Financial Statements Analysis
Tiezhu Zhang
Ph.D
CPA
•
•
•
•
•
张铁铸
Office: D409
Telephone: 6770 3815/13818555235
Fax: 6770 3320
Email: tiezhuzhang@gmail.com
2
Weightage of Assessment:
• Midterm
• Final Exam
• Quiz and participation
•
20%
60%
20%
100%
3
Course Schedule:
SEMESTER WEEK
WEEK 1
WEEK 2
WEEK 3
WEEK 4
WEEK 5
WEEK 6
WEEK 7
WEEK 8
WEEK 9
WEEK 10
WEEK 11
WEEK 12
WEEK 13
WEEK 14
WEEK 15
WEEK 16
WEEK 17
WEEK 18
WEEK 19
DATE
Feb.21
Feb.28
Mar.7
Mar.14
Mar.21
Mar.28
Apr. 4
Apr. 11
Apr. 18
Apr. 25
May. 2
May. 9
May. 16
May. 23
May. 30
Jun. 6
Jun. 13
Jun. 20
Jun. 27
TOPICS & ACTIVITIES
Chapter 1: Framework For Financial Statement Analysis
Chapter 1: Framework For Financial Statement Analysis
Chapter 2: Accounting Income and Assets
Chapter 2: Accounting Income and Assets
Chapter 3: Analysis of Cash Flow
Chapter 3: Analysis of Cash Flow
Chapter 4: Foundation of Ratio and Financial Analysis
Chapter 4: Foundation of Ratio and Financial Analysis
Chapter 6: Analysis of Inventories
Midterm Exam
Labor Day/ May Day
Chapter 6: Analysis of Inventories
Chapter 7:Analysis of Long-lived Assets (Part1)
Chapter 8:Analysis of Long-lived Assets (Part2)
Chapter 9: Analysis of Income Taxes
Dragon Boat Festival
Chapter 10: Analysis of Financial Liabilities
Chapter 11: Lease and Off-balance-sheet Debt
Final Exam
4
Oil
Painting
by YVARAL
5
Financial Data:用友软件、粤电力A 、四川长虹和招商银行
Units: 10000 RMB
交易性金融资产
1541200
1%
9665
0%
0
0%
6050
2%
0
0%
600782
21%
92907
4%
1448
0%
20633200
13%
16642
1%
27867
1%
27621
9%
无形资产
238100
0%
274710
10%
38654
2%
32529
10%
固定资产
1167600
1%
350225
12%
1317748
534%
51030
16%
157179700
100%
2872514
100%
2462920
100%
310997
100%
存货
可供出售金融资产
总资产
6
What is Financial Statements Analysis?
7
蓝田股份（600709）于1996年上市，从公布的年度报告来看，
该公司上市后一直保持着优异的经营业绩：
30
28.38
25
18.4
20
1996
2000
15
10
5
2.66
4.68
4.46
0.97
0
总资产
主营业务收入
股本
该公司1998~2000年间的净资产收益率更是高达28.9％、29.3％、
19.8％，每股收益分别为0.82元、1.15元和0.97元，位于上市公司的
最前列 。该公司2000年主营业务收入18.4亿元，总资产28.38亿元，
净利润4.32亿元。
一、经营活动产生的现金流量
销售商品、提供劳务收到的现金
收到的其他与经营活动有关的现金
现金流入小计
82,857,068.59
145,179,790.53
228,036,859.12
购买商品、接受劳务支付的现金
66,370,172.90
支付给职工以及为职工支付的现金
25,591,141.23
支付的各项税费
42,580,257.52
支付的其他与经营活动有关的现金
240,050,395.35
现金流出小计
374,591,967.00
经营活动产生的现金流量净额
-146,555,107.88
二、投资活动产生的现金流量
现金流入小计
购建固定资产等支付的现金
投资支付的现金
现金流出小计
投资活动产生的现金流量净额
0
158,236,407.74
10,200,000.00
168,436,407.74
-168,436,407.74
三、筹资活动产生的现金流量
借款所收到的现金
现金流入小计
偿还债务所支付的现金
分配股利或偿还利息所支付的现金
现金流出小计
筹资活动产生的现金流量净额
693,000,000.00
693,000,000.00
286,350,000.00
24,403,348.68
310,753,348.68
382,246,651.32
四、汇率变动对现金的影响
五、现金及现金等价物净增加额
67,255,135.70
CFE: Initial Detection of Fraud

Detection of Fraud
– Employee Report
– Accidentally Discover
– Internal Control
– Internal Audit
– External Audit
– Customer Report
– Anonymous Report
– Supplier Report
– Supervisor Report
26.3%
18.8%
18.6%
15.4%
11.5%
8.6%
6.2%
5.1%
1.7%
11
1
CHAPTER
Framework for Financial Statements
Analysis
Outline
Financial Statements;
Financial Reporting System;
Financial Statements Analysis:
•Financial Statements Users;
•Information Used in Financial Statements Analysis;
•Focuses of Financial statements;
•Techniques & Tools Used in Analyzing Process.
