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1、The analysis and use of financial statementChapter 1 FRAMEWORK FOR FINANCIAL STATEMENT ANALYSISNEED FOR FINANCIAL STATEMENT ANALYSISThe United Sates has the most complex financial reporting system in the word. .Detailed ac-counting principles are augmented by extensive disclosure requirements .The f

2、inancial state-ments of large multinationals add up to dozens of pages, and many of these firms voluntarily publish additional “fact books” for dissemination to financial analysis and other interested users.Financial reporting in other major developed countries and many emerging markets has also evo

3、lved substantially in recent years .with an increasing emphasis on providing information useful to both domestic and foreign creditors and equity investors. International Accounting Standards have become a credible rival to U.S. standards.In an ideal word, the user of financial statements could focu

4、s only on the bottom lines financial reporting: net income and stockholders equity. If financial statements were comparable among companies (regardless of country),consistent over time , and always fully reflecting the economic position of firm , financial statement analysis would be simple , and th

5、is text a very short one.The financial reporting system is not perfect. Economic events and accounting entries do not correspond precisely; they diverge across the dimensions of timing, recognition, and measurement. Financial analysis and investment decisions are further complicated by variations in

6、 accounting treatment among countries in each of these dimensions.Economic events and accounting recognition of those events frequently take place at different times. One example of phenomenon is the recognition of capital gains and losses only upon sale in most cases. Appreciation of a real estate

7、investment, which took place over a period of many years, for example, receives income statement recognition only in the period management chooses for its disposal.Similarly, long-lived assets are written down. Most of time. In the fiscal period of managements choice. The period of recognition may b

8、e neither the period in which the impairment took place nor the period of sale or disposal. Accounting for discontinued operations. In the same manner. Results in recognition of loss in a period different from when the loss occurred or the disposal is consummated.In addition, many economic events do

9、 not receive accounting recognition at all. Most contracts, for example, are not reflected in financial statements when entered into, despite significant effects on financial condition and operating and financial risk .Some contracts, such as leases and hedging activities, are recognized in the fina

10、ncial statements by some companies, but disclosed only in footnotes by others. Disclosure requirements for derivatives and hedging activities are in place in many jurisdictions, but recognition and measurement is only recently required in the United Stated.Further, generally accepted accounting prin

11、ciples (GAAP) in the United States and elsewhere permit economic events that do receive accounting recognition to be recognized in different ways by different financial statement prepares. Inventory and depreciation of fixed assets are only two of the significant areas where comparability may be lac

12、king.Financial reports often contain supplementary data that, although not included in the statements themselves, help the financial statement user to interpret the statements or adjust measures of corporate performance (such as financial ratios) to make them more comparable, consistent over time, a

13、nd more representative of economic reality. When making adjustments to financial statements, we will seek to discern substance from form and exploit the information contained in footnotes and supplementary schedules of data in the annual report and SEC filings. The analytic treatment of “off-balance

14、-sheet” financing activities is a good example of this process. We also illustrate the use of reconciliations to U.S. GAAP in foreign registrants Form 20-F filings.Finally, information from outside the financial reporting process can be used to make financial data more useful. Estimating the effects

15、 of changing prices on corporate performance, for example, may require the use of price data from outside sources.FOCUS ON INVESTMENT DECISIONSThis book is concerned with the concepts and techniques of financial analysis employed by users of financial statements who are external to the company. Prin

16、cipal emphasis is on the financial statements of companies whose securities are publicly traded. The techniques described are generally applicable to the analysis of financial statements prepared according to U.S. GAAP. However, we will also discuss the pronouncements of the International Accounting

17、 Standards Board (IASB) and standard setters in other countries, compare them to U.S. GAAP, and analyze financial statements prepared in accordance with these other reporting standards.Classes of UsersExternal users of financial information encompass a wide range of interests but can be classified i

18、nto three general groups:Credit and equity investors Government (executive and legislative branches), regulatory bodies, and tax authoritiesThe general public and special interest groups, labor unions , and consumer groupsEach of these user groups has a particular objective in financial statement an

