CHAPTER 17

INTEGRATION OF FINANCIAL STATEMENT ANALYSIS TECHNIQUES

Jack T. Ciesielski, CFA

Baltimore, MD, U.S.A.

LEARNING OUTCOMES

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

  • Demonstrate the use of a framework for the analysis of financial statements given a particular problem, question, or purpose (e.g., valuing equity based on comparables, critiquing a credit rating, obtaining a comprehensive picture of financial leverage, evaluating the perspectives given in management’s discussion of financial results).
  • Identify financial reporting choices and biases that affect the quality and comparability of companies’ financial statements, and illustrate how such biases affect financial decisions.
  • Evaluate the quality of a company’s financial data, and recommend appropriate adjustments to improve quality and comparability with similar companies, including adjustments for differences in accounting rules, methods, and assumptions.
  • Predict the impact on financial statements and ratios, given a change in accounting rules, methods, or assumptions.
  • Analyze and interpret the effects of balance sheet modifications, earnings normalization, and cash flow statement related modifications on a company’s financial statements, financial ratios, and overall financial condition.

1. INTRODUCTION

It is important to keep in mind that financial analysis is the means to the end, and not the end itself. Rather than try to apply every possible technique and tool to every situation, it ...

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