Role of the Auditor.
Financial Statements
1. Business activities
Financing
Activities
Investing
Activities
Planning
Activities
Operating
Activities
Revenues and expenses from providing goods and
services
Planning Activities: Goals& Objectives
Factors:
• Competition
• Market demands
• Pricing
• Tactics
• Promotion
• Managerial performance
• Distribution
• Opportunities
• Obstacles
…
Financial Activities
Financing activities:
Owner (equity)
Nonowner (liabilities)
Financing
Investment Activities
Investing activities:
Buying
resources
Investing
Financing
Investing = Financing
Financial Statements Reflect Business Activities
Planning
Financing
Investing
Operating
Current:
•
•
•
•
Cash
Accounts Receivable
Inventories
Marketable Securities
Noncurrent:
•
•
•
Land, Buildings, &
Equipment
Patents
Investments
Sales
• Cost of Goods Sold
• Selling Expense
• Administrative Expense
• Interest Expense
• Income Tax Expense
•
Current:
•
•
•
•
Noncurrent:
•
•
Net Income
Income statement
Notes Payable
Accounts Payable
Salaries Payable
Income Tax Payable
•
Bonds Payable
Common Stock
Retained Earnings
Liabilities & Equity
Assets
Cash Flow
Balance Sheet
Balance Sheet
Statement of
Cash Flows
Statement of
Shareholders’ Equity
2.Principal Financial Statements
(1) Balance sheet
(2) the income statement
(3) Statement of cash flows
(4) Statement of Stockholders’ Equity
(5) Financial Statement Links
(1) Balance sheet
The balance sheet reports major classes and amounts
of assets, liabilities, and stockholders’ equity and
their relationships at specific points in time.
Financial
position
E.g. December 31,2009
Equation:
Assets = Liabilities + Stockholders’ Equity
March 22, 2016
Prepared by ZHANG Tiezhu, All rights
Reserved.
Shanghai Institute of
Foreign Trade
① Elements of the balance sheet
Assets: Probable future economic benefits obtained or
controlled by a particular entity as a result of
past transactions.
Liabilities: Probable future sacrifices of economic benefits
arising from present obligations of a particular
entity to transfer assets or provide services to
other entities in the future as a result of past
transactions or events.
Stockholders’ equity: the residual interest in the net assets of
an entity that remains after deducting
its liabilities.
