Chapter 10

Analyzing Financial Statements

Noah P. Barsky, PhD, CPA, CMA

Villanova University

Frank J. Grippo, MBA, CPA, CFE

William Paterson University

B. Scott Teeter, MBA, CMA

The Ryland Group, Inc.

10.1 Scope of Financial Statement Analysis

(a) External Users of Published Financial Statements

(b) User Groups and Their Analytical Objectives

(i) Equity Investors

(ii) Creditors

(c) Sources of Financial Information

(d) Framework for Analysis

10.2 Income Statement Analysis

(a) Earnings Power and Risk

(b) Sales and Revenue Analysis

(i) Trend Analysis

(ii) Variability

(iii) Components of Sales Trends

(iv) Comparative Trend Analysis

(c) Cost and Expense Analysis

(i) Classification of Costs

(ii) Margin Analysis

(iii) Analytical Adjustments

(iv) Operating Leverage

(v) Fixed Charges

(vi) Preferred Dividend Coverage

(d) Income Tax Analysis

(e) Earnings Power Analysis

10.3 Accounting and Reporting Issues

(a) Quality of Earnings

(b) Inventory

(c) Depreciation

(d) Expense Deferrals

(e) Revenue Recognition

(f) Discontinued Operations, Extraordinary Gains (Losses), and Unusual Items

(g) Changing Prices

(h) Foreign Operations

(i) Postemployment Benefits

(i) Analysis of OPEB Disclosures

(ii) Impact of Actuarial Assumptions

(iii) Impact of Mergers and Acquisitions

(j) Mergers and Acquisitions

(k) Push-Down Accounting

(l) Analysis of Segment Data

(m) Analysis of Interim Results

(n) International Reporting Differences

(i) International Accounting Standards Board

(ii) Reporting by Foreign Issuers ...

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