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

  • Describe the roles of financial reporting and financial statement analysis.
  • Describe the roles of the key financial statements (statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows) in evaluating a company’s performance and financial position.
  • Describe the importance of financial statement notes and supplementary information—including disclosures of accounting policies, methods, and estimates—and management’s commentary.
  • Describe the objective of audits of financial statements, the types of audit reports, and the importance of effective internal controls.
  • Identify and explain information sources that analysts use in financial statement analysis besides annual financial statements and supplementary information.
  • Describe the steps in the financial statement analysis framework.


  • The primary purpose of financial reports is to provide information and data about a company’s financial position and performance, including profitability and cash flows. The information presented in financial reports—including the financial statements and notes—and other reports—including management’s commentary or management’s discussion and analysis—allows the financial analyst to assess a company’s financial position and performance and trends in that performance.
  • The basic ...

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