② Example
Balance Sheet
Dec 31, 2008 (In millions)
Assets
Current Assets
Cash and cash equivalents
Receivables
Inventories
Deferred income tax charges
Other
Total current assets
Properties
Land, buildings and equipment at cost
Less: Accumulated depreciation
Net properties
Other Assets
Goodwill (net of accumulated
amortization of $920)
Other non-current assets
Total Assets
Liabilities and
Shareholders’ Equity
$
448 2,337
1,137
521
240
4,683
12,982
7,323
5,659
Current Liabilities
Payables
Short-term borrowings
Accrued income taxes
Current maturities of LTD
Total current liabilities
Other Liabilities
Long-term borrowings
Post-employment liabilities
Other long-term liabilities
Total liabilities
$
3,276
1,378
544
156
5,354
1,666
2,728
720
10,468
948
2,072
$
13,362
Assets=Liabilities + Stockholders’ equity
Shareholders' Equity
Common stock, par value $2.50 per share,
950,000,000 shares authorized; issued
391,292,760 shares
Additional paid in capital
Retained earnings
Accumulated other comprehensive loss
978
849
7,431
(597)
8,661
Treasury stock, as cost, 100,363,059 shares 5,767
Total shareholders' equity
2,894
Total liabilities and equity
$ 13,362
(2) the income statement
The income statement reports on the performance of
the firm, the results of its operating activities in a
certain period.
E.g. for the year ended December 31,2009
① Elements of the income statement
Revenues: inflows …of an entity from delivering or
producing goods, rendering services, or other activities that
constitute the entity’s ongoing major or central operations.
Expenses: outflows … from delivering or producing goods,
rendering services, or carrying out other activities that
constitute the entity’s ongoing major or central operations.
Gains and losses: increases (decreases) in equity (net
assets) from peripheral or incidental transactions…
Gains or losses are, therefore, nonoperating events. Examples
would include gains and losses from assets sales, lawsuits,
and changes in market values (including currency rates)
example
Income Statement
For Year Ended Dec. 31, 2008 (In millions)
Sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Research and development costs
Goodwill amortization
Restructuring costs and asset impairments
EARNINGS FROM OPERATIONS
Interest expense
Other income (charges)
Earnings before income taxes
Provision for income taxes
NET EARNINGS
$13,234
8,670
4,564
2,627
779
154
659
345
219
(18)
108
32
76
(3) Statement of cash flows
The statement of cash flows reports cash receipts and
payments in the period of their occurrence, classified as
to operating, investing, and financing activities.
Cash flows from operations can be reported:
Directly: Using major categories of gross cash
receipts and payments
Indirectly: Providing a reconciliation of net income to
net cash flow from operating activities.
Directly
March 22, 2016
Prepared by ZHANG Tiezhu, All rights
Reserved.
Shanghai Institute of
Foreign Trade
Indirectly
March 22, 2016
Prepared by ZHANG Tiezhu, All rights
Reserved.
Shanghai Institute of
Foreign Trade
example
Statement of Cash Flows
For year Ended Dec. 31, 2008 (In millions)
Cash flows from operating activities:
Net Earnings
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization
Restructuring costs
Provisions (benefit) for deferred income taxes
(Increase) decrease in receivables
(Increase) decrease in inventories
(Decrease) increase in liabilities excluding borrowings
Other items, net
Net cash provided by operating activities
$
76
919
830
(44)
252
461
(529)
100
2,065
Cash flow from Investing activities:
Additions to properties
Acquisitions, net of cash acquired
Marketable securities - sales
Marketable securities - purchases
Net cash used in investing activities
(743)
(306)
54
(52)
(1,047)
Cash flows from financing activities:
Net increase (decrease) in borrowings with original maturities of 90 days or less
Proceeds from other borrowings
Repayment of other borrowings
Dividends to shareholders
Exercise of employee stock options
Stock repurchase programs
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
(695)
1,907
(1,355)
