International Financial Statement Analysis

CHAPTER 1

FINANCIAL STATEMENT ANALYSIS: AN INTRODUCTION

Thomas R. Robinson, CFA CFA Institute Charlottesville, Virginia

 

Hennie van Greuning, CFA World Bank Washington, DC

 

Elaine Henry, CFA University of Miami Miami, Florida

 

Michael A. Broihahn, CFA Barry University Miami, Florida

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• Discuss the roles of financial reporting and financial statement analysis.

• Discuss the roles of the key financial statements (income statement, balance sheet, cash flow statement, and statement of changes in owners’ equity) in evaluating a company’s performance and financial position.

• Discuss the importance of financial statement notes and supplementary information (including disclosures of accounting methods, estimates, and assumptions) and management’s discussion and analysis.

• Discuss the objective of audits of financial statements, the types of audit reports, and the importance of effective internal controls.

• Identify and explain information sources besides annual financial statements and supplementary information that analysts use in financial statement analysis.

• Describe the steps in the financial statement analysis framework.

1. INTRODUCTION

Analysts are employed in a number of functional areas. Commonly, analysts evaluate an investment in some type of security that has characteristics of equity (representing an ownership position) or debt (representing a lending position). In arriving at investment ...