19、alysis, but, as the FASB stated, the primary user are equity investors and creditors. However, the information supplied to investors and creditors is likely to be generally useful to other user groups as well. Hence, financial accounting standards are geared to the purposes and perceptions of invest

20、ors and creditors. That is the group for whom the analytical techniques in this book are intended.The underlying objective of financial analysis is the comparative measurement of risk and return to make investment or credit decisions. These decisions require estimates of the future, be it a mouth, a

21、 year, or a decade. General-purpose financial statements, which describe the past, provide one basis for projecting future earnings and cash flows. Many of the techniques used in this analytical process are broadly applicable to all types of decisions, but there are also specialized techniques conce

22、rned with specific investment interests or, in other words, risks and returns specific to one class of investors or securities.The equity investor is primarily interested in the long-term power of the company, its ability to grow, and, ultimately, its ability to pay dividends and increase in value.

23、Since the equity investor bears the residual risk in an enterprise, the largest and most volatile risk, the require analysis is the most comprehensive of any user and encompasses techniques employed by all other external user.Creditors need somewhat different analytical approaches. Short-term credit

24、ors, such as banks and trade creditors, place more emphasis on the immediate liquidity of the business because they seek an early payback of their investment. Long-term earning power of the company investors in bonds, such as insurance companies and pension funds, are primarily concerned with the lo

25、ng-term asset position and earning power of the company. They seek assurance of the payment of interest and the capability of retiring or refunding the obligation at maturity. Credit risks are usually smaller than equity risks and may be more easily quantifiable.More subordinated or junior creditors

26、, especially owners of “high-yield” debt, however, bear risk similar to those of equity investors and may find analytic techniques normally applied to equity investments more relevant than those employed by creditors.Financial Information and Capital MarketsThe usefulness of accounting information i

27、n the decision-making processes of investors and creditors has been the subject of much academic research over the last 35 years. That research has examined the interrelationship of accounting information and reporting standards in financial markets in great detail. At times, the research conclusion

28、s are highly critical of the accounting standard-setting process and of the utility of financial analysis. This criticism is based on research performed in a capital market setting. These findings do not negate the usefulness of financial analysis of individual securities that may be mispriced or of

29、 decisions made outside a capital market setting.PRINCIPAL FINANCIAL STATEMENTSThe Balance SheetThe balance sheet (statement of financial position) reports major classes and amounts of assets (resources owned or controlled by the firm), liabilities (external claims on those assets), and stockholder

30、equity (owners capital contributions and other internally generated sources of capital) and their interrelationships at specific points in time.Assets reported on the balance sheet are either purchased buy the firm or generated through operations: they are, directly or indirectly, finances by the cr

31、editors and stockholders of the firm. The fundamental accounting relationship provides the basis for recording all transactions in financial reporting and is expressed as the balance sheet equation:Assets (A) = Liabilities (L) + Stockholders Equity (E)In the United States firm issue balance sheets a

32、t the end of each quarter and the end of the fiscal. Annual or semiannual reporting in the norm in most other countries.Elements of the Balance SheetSFAC 6 discusses the elements of financial statements. Although this statement also deals with nonprofit organizations, we restrict our comments to bus

33、iness enterprises.Assets are defined in SFAC 6 asProbable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.This definition seems to be noncontroversial. Its weakness is its lack of reference to risk. It seems to us that an enterprise t

34、hat retains the risk of ownership still “owns” the asset. This issue is important, for example, as it relates to the sale of assets (such as accounts receivable, loans, and mortgages; see chapter 11) when the seller retains some risk of loss.Liabilities are defined, similarly asProbable future sacri

35、fices of economic benefits arising from present obligations of particular entity to transfer assets or provide services to other entities in the future as a result of pa transactions or events.Again, the definition reads well. Yet it permits the nonrecognition of contractual obligation such as opera