(643)
22
(44)
(808)
(8)
202
(4) Statement of Stockholders’ Equity
This statement reports the amounts and sources of changes in
equity from capital transactions with owners and may include
the following components:
 Preferred shares
 Common shares (at par or stated value)
 Additional paid-in capital
 Retained earnings
 Treasury share (repurchased equity)
 Employee stock ownership plan (ESOP) adjustments
Financial
Statement
Links
Balance Sheet
Dec. 31, 2007
Assets
Cash
Non-Cash Assets
Total Assets
Liabilities & Equity
Total liabilities
$
246
13,966
$14,212
$ 10,784
1,849
7,387
(5,808)
$ 3,428
Liabilities & Equity
$14,212
Dec. 31, 2007
Income Statement
for Year Ended Dec. 31, 2008
Sales
$13,234
Expenses
(13,158)
Net Earnings
$ 76
Other Comprehensive Income
(115)
Comprehensive Income
$ (39)
Statement of Shareholders’ Equity
for Year Ended Dec. 31, 2008
Share Capital, Dec. 31, 2007
Adjustments/Stock Issue
Share Capital, Dec. 31, 20088
$ 1,849
(22)
$ 1,827
Retained Earnings, Dec. 31, 2007
Add: Comprehensive Income
Less: Dividends
Retained Earnings, Dec. 31, 2008
$ 7,387
(39)
(514)
$ 6,834
Treasury Stock, Dec. 31, 2007
Treasury Stock Issued
Treasury Stock Repurchased
Treasury Stock, Dec. 31, 2008
$ 5,808
82
(41)
$ 5,767
(Period of time)
Balance Sheet
Dec. 31, 2008
Assets
Cash
Non-Cash Assets
Total Assets
$
448
12,914
$13,362
Liabilities & Equity
Total liabilities
$10,468
Equity:
Share Capital
Retained Earnings
Treasury Stock
Total equity
1,827
6,834
(5,767)
$ 2,894
Liabilities & Equity
$13,362
(Point in time)
(Point in time)
Equity:
Share Capital
Retained Earnings
Treasury Stock
Total equity
Statement of Cash Flows
for Year Ended Dec. 31, 2008
Operating Cash flows
$ 2,065
Investing Cash flows
(1,047)
Financing Cash flows
(808)
Exchange rate changes on cash
(8)
Net Change in Cash
$ 202
Cash Balance, Dec. 31, 2007
246
Cash Balance, Dec. 31, 2008
$ 448
Dec. 31, 2008
3. Other Information in the Annual Report
(1) Statement of Comprehensive Income;
(2) Footnotes;
(3) Supplementary data;
(4) Management discussion and analysis;
(5) Others.
(1) Statement of Comprehensive Income
Comprehensive Income: The change in equity of a business
enterprises during a period from transactions and other events
and circumstances from nonowner sources. It includes all
changes in equity during a period except those resulting from
investments by owners and distributions to owner.
Comprehensiv
e Income
Net
income
Direct-toequity
adjustments:
Cumulative translation
adjustments
Minimum pension liability
Unrealized gains and losses on
available-for-sale securities
Deferred gains and losses on cash flow
hedges
Other comprehensive income
(2) footnotes
Footnotes are an integral part of the financial statements.
Footnotes provide:
 Information about accounting methods, assumptions and estimates
used
by management to develop the data reported in the financial
statements
 Additional disclosure related to such areas as:
 Fixed assets
 Inventories
 Income taxes
 Pension and other postemployment benefit plans
 Debt (interest rates, maturity schedules, and contractual terms)
 Lawsuits and other loss contingencies
 Marketable securities and other investments
 Hedging and other risk management activities
 Business segments
 Significant customers, sales to related parties, and export sales
For explanations, see next slide
Contingencies
Conditions of recognizing a contingent loss:
Probability ＞50%
(1) It is probable that assets have been impaired or a
liability has been incurred.
(2) The amount of the loss can be reasonably estimated.
If the amount lies within a range, the
most likely amount should be accrued.
Probability
＞50%
Can be
reasonably
estimated
recognize
≤50%
Footnote
disclosure
amount
Can not be
reasonably
estimated
Footnote
disclosure
!
Footnote disclosure
or MD&A disclosure
Or no disclosure at
all
(3) Supplementary data
Examples:
Oil and gas companies provide additional data on their
exploration activities, quantities and types of reserves, and the
present value of cash flows expected from those reserves.
Supplemental disclosure of the impact of changing prices.
