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Pertemuan 1 - Financial Reporting and Analysis Introduction
Pertemuan 1 - Financial Reporting and Analysis Introduction
Analysis : An Introduction
Financial Analysis
Financial Reporting and Financial Statement
Analysis
Financial Reporting Financial Statement Analysis
Point in Time
Assets of Lindt &
Sprüngli Group
Liabilities and Equity of Lindt & Sprüngli Group
FINANCIAL STATEMENTS:
Statement of Comprehensive Income
Also known as the income statement, statement of earnings, or profit and loss statement
Comprehensive income: All items that affect owners’ equity but are not the result of transactions
with shareholders
Comprehensive income = Net income + Other comprehensive income
Presentation permitted
Single statement of comprehensive income
Two consecutive statements
Net Income = Income – Expenses
Period of time
Lindt & Sprüngli Group
Income Statement
Lindt & Sprüngli Group
Statement of Comprehensive Income
FINANCIAL STATEMENTS:
Statement of Changes in Equity
Also known as statement of changes in owners’ equity or statement of shareholders’ equity
Period of time
Beginning equity + Changes in equity = Ending equity
Basic components of owners’ equity are paid-in capital and retained earnings.
- Beginning common stock + Issuances – Repurchases = Ending common stock
- Beginning retained earnings + Net Income – Dividends = Ending retained earnings
- Beginning AOCI + OCI = Ending AOCI
Lindt & Sprüngli Group
Statement of Changes in
Equity
FINANCIAL STATEMENTS
Statement of Cash Flows
Period of time
Beginning Cash + Changes in cash = Ending cash
Changes in cash from
- Operating
- Investing
- Financing
Portions omitted
ACCOMPANYING NOTES
• The notes (also sometimes referred to as footnotes) that accompany the four financial statements are
required and form an integral part of the statements.
• Notes include information on
• Significant accounting choices (policies, methods, and estimates).
• Explanatory detail about line items on the face of the financial statements.
• Other disclosures, such as commitments and contingencies.
• Based on notes disclosures, analysts can understand whether accounting choices are similar for the
companies being compared. If the policies differ, an analyst can often make necessary adjustments
so that the financial statement data used are more comparable.
Example of Disclosure of
Accounting Principles in Notes
Property, plant, and equipment — Property, plant, and equipment are
valued at historical cost, less the accumulated depreciation. The assets are
depreciated using the straight-line method over the period of their
expected useful economic life.
Historical cost includes all costs associated with the acquisition.
Subsequent costs increasing the value of an asset are, depending on the
case, either recorded in the book value of the asset or as a separate asset,
to the extent that it can be assumed that it is likely that the Group will
benefit from it in the future and that its costs can be calculated in a
reliable manner. All other repair or maintenance costs are reflected in the
income statement in the year of their occurrence.
Example of Disclosure of Line Item
Detail in Notes
2. Collect Data
3. Process Data
6. Follow-Up
Articulate the Purpose and
Context of Analysis
• Purpose of analysis: evaluate the historical performance of a company (trend and cross sectional),
prepare a forecast of future performance, value a company’s equity or debt securities, prepare rating or
recommendation
• Define the context
• Intended audience
• End product
• Time frame
• Resources and resource constraints
• Based on purpose and context, formulate questions to be answered
Collect Data, Process Data,
Analyze Data
• Collect data required to answer questions.
• Use analytical tools to process data:
• Ratio analysis
• Common-size financial statements
• Analyze data:
• Use financial ratios to assess a company’s profitability, liquidity, leverage, and efficiency
relative to its own past (trend analysis) and relative to peer/benchmark companies.
• Synthesize all available information to develop expectations about a company’s likely future
performance.
• Develop forecasts and use as input to valuation.
Develop and Communicate
Conclusions/Recommendations
• Communicate the conclusion or recommendation in an appropriate format.
• Appropriate format will vary by analytical task, by institution, and/or by audience.
• An equity analyst’s report would typically include the following components:
• Summary and investment conclusion
• Earnings projections
• Valuation
• Business summary
• Risk, industry, and competitive analysis
• Historical performance
• Forecasts
Follow-Up
• If an equity investment is made or a credit rating is assigned, periodic review is
required to determine whether the original conclusions and recommendations are
still valid.
• Follow-up may involve repeating all the previous steps in the process on a periodic
basis.
Summary
- Financial statements include
• statement of financial position (balance sheet);
• statement of comprehensive income;
• statement of changes in equity;
• statement of cash flows; and
• notes.
- Analysts use various information sources in financial statement analysis besides annual financial
statements.
• For example, MD&A, earnings announcements, external data sources, and direct experience.
- Steps in financial analysis:
• articulate purpose and context,
• collect data,
• process data,
• analyze data,
• develop and communicate conclusions and recommendations, and
• follow-up.
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