Financial Statement Analysis
Prof. Dr. Martin Užík
Source
Aswath Damodaran
Gregory Mostyn, CPA: Essentials of Financial Statement Analysis
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Financial Statement Analysis
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The balance sheet: summarizes what a firm owns and owes at a point
in time.
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The income statement: reports on how much a firm earned in the period
of analysis
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The statement of cash flows: reports on cash inflows and outflows to the
firm during the period of analysis
Financial Statement Analysis
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A financial statement should reflect true and fair view of the business
affairs of the organization.
Liabilities
Assets
Fixed Assets
Current Liabilities
Current Assets
Debt
Financial Investments
Other Liabilities
Intangible Assets
Equity
The Financial Balance Sheet
The Income Statement
The Statement of Cash Flows
Standards
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IFRS (International Financial Reporting Standards)
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principles-based standards, interpretations and the framework in 1989
adopted by the International Accounting Standards Board (IASB)
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International Financial Reporting Standards (IFRS)—standards issued after 2001
International Accounting Standards (IAS)—standards issued before 2001
Standing Interpretations Committee (SIC)—issued before 2001
Conceptual Framework for the Preparation and Presentation of Financial
Statements (2010)
International Accounting Standards (IAS); IAS were issued between 1973 and
2001 by the Board of the International Accounting Standards Committee
(IASC)
Elements of financial statement (IAS 1 article 10)
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Asset: An asset is a resource controlled by the enterprise as a result of past
events from which future economic benefits are expected to flow to the
enterprise.
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Liability: A liability is a present obligation of the enterprise arising from the past
events, the settlement of which is expected to result in an outflow from the
enterprise' resources, i.e., assets.
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Equity: Equity is the residual interest in the assets of the enterprise after
deducting all the liabilities under the Historical Cost Accounting model. Equity
is also known as owner's equity. Under the units of constant purchasing power
model equity is the constant real value of shareholders´ equity. The financial
performance of an enterprise is primarily provided in the Statement of
Comprehensive Income (income statement or profit and loss account).
Elements of income statement (IAS 1 article 10)
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Revenues: increases in economic benefit during an accounting period in the
form of inflows or enhancements of assets, or decrease of liabilities that result
in increases in equity. However, it does not include the contributions made by
the equity participants, i.e., proprietor, partners and shareholders.
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Expenses: decreases in economic benefits during an accounting period in the
form of outflows, or depletions of assets or incurrences of liabilities that result
in decreases in equity.
Standards
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HGB (Handelsgesetzbuch)
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the German code of commercial and company law
Standards
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US-GAAP (United States Generally Accepted Accounting Principles)
• In the United States, GAAP is a set of rules and standards that guide
accountants as to when and how to properly record transactions and
how to prepare proper financial statements. GAAP is not like
unchanging laws of physics. GAAP is designed to meet the needs of
society. GAAP is always evolving as the economic environment
changes. Also, GAAP only refers to rules of accounting in the United
States.
Financial Statement Analysis
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Horizontal analysis
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is a comparison of financial statement information over a period of time. Both
dollar amounts and percentage amounts are evaluated to identify changes
and trends from the base year. Watching trends over an extended time period
is an extremely valuable analytical procedure.
Vertical analysis
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A method of financial statement analysis in which the categories of accounts
(assets, liabilities and equities) in a balance sheet is represented as a
proportion of the total account. The main advantages of vertical analysis is
that the balance sheets of businesses of all sizes can easily be compared. It
also makes it easy to see relative annual changes within one business.