Disclosure of sales revenue, operating income, and other
data for major business segments and by geographic areas.
Firms also provide information about export sales.
disclosure related to financial instruments and hedging
activities.
(4) Management discussion and analysis
•Required since 1968.
•Expanded in 1980.
•Guidance issued in 1989.
•Further emphasized and expanded in 2002
(5) Other data sources
See p21~22.
Financial Reporting System
U.S financial reporting system
International Accounting Standards
Board (IASB)
1. The U.S financial reporting system
Regulators
Alternative Information
Sources
Industry
Practices
Economy and Industry
Information
FASB
GAAP
Managers
Voluntary
Disclosure
AICPA
Analysts
Statutory Financial Reports
(Financial Statements)
SEC
Corporate
Governance
Litigation
Auditors
Enforcement and Monitoring
Prepared byMechanisms
ZHANG Tiezhu, All rights
Reserved.
Shanghai Institute of
March 22, 2016
Foreign Trade
Investors
and
Creditors
Other
Users
Users
Form 10-K
(Annual Report)
20-F
(Registration Statement/
Annual Report [Foreign])
10-Q
(Quarterly Report)
8-K
(Current Report)
Statutory Financial Reports
14-A
(Proxy Statement/
Prospectus)
Other
SEC Filings
Form 10-K ： Annual Report
• Contents:
–
–
–
–
–
–
–
–
–
Business of company
Properties
Legal proceedings
MD&A
Changes or disagreements with auditor
Financial statements and footnotes
Investee financial statements (where applicable)
Parent company financial statements (where applicable)
Schedules:
•
•
•
•
•
Condensed financial information
Bad debt and other valuation accounts
Real estate and accumulated depreciation
Mortgage loans on real estate
Supplementary information concerning property-casualty insurance
operations
• Due date: 3 months following end of fiscal year.
10-Q: Quarterly Report
• Contents:
– Financial statements
– MD&A
• Due date: 45 days following end of fiscal
quarter. Not required for fourth quarter of
fiscal year
8-K: Current Report
• Contents :used to report important events
– Change in control
– Acquisitions and divestitures
– Bankruptcy
– Change in auditors
– Resignation of directors
• Due date: 15days following event.
Environmental Factors
Managers of Companies
 Main responsibility for fair & accurate reports

Set
by
International
Accounting
 Applies accounting to reflect business activities
Standards
Board
 Managerial discretion is necessary in accounting
Major
on GAAP
Not lobbyist
currently
accepted in U.S.
 SEC under pressure to accept IAS
Environmental Factors
Corporate Governance
 Board of directors oversight
Set committee
by International
Accounting
Audit
of the board
Boardprocess
-Standards
oversee accounting
- oversee internal control
 Not currently accepted in U.S.
- oversea internal/external audit
Internal
Auditor pressure to accept IAS
SEC under
2. International accounting standards
Differences in accounting and reporting standards make it
difficult to compare domestic companies with those in other countries.
① International Organization of Securities Commissions (IOSCO)
 An organization of securities regulators.
 Investigating regulatory issues related to international
securities transactions and developing solutions to problems in
these area.
 Established a comprehensive core set of international
accounting standards.
② International Accounting Standards Board (IASB)
IASB Chronology
1973 Agreement to establish IASC signed by representatives of the
professional accountancy bodies in Australia, Canada, France, Germany,
Japan, Mexico, Netherlands, United Kingdom/Ireland, and United States.
1975 First final IAS published: IAS 1 (1975), Disclosure of Accounting
Policies, and IAS 2 (1975), Valuation and Presentation of Inventories in
the Context of the Historical Cost System.
1998 IFAC/IASC membership expands to 140 accountancy bodies
in 101 countries.
2001 Members and new name of IASB announced. IASC Foundation
formed. On 1 April 2001, the new IASB assumes its standard-setting
responsibilities from the IASC. Existing IAS and SIC adopted by IASB.