36、ting leases (see chapter11). The interpretation of “present obligation” and “result of past transactions or events” is key to accounting for all such contracts; some believe that only payments immediately due as a consequence of completed transactions create liabilities. Others believe that all long

37、-term contacts should be recognized as long-term liabilities. Another important problem area is the derecognition of liabilities that have been prefunded but remain outstanding.As required by the fundamental accounting equation. Stockholder equity is thereforeThe residual interest in the net assets

38、of an entity that remains after deducting its liabilities.In practice, some financial instruments have characteristics of both liabilities and equities, making them difficult to categorize. Convertible debt and redeemable preferreds are two common examples examined in chapter 10. That chapter also d

39、iscusses the FASB Exposure Draft (ED) on recognition and measurement of instruments with equity and liability characteristics.The Income Statement The income statement (statement of earnings) reports on the performance of the firm, the result of its operating activities. It explains some but all of

40、the changes in the assets, liabilities, and equity of the firm between two consecutive balance sheet dates. Use of the accrual concept means that income and the balance sheet are interrelated.The preparation of the income statement is governed by the matching principle, which states that performance

41、 can be measured only if revenues and related costs are accounted for during the same time period. This requires the recognition of expenses incurred to generate revenues in the same period as the related revenues. For example, the cost of a machine is recognized as an expense (it is depreciated) ov

42、er its useful life (as it is used in production) rather than as an expense in the period it is purchased.Elements of the Income StatementRevenues are defined in SAFC 6 asInflows of an entity from delivering or producing goods, rendering services, or other activities that constitute the entitys ongoi

43、ng major or central operationsExpense are defined asOutflows from delivering or producing goods, rendering services, or carrying out other activities that constitute the entitys ongoing major or central operations.These definitions explicitly exclude gains (and losses), defined as Increases (decreas

44、es) in equity (net assets) from peripheral or incidental transactionsGains or losses are, therefore, nonoperating events. Examples would include gains and losses from asset sales, lawsuits, and changes in market values (including currency rates).These definitions are, like the other in SFAC 6, easy

45、to accept as stated. The difficulties come in practice. For example, investment activities may be “central” to a financial institution but “peripheral” to manufacturing company. Similarly, sales of assets such as automobiles may be “incidental” to retailer but “central” to a car rental firm. The wri

46、te-down of inventories due to obsolescence is more difficult to characterize: is this an operating expense or a loss? To some extent, the distinction between revenue and expense on the one hand and gains and losses on the other is a precursor of the controversies over the characterizations of “recur

47、ring versus nonrecurring activities,” “operating versus nonoperating activities,” and “extraordinary items,”. From the analyst point of view, disclosure is more important than classification; analysts prefer to make their own distinctions between operating and nonoper-ating events in many instances.

48、 From the point of view of database user, however, the outcome of the debate is important.Even more important is the decision on when to recognize revenues and expenses. The recognition decision can be a major determinant of reported income, especially for technology and other “new economy” enterpri

49、ses. 财务报表分析与运用第一章 财务报表分析的框架财务报表分析的重要性美国有着世界上最复杂的财务报告系统，广泛披露的要求扩大了详细的会计原则。大型跨国公司的财务报表加起来有好几打纸，许多这样的公司自愿公布额外的“账簿事实”给财务分析师和其他感兴趣的使用者。近几年来，财务报告在其他主要发达国家和新兴市场也得到了很大的发展，重点逐渐转向为国内外的债权人和股东权益投资者提供有用的信息。国际会计准则已经成为与美国会计准则相匹敌的对手。在理想的世界里，财务报表的使用者只能关注财务报告的底线：净利润和股东所有者权益。如果财务报表在公司间（忽略国家因素）具有可比性，会计处理方法保持一贯性，并且完全反映公司的经济状况，那么财务报表分析将会非常简单，本书也很简短。财务报告系统并不完美。经济事项和会计分录没有精确的对应起来，导致他们差异的原因来源于时间，确认，计量尺度的不同。由于不同国家的尺度不同，又导致不同的会计处理方法