Understanding Accounting Information in Financial Statement Analysis, Study Guides, Projects, Research of Finance

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Introduction to Fi

nancial

Statement Anal

ysis

Lecture 1

reliability of accounting statements.

• To gain a sound understanding of the basic skills offinancial analysis.

• Assignment 30%
  • completed in groups
  • submitted by 4pm Friday 11 th^ December 2009
• Final examination 70%

• Basic financial statements
  • Profit & loss account/Income Statement
  • Balance sheet/Statement of Financial Position
  • Statement Cash flows
• Accounting Concepts
  • Prudence
  • Consistency

• Objectivity
• Relevance
• Accountingterms
• Depreciation
• Accruals
• Etc…!!

• Financial statement analysis
  • the method used to extract information and answer questionsabout the company.

Why Financial Analysis

• Neither finance theory nor accounting practice.
• A view of:
  • How accounting information is used and
  • the information base on which financial decisions are made.

• Local government
• Regulators
• Competitors

Intermediaries:–^ Public

• Analysts
• Media 7

Financial information

• Annual report and accounts
• Interim accounting statements
• Official filings
• Prospectuses

Quantified non-financial information

• Production and consumption statistics
• Official industry statistics

Non-quantified information

• Audit reports
• Chairman’s statement
• Directors’ report

• The company is the focus of financial analysis.
• Why do companies exist?
  • Efficient means of organising economic activity because theyreduce contracting costs.
• Contracting theory

• the company is asuppliers and consumers of factors of production. legal nexus of contractual relationships among
• The company exists because it is less costly for individuals totransact (or contract) through a central organisation than to do so individually.