IASB structure
Financial Statements Analysis:
Users
WHO
Focuses
WHY
Information
WHAT
Techniques
HOW
Financial statements users
Shareholders
and investors
• Investment decisions
• Proxy contests
Managers and
employees
• Performance assessment
• Compensation contracts
• Company-sponsored pension plans
Lenders and
suppliers
• Lending decisions
• Covenant compliance
Customers
• Supplier health
• Repeat purchases
• Warranties & support
Government &
regulators
• Mandatory reporting
• Taxing authorities
• Regulated industries
Classification of financial statement users
(1) Internal Users
 Managers
 Internal Auditors
 employees
……
(2) External Users
Can be classified into three groups:
 Credit and equity investors;
 Government (executive and
legislative branches), regulatory
bodies, and tax authorities;
 The general and special
interest groups, labor unions,
Common characteristic:
Lack of authority to
prescribe the information
they want from an enterprise
and consumer groups.
Financial reporting should provide information that is useful
to present and potential investors and creditors and other users in
making rational investment, credit, and similar decisions. The
information should be comprehensible to those who have a
reasonable understanding of business and economic activities
and are willing to study the information with reasonable diligence.
——(for more detailed information, see SFAC 1)
Underlying
objective of
financial
analysis
In this course, we deal with the concepts
and techniques of financial analysis employed by
users of financial statements who are external to
the company.
Since the primary users are equity investors
and creditors, financial accounting standards
are geared to the purposes and perceptions of
investors and creditors.
(1) Creditors and equity investors
equity investors: long-term earning power, ability to grow,
ability to pay dividends and increase in value.
Short-term creditors:
Immediate liquidity
Creditors:
long-term creditors:
Long-term asset position
and earning power
Another classification of creditors:
trade creditors:
Creditors:
Short-term creditors
Non-trade creditors:
long-term creditors
Short-term creditors
Information Used in Financial Statement Analysis
Information Used in Financial Statement Analysis
Corporate Financial Reporting
General Purpose External Financial Report
Required Information
Financial
Statements
Balance Sheet,
Income
Statements,
Stat of cash
flow, etc
Footnotes
Accounting
Policy,
Contingency,
Etc.
Supplementary
Data
Disclosure of
Price Change,
Information
about Gas and
Natural
Resources,Etc.
Other ways of
Financial
Reporting
MD&A,
Letter to
Stockholders,
etc
Other
Information
Report of
Analyst,
Economic/Indust
ry Statistics
News Report of
company, etc,
Hierarchy of Accounting Qualities
Users of accounting
information
Decision makers and their characteristics
Benefits > Costs
Constraints
Materiality
Understandability
User-specific
qualities
Primary qualities
Ingredients of
primary qualities
Decision usefulness
Relevance
Predictive
value
Reliability
Feedback
value
Neutrality
Representational
faithfulness
Timeliness
Secondary qualities
Verifiability
Comparability and
consistency
Qualitative characteristics of accounting information:
Relevance: the capacity of information to make a difference in
a decision.
Timeliness : an important aspect of relevance.
Reliability: encompasses verifiability, representational
faithfulness, and neutrality.
Relevance and reliability tend to be opposing qualities.
Consistency and comparability:
•consistency refers to use of the same accounting principles over the time;
•comparability refers to comparisons among companies.
Materiality: threshold for financial statement recognition.
Qualitative factors
SEC
Quantitative factors
Materiality is best defined in a firm context.
See p10.
Focuses of Financial statements
Credit Analysis;
Accounting Analysis;
Financial Analysis.
