My Example 15-11a. Earnings per Share on Common Stock = (Net Income – Preferred Dividends) ÷ Shares of Common Stock Outstanding Earnings per Share = ($250,000 – $15,000) ÷ 20,000 Earnings per Share = $11.75b. Price-Earnings Ratio = Market Price per Share of Common Stock ÷ Earnings per Share on Common Stock Price-Earnings Ratio = $35.00 ÷ $11.75 Price-Earnings Ratio = 3.0 For Practice: PE 15-11A, PE 15-11B 15- 15-80 80
  • 3 Dividends per Share Dividends per share can be reported with earnings per share to indicate the relationship between dividends and earnings. Comparing these two per share amounts measures the extent to which earnings are being distributed to common shareholders.15-81
  • 3 Dividends Dividends per Share = Shares of Common Stock Outstanding 2010 2009 a. Dividends $40,000 $30,000 b. Shares of common stock outstanding 50,000 50,000 Dividends per share of common stock (a ÷ b) $0.80 $0.6015-82
  • 3 Dividends and Earnings per Exhibit 9 Share of Common Stock15-83
  • 3 Dividend Yield The dividend yield on common stock measures the rate of return to common stockholders from cash dividends.15-84
  • 3 Dividends per Share of Common Stock Dividend Yield = Market Price per Share of Common Stock 2010 2009 a. Dividends per share of common stock $ 0.80 $ 0.60 b. Market price per share of common stock 41.00 27.00 Dividend yield on common stock 2.0% 2.2%15-85
  • 4 Exhibit 10 Summary of Analytical Measures15-86 Solvency Measures (continued)
  • 4 Exhibit 10 Summary of Analytical Methods (continued)15-87 Profitability Measures
  • 4 Describe the contents of corporate annual reports15-88
  • 4 Corporate Annual Reports In addition to the financial statements and the accompanying notes, corporate annual reports usually include the following sections: • Management discussion and analysis • Report on internal control • Report on fairness of financial statements15-89
  • 4 Management Discussion and Analysis The Management Discussion and Analysis (MD&A) includes an analysis of the results of operations and discusses management’s opinion about future performance. It compares the prior year’s statement of comprehensive income with the current year’s. It also contains an analysis of the firm’s financial condition.15-90
  • 4 Report on Internal Control The Sarbanes-Oxley Act of 2002 requires a report stating management’s responsibility for establishing and maintaining internal control. In addition, management’s assessment of the effectiveness of internal controls over financial reporting is included in the report.15-91
  • 4 Report on Fairness of Financial Statements All publicly held corporations are required to have an independent audit (examination) of their financial statements. The CPA firm that conducts the audit renders an opinion on the fairness of the statements.15-92
  • Appendix: Unusual Items on the Statement of Comprehensive Income15-93
  • Unusual Items Affecting the Current Period’s Statement of Comprehensive Income Unusual items affecting the current period’s statement of comprehensive income include the following: • Discontinued operations • Extraordinary items15-94
  • Discontinued Operations A company may discontinue a segment of its operations by selling or abandoning the operations. A note accompanying the statement of comprehensive income should describe the operations sold including such details as the date operations were discontinued, the assets sold, and the effect (if any) on current and future operations.15-95
  • Extraordinary Items An extraordinary item is defined as an event or transaction with the following characteristics: • Unusual in nature • Infrequent in occurrence15-96
  • Exhibit 11 Unusual Items in the Statement of Comprehensive Income15-97
  • Exhibit 12 Statement of Comprehensive Income with Earnings per Share15-98
  • S potlight on IFRS : IFRS a nd Fina ncia l S ta te me nt Ana lys is15-99
  • Impact of IFRS on Financial Statements• The impacts fall not just on the preparers but also on the users of financial statements.15-100
  • Difference across Countries• The bank-oriented continental European countries are now shifting toward the capital market-oriented perspective of financial reporting with the globalization of the financial environments.• Countries in this area will experience a higher level of adjustments in financial reporting. For the market- oriented countries the impact will somewhat be lower.• Users of financial statements of the companies need to make the same adjustments. 15- 101
  • Quality of Financial Information• IFRS adoption is perceived to improve the financial transparency and comparability of financial statements.• Research shows that financial statements under the market-oriented perspective raise the quality of financial information and benefit investors: – IFRS improves investor protection, makes capital markets more accessible to foreign investors, and improves the comparativeness and comprehensiveness of financial information. 15- 102
  • Impact on Financial Ratios• Differences between IFRS and US GAAP that contribute to the differences in financial analysis: 1. Recognition 2. Classification 3. Presentation 4. Timeliness15-103