Financial Statement Analysis and Accounting

Interpreting Financial Statements

Fundamental Concepts:

• Generally accepted accounting principles
• Matching principle
• Historical cost vs. fair value
• A= L+ E
• Three-statement relationships
• Footnotes

Balance Sheet:

• Assets and liabilities (detailed discussion of flow and terms)
• Debt features and terms
• Introduction of related period expenses (depreciation, amortization, interest expense, etc.)
• Equity (detailed discussion of flow and terms)

Income Statement:

• Income statement (detailed discussion of flow and terms)
• EBIT
• Relationships with the balance sheet

Supporting Information:

• Footnotes and management’s discussion

Evening Assignment:

• Optional exercises to reinforce learning objectives: self-paced

Advanced Accounting

Advanced Income Statement:

• Revenue recognition
• Unusual items
• Interest expense and capitalized interest
• Discontinued Operations
• Restructuring Charges
• EPS including primers on options and convertible securities

Cash Flow Statement:

• Mechanics and flow
• Detailed construction
• EBITDA

Other Topics:

• Sources of public information
• Ratio analysis and case study
• Normalizing results – an introduction

Evening Assignment:

• Ratio analysis: optional, self-paced

Accounting Complexities

Leases (finance vs. operating):

• Finance and operating leases
• Balance sheet and income statement presentation
• Impacts of lease classification on EBIT, EBITDA and EBITDAR

M&A Accounting:

• Purchase accounting
• Calculating goodwill and gains on bargain purchases
• Goodwill impairment

Intercorporate Investments:

• Consolidations and levels of ownership
• Equity method investments
• Noncontrolling interests

Income Taxes:

• Permanent differences and effective tax rates
• Temporary differences and deferred tax asset and liabilities
• Discussion of timely issues such as tax law changes (time permitting)

Share-based Compensation:

• Options and restricted shares
• Amortization of share-based compensation expense