Credit Analysis
Credit worthiness: Ability to honor credit obligations
(downside risk)
Liquidity
Ability to meet shortterm obligations
Focus:
• Current Financial
conditions
• Current cash flows
• Liquidity of assets
Solvency
Ability to meet long-term
obligations
Focus:
• Long-term financial
conditions
• Long-term cash flows
• Extended profitability
【思考题（Questions）】
1. 假设你是银行家。IMC公司申请200万美元的一年期短期贷款用于
其在英国的扩展。在对该公司的贷款分析中，你计算出该公司的流动比率为4：
1，其中还有近160万的流动资产。同行业竞争者的平均流动比率是1.9：1。
根据这些有限的信息，你对IMC公司的贷款申请会持什么意见？如果该公司申
请的是十年期的长期贷款，你的决定会有什么不同？
Accounting Analysis
Process to evaluate and adjust financial
statements to better reflect economic reality
Comparability problems — across firms and across time
Manager estimation error
Distortion problems
Earnings management
Distortion of business
Accounting
Risk
Financial Analysis
Process to evaluate financial position and performance using financial
statements
Profitability analysis — Evaluate return
on investments
Risk analysis ——— Evaluate riskiness
& creditworthiness
Sources and uses —Evaluate source &
of funds analysis
deployment of funds
March 22, 2016
Prepared by ZHANG Tiezhu, All rights
Reserved.
Shanghai Institute of
Foreign Trade
Common tools
Ratio
analysis
Cash
flow
analysis
Techniques & Tools Used in Analyzing Process
Comparative Analysis;
Common-Size Analysis
Ratio Analysis;
Valuation
Comparative Analysis
Purpose: Evaluation of consecutive
financial statements
Output: Direction, speed, & extent of any
trend(s)
Types:  Year-to-year Change Analysis
 Index-Number Trend Analysis
Yr1
Yr2
Yr3
Kodak's Comparative Income Statements
Change Change
2001
2000
(in mil.)
%
$ 13,234
(5.4)%
$13,994 $ (760)
3.5
8,670
8,375
295
$ (1,055)(18.8)
$ 4,564
$ 5,619
Sales
Cost of goods sold
Gross profit
Operating Expenses:
2,665
Selling, general and admin.
2,781
116
784
Research and development
779
(5)
(44)
Restructuring costs
659
703
Earnings from operations
$ 345 $2,214
$(1,869)
Interest Expense and other
237
82
155
Other income (charges)
Earnings before income taxes $ 108 $ 2,132 $ (2,024)
725
Provision for income taxes
32
(693)
Net earnings
$
76 $ 1,407 $ (1,331)
4.4
(0.6)
(84.4)
189.0
(94.9)
(95.6)
(94.6)
Index - Base 1997
Kodak's Index-Number Trends - Sales and
Operating expenses (1997 = base year)
1.050
1.000
0.950
0.900
0.850
0.800
0.750
0.700
Sales
Operating
expenses
1997
1998
1999
2000
2001
Common-Size Analysis
Purpose : Evaluation of internal makeup of financial statements;
Evaluation of financial statement accounts across companies.
Output:
Proportionate size of assets, liabilities, equity, revenues, &
expenses
Kodak's Common-Size Income Statements
Sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Research and development costs
Restructuring Costs
Earnings from operations
Interest expense and other costs (credits)
Earnings before income taxes
Provision for income taxes
Net earnings
2001
2000
100.0%
65.5
34.5%
21.0
5.9
5.0
2.6%
1.8
100.0%
59.9
40.1%
19.0
5.6
(0.3)
15.8%
0.6
0.8%
0.2
0.6%
15.2%
5.2
10.0%
Ratio Analysis
Purpose : Evaluate relation between two or more
economically important items (one starting
point for further analysis)
Output:
Mathematical expression of relation
between two or more items
Cautions:  Prior Accounting analysis is important
 Interpretation is key -- long vs short
term & benchmarking
Role of the Auditor
 SEC requires Audit Report
 Audit opinion can be:
- clean (fairly presented)
- qualified (except for)
- disclaimer (no opinion)
 Check Auditor quality & independence
Auditors
Abbreviations
used in this
course
March 22, 2016
Prepared by ZHANG Tiezhu, All rights
Reserved.
Shanghai Institute of
Foreign Trade
Assignments:
1. Describe the SEC reporting requirements for foreign registrants.
2. Explain the role of the auditor
Thanks！
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